“This is not a Liz Truss moment”, declared a former director of the International Monetary Fund (IMF), referring to the brief period of the Tory prime minister Liz Truss’s time in office, as the pound plummeted and borrowing costs increased to their highest level for nearly 30 years. Maybe not, this time.
Maybe the current Labour Chancellor Rachel Reeves won’t be going begging just yet to the IMF for an austerity-linked bailout, as the Labour government did in 1976. But the mass sell-off of government bonds, or ‘gilts’, on the financial markets showed yet again what will happen to any government playing within the rigged rules of a crisis-ridden capitalist system. And of course, it will be working-class people who pay the price – unless we organise and fight back.
Even if an acute market crisis is avoided, for now, increased borrowing costs would still lead to a further squeeze on living standards, including via increased remortgaging rates.
Labour chancellor Rachel Reeves has tried to play down the market turmoil, insisting that her ‘fiscal rules’ still stand and that Labour’s policies will promote growth. Others have blamed the turbulence in the financial markets on fears that a Trump presidency will lead to inflation and lower global growth.
Those fears are probably justified. But within a fragile and volatile world capitalist system of cut-throat competition for profits, markets and prestige, it’s the weakest economies that are most vulnerable to the ‘bond vigilantes’.
The ‘markets’ have looked at a British economy that is barely growing and passed their verdict – no confidence that Reeves and Starmer can turn things around. In a new year Financial Times survey of 96 economists, most expected ‘tepid’ economic growth this year, well below official government projections of 2%. The prospect is one of ‘stagflation’ – a stagnating economy combined with persistent inflation, not the boost to growth Labour was promising.
Cancel the debt
Even before the latest market meltdown, the cost of servicing Britain’s debt was £100 billion a year – more than the entire annual education budget! A workers’ government would refuse to pay the debt to the wealthy shareholders and use that money to invest in crumbling public services and ending the cost-of-living crisis. It would nationalise the banks and financial institutions, implement capital controls and mobilise the working class to democratically control and plan an economy in which the major companies were under public ownership, not in the hands of the super-rich.
At the same time it would appeal to workers in other countries to do the same, as a step towards the international planning and cooperation that is necessary to meet the needs of the majority in society, safeguard the environment, and bring an end to war and conflict.
But, of course, we have a capitalist Labour government whose priority is placating the financial markets and protecting the profit system, not funding our public services and defending workers’ rights and living standards. That’s why Reeves has said she is sticking to her self-imposed ‘fiscal straitjacket’ of no borrowing to fund day-to-day spending – and no taxes on the rich. Starmer has backed that up: “We will be ruthless, as we have been ruthless in the decisions that we’ve taken so far. We’ve got clear fiscal rules, and we’re going to keep to those fiscal rules.”
More cuts
The capitalist economists themselves are clear what that will mean – even more brutal cuts to decimated public services on top of the austerity already announced in the Budget. The crumbs that Reeves threw then at the NHS and schools are barely enough to keep services at their current dire level. Cancer units at 42 hospital trusts have frozen staff recruitment. More and more hospitals are declaring ‘critical incidents’, overwhelmed by a flu pandemic, with staff working in conditions they liken to the time of Covid.
The prospect of even less funding for hospitals and schools, alongside deeper cuts to local councils, transport, universities etc because of the bond market turmoil, is a nightmare scenario that workers and service users will be forced to fight against.
Many health workers, education staff and civil servants are already livid at the unfunded 2.8% pay increase announced in the Budget. Not only will it do nothing to restore workers’ living standards after years of austerity, it’s also expected to be paid for by cuts to services and jobs. How can public sector union leaders justify to their members agreeing industrial ‘partnership’ with a Labour government that can only offer never-ending austerity?
With great difficulty. Which is why the current situation is untenable. Union leaders, even those on the right of the movement, will come under increasing pressure to channel workers’ anger into strike action on pay and funding.
The new year has begun with members of the NEU education union taking strike action over pay in non-academised sixth form colleges. The NEU has also agreed to carry out an indicative online ballot of teachers – as a possible prelude to a strike ballot. Even right-wing leaders of Unison’s health service group executive have felt compelled to reflect the mood among health workers by speaking out against the pay offer and supporting a campaign for £15-an-hour minimum wage.
Union action
Of course, the left in the unions will need to continue to organise to put maximum pressure on the union leadership to translate mood and words into action, through calling strike ballots and launching a real campaign for a ‘yes’ vote, and fighting for unions to link up in a coordinated struggle over pay and funding; as well as ensuring that the government sticks to its original pledges on scrapping anti-union laws and improving workers’ rights.
The bosses’ CBI Federation blamed Starmer’s yet-to-be-implemented Employment Rights Bill for making the situation worse, showing that the capitalists are opposed to even its weak potential challenges to the likes of zero-hour contracts and fire and rehire.
A victory for the left in upcoming union elections in civil service union PCS, Unison, and college and university union UCU will strengthen workers’ position in the battles that are looming with the employers and the Labour government.
The recent economic tremors in Britain – a prelude to greater storms here and internationally – and the Starmer government’s anti-working class response to them, will also help to accelerate workers questioning their unions’ ‘political partnership’ with Labour. The idea of standing and supporting workers’ candidates, of looking for political representatives that will promote workers’ interests, and creating a workers’ party that can fight for those both inside and outside parliament, will gain more of an echo and begin to take on flesh.
And as the ‘market madness’ has exposed – any workers’ party would need to organise around a programme that challenged the rotten capitalist system and outlined how a socialist alternative could be built.
