The Conservatives' political economy: 'State rentier capitalism' or old wine in new bottles?

AuthorBerry, Christine

'Johnsonism' has always been a difficult beast to pin down - not least because Boris Johnson's defining characteristic as a politician is shape-shifting opportunism, driven both by a ruthless instinct for power and (by all accounts) a desperate desire to be liked. (1) In this essay, we ask whether a coherent approach to the economy can be discerned in the Conservatives' current incarnation and conclude that, like Johnson himself, it is defined by contradictions. The Conservatives are attempting to 'face both ways', catering to their new voters in the so-called 'Red Wall' with promises of a more activist state, whilst also seeking to reassure and protect their core constituency - rentier capital. This is mirrored by faultlines within the party itself, caught between the demands of holding together Johnson's electoral coalition and the power of fiscal conservatives like Rishi Sunak or libertarian backbenchers like Steve Baker.

These tensions mean that Johnson's 'Rooseveltian' rhetoric has often not translated into policy reality. And yet, in our age of ongoing crisis, the genie of a more interventionist state seems unlikely to be put back in the bottle. The question then becomes what kind of state intervention we are seeing, and - crucially - to whose benefit. Johnson's interventionism appears more focused on preserving existing inequalities of wealth and power - in particular, those relating to asset ownership - than challenging them. It is therefore highly unlikely to achieve its own stated objectives, notably commitments to 'levelling up' and 'net zero'. This creates political space for a progressive response which accepts the activist state as the new centre-ground, but refocuses debate on questions of economic power: who has it, and how it can be spread more widely.

A new interventionism?

A key debate about 'Johnsonism' has been whether there is anything to see besides rhetoric. In particular, do Johnson's attempts to 'steal the left's clothes' regarding state intervention amount to a genuine shift in the economic consensus, or are they little more than smoke and mirrors? It is not hard to find evidence for the second point of view. In summer 2020, Johnson promised to be 'Rooseveltian' in his approach to post-Covid recovery. But the accompanying spending plans amounted to just [pounds sterling]5 billion, most of which was repackaged announcements - just 0.2 per cent of UK GDP, and 200 times smaller than Roosevelt's New Deal. Rishi Sunak's instincts are resolutely Thatcherite, and his determination to act as a brake on public spending has meant that Johnson routinely over-promises and under-delivers. The 2022 Spring Statement was dominated by Sunak's fiscal hawkishness and desire to build his brand with Tory backbenchers, promising 'lower taxes, stronger communities and a smaller state'. There was no more talk of Roosevelt: instead, he declined to do even the bare minimum to protect households from the rising cost of living. Tellingly, George Osborne praised the plan for its commitment to 'controlling spending, reducing deficit and debt and cutting taxes'. (2) With Johnson and Sunak now both badly - perhaps fatally - weakened, it is difficult to predict where this tug of war between the party's laissez-faire and interventionist tendencies will lurch next.

But we live in unprecedented times, and the Conservatives are governing in conditions very much not of their choosing. The furious reaction to the Spring Statement demonstrated that this is not 2010, however much Sunak might wish it were. For one thing, the pandemic has profoundly shifted the elite consensus on fiscal and monetary policy. Both the Financial Times and the IMF have been moved to publish obituaries to austerity, the former declaring that its death 'should not be mourned'. (3) Matt Hancock wrote in the Telegraph that 'the huge injection of taxpayers' money was vital to keep the economy afloat', and that 'for almost two years the Bank [of England] rightly printed all the money the Government needed to finance the pandemic'. (4) If this fiscal-monetary activism was the right response to a health emergency, it is difficult to sustain the argument that it is the wrong response to the cost of living crisis or the climate emergency.

Far from a post-pandemic return to 'normality', our era of rolling crisis is opening new frontiers in the debate about the state's role in the economy. The advent of war in Ukraine normalised the state seizure of assets owned by Russian oligarchs. The outcome of a free market for ownership of football clubs shifted suddenly from acceptable to unacceptable. As energy price rises bite, and energy security becomes a major political issue, the notion that our energy system should be left to a marketplace of private entities is coming under increasing pressure. The return to a larger, more active state looks as though it is here to stay.

When evaluating the Conservatives' political economy, then, the question is not just whether the state is intervening more, but why, how and for whom. To begin with, this means looking at the composition of state spending as well as its size. From the reversal of the [pounds sterling]20 Universal Credit uplift to rows over public sector pay, it has long been clear that austerity is continuing for some. Increased NHS spending has been more than offset by the additional strains of the pandemic. There has been little appetite to reverse the deep cuts to welfare and local government made during the coalition years, and many departments still face real-terms budget cuts. But this frugality stands in stark contrast to the free-handedness with which public money has been channelled to favoured companies, for instance through the much-criticised 'VIP Lane' for Covid-related contracts. (5) Similarly, central government has created an array of new funding pots, from the Towns Fund to the Levelling Up Fund - seemingly more to channel funds to Conservative target seats than to tackle genuine disadvantage. (6) The overall impression is of a clientelist approach to public spending, combining favours for personal friends and business contacts with pork-barrel politics targeting cash at key voters - while continuing the rollback of the state for less-favoured political groups.

The derisking state

To fully understand the Conservatives' political economy, we must examine not just the balance of power between state and market, but also between labour and capital. As we argued with Shreya Nanda in May 2020, the government's interventions during the pandemic were to a large extent an implicit bail-out for private capital - and, in particular, rentier capital. (7) Just as in 2008, the government and central bank stepped in to avert economic collapse and underwrite asset values. This effectively preserved existing power relations, neutralised the risks faced by private investors and asset owners, and set the stage for a 'K-shaped recovery' - whereby asset prices have rebounded to new highs, while living standards face the worst squeeze since records began.

By allowing more people to continue paying their rent and bills, the furlough scheme effectively operated as an indirect bail-out for landlords and private utility firms, who would otherwise have faced a tsunami of bad debts. Meanwhile, the government resisted calls for rent and bill freezes or debt relief for those still unable to make ends meet. Accordingly, the number of UK households struggling with large debts rose by a third last year (8) With the cost of living crisis set to squeeze households even more this year, this flow of wealth from borrowers to lenders is intensifying. The Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) guaranteed lenders against default - a direct subsidy for commercial banks which they are reportedly lobbying to make permanent. (9) The Bank of England's Corporate Covid Financing Facility (CCFF) provided over [pounds sterling]37 billion of cheap...

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