The bourgeoisie has no alternative to austerity and more brutal attacks

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Small children freezing to death in cold damp houses, schoolkids pretending to eat from empty lunch boxes – these are among the most graphic illustrations of the “cost of living crisis” which, since it took off in 2021, has been hitting the working class. Food price inflation, the spiralling rise in gas and electricity costs, are all a concrete reality for millions of workers.

The intolerable impact on the working class

According to official statistics, a quarter of the population, 14.5 million people, live in food poverty. This includes 4.3 million children, 2.1 million pensioners and 8.1 million of working age. The number of food banks in Britain has been increasing; there are now more than 2500, which are feeding new categories of “poor” people, including employed workers. And they have recently been running out of supplies, partly because of the demands made on them, and partly because of difficulties in making donations. Families are having to limit what they eat – forced to choose between eating or heating. Unheated homes are bad for your health. At the same time, “More than 5 million households are in fuel poverty, which means that they spend more than 10% of their income on gas and electricity, struggling to afford to keep their homes warm. Large families could even be spending a quarter of their disposable income on energy”. [1] The Resolution Foundation has forecast that absolute poverty (when household income is below the level to meet basic needs) will rise from 17% in 2021-2022 to 22% in 2022-2023. This means an increase in absolute poverty of over 3 million working class households. It is suggested that 3.2 million of adults in Britain are in hygiene poverty, that is not being able to afford hygiene and grooming products.

Over the last decade the working class in Britain had seen a relentless deterioration of its living standards, through cuts in the social wage - health and social services, housing, pensions, reduction in claimant payments - and a slow deterioration of the purchasing power for those still in employment. Median wage growth between 2007 and 2021 was 20.1% in the US, 11.7% in France, 15.7% in Germany, but only 4.8% in the UK. In the last few years, the effective wage cuts have become simply unbearable. Wages are not predicted to return to their 2008 level until 2027. This sounds very optimistic when wage increases are currently at 6.4% (and only 3.3% in the public sector) while inflation is in double figures. On top of all this, there could also be an increase in unemployment of more than half a million, with major implications for the incomes of laid-off workers.

Inflation: the figures speak for themselves

Inflation has risen to double-digit levels for the first time in 40 years: from around 5.4 % in December 2021 to 10.1% in July 2022 (11.1% in October). It’s only the fourth time in 70 years that inflation has gone beyond 10% (the other periods being 1951-52, 1973-77 and 1979-82.) Some economists forecast that inflation will continue to rise during 2023. The latest official statistics (The inflation rate for the Retail Price Index in December 2022) show inflation at 13.4%, with food inflation rising to 16.8%.

Gas and electricity costs have risen to unprecedented levels. According to the IMF, UK households have been hit harder by the energy crisis than most European countries. But this brutal development of the crisis in Britain is not just because of the coronavirus pandemic, or the war in Ukraine, which has affected all countries in Europe.

Many products that have been going up at a faster rate: in July 22 petrol was running at over 45%, low fat milk is currently up by 46%, many other foods up by figures of 20 to 40%. Food inflation directly attributable to Brexit was already at 6%. Last August, the Bank of England predicted a period of recession lasting for a period of two years. More recently they have said the recession will just be for a little more than a year, and that maybe the worst of inflation is behind us. Whatever explanations they have, and whatever predictions they might make, inflation took off rapidly in a short time and, with the unpredictability of energy prices, supply chains, and developments in the war in Ukraine, there is no stable basis for government or businesses to make policy.

The historic weakness of the British economy

There’s a focus in the British media on how the situation in the UK is worse than anywhere else. So, for example, when the IMF found that households in the UK were being the worst hit in Western Europe by the energy crisis, it received appropriate publicity. But Britain, compared to other European countries, has been lagging behind for decades, because of long-standing weaknesses.  From being the strongest economy in the world at the beginning of the twentieth century, exporting manufacturing goods all over the world, the British economy has since deteriorated and diminished.

Back in 1934 the comrades of the communist left who published Bilan analysed the “Evolution of British Imperialism”. “The sectors which supplied the essential of British exports were coal, iron and steel, textiles, precisely the ones which were to be the most affected (…) by the decomposition of the British economy, as well as by the chronic depression which (…) gnawed at the productive apparatus like a cancer.”[2] The trade deficit increased considerably in those years. Between 1924 and 1931: “The volume of imports grew by 17%, whereas the volume of exports plummeted by 35% in the same period. But here we can also see the insouciance of a rentier bourgeoisie, (…)  which in 1931, in the midst of the crisis, consumed 60% more foreign goods than in 1913, while three million workers had been ejected from the sphere of labour. A violent contrast typical of decaying capitalism.”[3]

This was the context in which the British bourgeoisie increasingly favoured the financial sector over the needs of the relatively uncompetitive manufacturing sector, a decision that did not solve the worsening of its economy, but only meant a further plunge into the abyss of credit and fictitious capital, intensifying the contradictions of its economy.

After World War 2, despite the post-war boom, marked by an increase in public spending in the health sector, infrastructure and education, the British economy continued to recede. British exports as a percentage of world trade fell from almost 12% in 1948 to around 4% in 1974. Britain’s trade deficit was £200 million in 1948, but reached £4.1 billion by 1974.

With the return of the open economic crisis the continuous low productivity and the lack of competitiveness compelled the British bourgeoisie close many sectors of industry and to the biggest de-industrialisation of any major nation. At the same time, it took another step in boosting the British finance sector by loosening the most stringent rules.  This deregulation helped London consolidate its position as a major international financial centre.

The deregulation of the financial sector, which gave banks full scope to play with all the fundamental rules of financial management, was a ticking time bomb, which exploded in 2008 and helped to bring the British economy to the brink of collapse. The British economy has never really recovered from the “finance crisis” of 2008. In the following ten years the size of the UK economy fell by 2 % while countries like France and Germany grew by 34 and 27 percent. Britain is the only G7 economy that had failed to reach its pre-pandemic GDP levels by 2022.

As we said in 2008 “London is a major financial centre, and finance is a major part of the service industries that employ 80% of the workforce producing 75% of GDP. Of the 23% of GDP from industrial production, 10% is from primary energy production (gas, oil and the run down coal industry), which is unusually high for a developed country. A lot of industry was lost in the 1970s and 1980s particularly coal, steel and shipbuilding. The development from industry towards services and particularly banking has only increased since the last official recession in the early 1990s. After 10 years of industrial stagnation and recession, services are even more predominant. Between 2000 and 2005 banking assets increased by 75% largely based on housing. Assets of British banks are greater than GDP and their foreign liabilities a significant part of UK foreign liabilities.” [4]

The effect of Brexit

While the government mainly points to international factors (Covid, Ukraine war) to explain the present catastrophic economic situation, the Office for Budget Responsibility is clear that Britain leaving the EU has worsened the reduction of the country’s productivity, as well as its imports and exports. All told, the OBR estimates that productivity will in the long run fall by around 4 percent and imports and exports “will be around 15 percent lower in the long run than if the U.K. had remained in the EU.” And the full effect of Brexit is yet to be felt. The Economist of 19 October 2022 described the current situation as “Britaly – a country of political instability, low growth and subordination to the bond markets", lacking the resilience to recover from economic jolts. “The UK economy as a whole has been permanently damaged by Brexit,” former Bank of England official Michael Saunders told Bloomberg (Nov 14, 2022) - “If we hadn’t had Brexit, we probably wouldn’t be talking about an austerity budget this week. The need for tax rises, spending cuts wouldn’t be there.”  

The ruling class has no alternatives

“Policy changes cannot rescue the world economy from oscillating between the twin dangers of inflation and deflation, new credit crunches and currency crises, all leading to brutal recessions.”[5] The actual lurches in the British economy have shown that there are no benign policy changes that can be adopted by the bourgeoisie. Growing inflation means that government borrowing will go way beyond forecasts. Last summer, in the battle between Sunak and Truss to become Prime Minister, all their economic policies tended to lead toward further debt. Whether for the financing of tax cuts by Truss or tackling the effects of inflation by Sunak, the public deficit was bound to continue to increase.

The press of the bourgeoisie is full of dire predictions about the future of the economy (along with their favoured ‘solutions’) but it is the task of revolutionaries to show that while the crisis of the economy is serious (and has been long-lasting), it is one aspect of the crisis of a mode of production in which imperialist war has become a basic part of its functioning and environmental degradation a natural consequence of what and how it produces. The British economy is faring the worst of the G7, which is one of the reasons the attacks on living standards are more brutal. The weaknesses in the British economy lie in the historic decline of British capitalism that was under way long ago and identified by Bilan in the 30s, and in the workers’ movement before that. Lenin, for example, in Imperialism, the Highest Stage of Capitalism (1917) observes that “On the whole, capitalism is growing far more rapidly than before; but this growth is not only becoming more and more uneven in general, its unevenness also manifests itself, in particular, in the decay of the countries which are richest in capital (Britain).” The crisis in Britain today is still following the overall downward trend of world capitalism, and this trend has only been accelerated by Britain’s historic weaknesses, as well as the impact of Brexit, of the coronavirus pandemic, the war in the Ukraine, and the international energy crisis.

Edvin, 1 February 2023


Economic crisis in Britain