Don’t be taken in by that £50bn ‘fiscal black hole’. It’s just a dodgy Tory metaphor
‘If you’re explaining, you’re losing” is Ronald Reagan’s most quoted insight on political communication. It’s why stories that chime with people’s instincts about how the world works are more persuasive than a series of carefully constructed facts that don’t. This is particularly true in economic policy, where the narratives of the political right are more compelling because they are more intuitive.
“Immigrants are taking your jobs” works because people tend to understand the economy as fixed, not as something that grows as more people make a net contribution. “High taxes are bad for growth” is often effective because many perceive that the tax they pay makes them poorer, with the sum total being everyone poorer.
Perhaps the smartest thing David Cameron and George Osborne did after the 2008 financial crisis was to wrest control of the narrative with an intuitive metaphor that made deep spending cuts seem like a necessity rather than a political choice. The real story was of a global crisis that spiked the national debt because it required the government to step in with a massive bailout for the banks. In the runup to 2008, Osborne had supported the government’s spending levels and pledged to match them.
Yet the story that Cameron and Osborne rammed home was that Labour caused the economic crisis by maxing out the nation’s credit card and the greatest imperative was to pay it back whatever the cost. Osborne’s cuts to public services and benefits, which he made while also giving out income tax cuts that disproportionately went to the better-off, was the unpleasant tonic we had to bear.
The national credit card was a compelling but wrong metaphor that shaped not just how Conservatives talked about the cuts that came next but how the media, including the BBC, reported on economic events and how the Labour opposition responded to them. It didn’t matter that the national debt is nothing like whacking a load of unnecessary expenditure on a credit card. (A more fitting metaphor for borrowing to maintain the NHS and invest in skills and infrastructure would have been taking out a mortgage to buy a house that provides long-term security.)
Here in 2022, Rishi Sunak and Jeremy Hunt look set to repeat the same trick. The national debt has increased as a result of the Covid furlough package and the freezing of energy bills. Gone is the credit card metaphor, which doesn’t work when the Conservatives have been in power for 12 years, but it’s been replaced by a “fiscal black hole” of £50bn that urgently needs to be filled because the nation is again living beyond its means.
It’s a clever rhetorical device. Again, the idea has quickly taken root that the chancellor is left with no choice but to drastically tighten the nation’s belt. But there is no objectively measured “hole”. What Hunt is describing is the gap between how big the OBR forecasts the national debt will be in the future and where he would like it to be according to his own rules; at the moment, the government says it wants the size of the national debt to be falling relative to the size of the economy within three years.
This rule is a political choice. Hunt would say he needs to adopt a rule this tough – implying the need for spending cuts and tax rises despite forecasts of a prolonged recession – to keep the markets happy and the cost of government borrowing manageable, and points to the reaction to Liz Truss’s mini-budget as an example of how wrong it can all go.
But many economists disagree. Duncan Weldon argues that the market reaction to the mini-budget was extreme for three reasons: the tens of billions of pounds of unfunded tax cuts that no credible economist thought would create the buoyant growth the chancellor claimed; the way the policy was announced, undermining the credibility of UK institutions such as the Bank of England and the floating of even more tax cuts immediately afterwards; and the multiplying effect a related pension fund crisis had on the cost of government borrowing. He thinks it highly unlikely the markets would react in the same way were Hunt to borrow to invest to maintain hospitals, schools and the welfare safety net and in the infrastructure the country desperately needs.
Instead, Hunt looks set to use the “black hole” metaphor to justify a round of public spending cuts that will be even more damaging than in the past decade. The Institute for Government looked at public service performance levels last month and concluded “there is no meaningful ‘fat’ to trim… [cuts] are almost certain to have a further negative impact”. Just take the NHS: a decade of underfunding and understaffing has resulted in record waiting times and people suffering and dying of preventable illness because their treatment is delayed. Doctors are impeded by outdated technology and a lack of equipment. This causes pain now but also saps the economy’s long-term growth potential, already depressed as a result of Brexit, as rates of long-term sickness soar. It is a story of entirely false economy replicated throughout the public sector.
The media and opposition politicians must not, this time, fall into the trap of accepting damaging political choices as economic necessity. Journalists should not report a fixed “black hole” as fact, but as the perception of some politicians and economists, as some BBC correspondents have already been doing. And we need a bigger conversation as a nation about the services we want and how much they cost.
Tax levels in Britain are lower than the OECD average and most European countries. We are an ageing society, with a relatively shrinking workingage population left to pay for retirees’ pensions and healthcare. If we want to live in a world where people are not left in excruciating pain for months because they can’t get a hip replacement and parents can go back to work after having children because there is affordable childcare available, we will have to pay for it. But the cuts Hunt will announce this week mean things will get much worse before they get better.
The idea has quickly taken root that the chancellor is left with no choice but to drastically tighten the nation’s belt