Warmed-up Thatcherism was never going to be the answer. Now it would be a disaster | Will Hutton

The old adage is that if you’re not leftwing at 20 you have no heart, if you’re not conservative 30 years later you have no head. But from the treatment of refugees to the management of the economy, no one of any age can have a head and be conservative in 2022. For our times, conservatism is just plain wrong.

As the country confronts the acute stagflation of the years ahead, it will look for very different economic leadership from the warmed-up Thatcherism that, it’s becoming clear, is chancellor Rishi Sunak’s core philosophy. Economic prospects in 2023 and 2024 were dire enough before the consequences of Putin’s murderous war. Now they are desperate.

Russia is the world’s largest exporter of gas, oil and wheat and the second-largest exporter of sunflower oil. Ukraine is the world’s fifth-largest exporter of wheat and second-largest exporter of maize. The price of all these core commodities has spiralled upwards for obvious reasons, with the price of oil catching the headlines. Leading forecasters predict the price will surpass $200 (£153) a barrel this summer, a third higher than its record high of $147 barrel.

Past oil and gas price hikes on this scale have unfailingly triggered global recessions and a rise in inflation. The added impetus of the astonishing hike in food prices makes both now certain.

Before Putin’s war, the Bank of England expected consumer price inflation to peak this April at 7%; now, the general expectation is that inflation will peak at 9.5% in October and only fall back gradually thereafter. Over the next five years, it will average at least 5%.

These will be the highest levels of inflation since the 1970s, the decade that incubated the rise of monetarism and the associated view that trade unions and big government were the source of economic evil. In his feeble Mais lecture last month, the chancellor tried to argue that big government remained the economic enemy and tax cuts offered the promise of a renewed enterprise culture. That was a contestable proposition in the 1970s. Today, it borders on genuine madness.

Instead, we need a clear-eyed look at what confronts us. Inflation and fresh recessionary impulse will be overlaid on an economy that both the International Monetary Fund (IMF) and Bank of England reckoned was already heading for close to zero growth. Now, the likelihood is a high-inflation recession followed by stagflation for most of the 2020s. Everything that might propel growth is being squeezed: consumer spending by the cost of living, real government spending by inflation, investment by dark economic prospects and the relatively high cost of capital. You have to go back 50 years for every dial on the economic dashboard to flash red.

There was little glamour about the dreary, high-inflation 1970s. It was a decade of defensiveness, defeat and retrenchment. What boomed on high streets were not coffee but charity shops. Some creativity and solidarities did stir in the grass roots – the 1970s witnessed the birth of a vibrant housing association movement, some good bands flourished and people looked to trade unions to protect them from the worst.

But in the main the sense was of closure. There were scant openings for the young. Business startups were few and far between. Successive attempts at stemming a wage price spiral with pay limits, freezes and social contracts worked, at best, only partially. It was the decade social democracy died, the victim of a pincer movement between a Bennite left calling for utopian “true” socialism and a Thatcherite right insisting that utopia lay in the free market.

The 2020s will see the proper eclipse of both. Thatcherism’s illogicalities and base errors were bailed out by a 40-year boom in credit and property, aided by EU membership that compensated for the lack of fit-for-purpose economic institutions and a sane economic strategy. Interest rates squeeze incomes and Brexit has put paid to credit, property and service sector booms. Instead, the prospect is for stagnating, even falling, property values – socially an imperative but an economic depressant. Equally, Benn- and Corbyn-style socialism is obviously neither operable nor sellable to the electorate.

The only way forward is a revivified social democracy. Sunak may not have noticed, but Britain’s Jurassic Park economy, as international investors dub it, is shunned not because of high taxes, which are higher in Germany, Holland, Nordic countries, Austria and Belgium – which all have higher GDP per head and understand the importance of economic openness. We don’t have a viable growth model and suffer from a poverty of supportive economic institutions. Above all, we are dogged by politicians who believe Brexit is an opportunity and Thatcherism worked.

Thus the proper response to high energy prices and Russia’s foreign policy influence is to accelerate independence from fossil fuels led not by big government but necessary government. It is not to double down on fossil fuel reliance, issuing new licences to drill in the North Sea and relaxing rules on fracking. Energy policy requires strategies that work over a generation, not a response to today’s spot prices. Solar and wind power are now even more economically attractive, but so is electricity generated from power stations in space and microwaved back to Earth. Britain’s Space Energy Initiative plans a power station 36,000km high, but why not more? Lift Britain’s tax take to the middle of the IMF’s league table and we could have nil dependence on fossil fuels by 2035.

It’s the same elsewhere. There is a £2.5tn opportunity to boost the economy over 20 years in properly executed levelling up. Upgrading non-graduate skills carries another hefty price tag. Equally, a range of institutions – public development banks, growth accelerators, a scaled-up, well-resourced Catapult network – need to stand behind enterprise. And the whole economy requires unfettered access to the EU’s single market.

All of this is possible. As I’ve argued before, issue 50-, 75-, 100-year bonds to pay for the programme, as we have in wartime – which will now involve sustained defence spending. Mitigate the worst of the cost-of-living crisis with generous rebates on energy bills and targeted income support. Sunakian babble about instilling a culture of enterprise while hoarding public spending today to finance pre-election tax cuts is both wrong and a national betrayal. What is needed is a social democratic mindset – and action today.

Will Hutton is an Observer columnist

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