RACHEL REEVES is having us on. She is not prolonging austerity for the reasons pretended.
The Chancellor claims that it is imperative to balance the books to avoid a collapse in international money market confidence in the British economy. The ghosts of Liz Truss and Kwasi Kwarteng are conjured to underline the point.
It is for this reason that pensioners are to shiver in unheated homes this winter as their fuel allowance is cut, and it is for this that hundreds of thousands of children are to remain in poverty, thanks to the maintenance of the two-child benefit cap.
But even in its own terms — and this column would argue that the speculators should be faced down rather than pandered to under any circumstances — the argument is bogus.
The City itself, no less, has blown the whistle on Reeves and other Cabinet members who have echoed her line, including Commons leader Lucy Powell. Powell told the media that the new austerity was vital to stop a run on the pound.
A what? The Financial Times quotes a Paul Dale at Capital Economics as saying: “If there was a risk of a run on the pound I completely missed it.”
An analyst at the Institute of Fiscal Studies called the fears “silly.” Another financial asset manager accused the government of being “overdramatic,” noting that the pound is near its post-Brexit strongest.
These experts from the midst of the City elite know that the government has far more capacity to borrow without triggering a crisis that it is allowing for.
The Truss fiasco was as much to do with the perception that her government was out of control, had cast off all restraints, had no strategy and was, above all, in the hands of morons.
She sacked the top official of the Treasury on her first day in office, decided to ignore the Office for Budget Responsibility and allowed then-chancellor Kwarteng to talk wildly of “more tax cuts to come” without any sense of a plan.
Capital decided that the lunatics had taken over the asylum. They are unlikely to come to the same judgement about the ultra-cautious Reeves and her stern boss.
This then begs the question as to why the new government is determined to impose such politically self-defeating cuts. The Prime Minister repeats “£22 billion black hole” as robotically as he continues to declare, as a revelation each time, that his father was a toolmaker.
The truth is that his government is enslaved to Treasury dogma. Reeves has nailed herself to the mast of fiscal rules drawn up by Treasury mandarins purely to meet their own view as to how the country should be run.
Treasury dogma balances on three legs. First, it opposes budget deficits on fanciful grounds that they “crowd out” private investment, as if John Maynard Keynes had never drawn breath.
Second, it prioritises “sound money” by which it means a strong pound and low inflation, without addressing the roots of inflation in the pursuit of maximum profit and raising the rate of surplus value.
Third, it promotes low taxation and a small state as a point of bourgeois principle, meaning that any undesirable deficits that may emerge cannot be addressed by increasing taxes on business and the better-off.
From these perspectives, helping pensioners with fuel payments and benefits for parents of larger families is just throwing good money after bad.
And if political pressure to break with Treasury principles grows too strong, then whip up a “run on the pound” scare.
But it is a con. And the labour movement should call it out.
