After a dismal few months for the UK economy, Chancellor Rachel Reeves is attempting to steady the rapidly sinking ship of British capitalism with billions worth of cuts to the welfare budget.
In January, rock-bottom growth figures and flatlining productivity provoked the Bank of England (BoE) to lower its 2025 growth forecasts from 1.5 percent to 0.75 percent. This sparked a selloff of UK bonds, as investors cast doubts over whether the government can pay back its debts.
A combination of unsustainable debt, high borrowing costs, and bleak growth forecasts have led to warnings that the government will “have to either hike taxes further or reduce spending”, in the words of Nicolas Trindade, senior portfolio manager at Axa’s investment arm. However, they add that “both options are politically toxic”.
Reeves had already begun to make noises about the need for further austerity. But now, with Keir Starmer committing to an increase in military spending, the Chancellor is preparing the ground for a new round of vicious cuts in the upcoming Spring Statement.
Similarly, health secretary Wes Streeting is due to outline proposals to ‘boost NHS productivity’ (read: privatise Britain’s public health service). And Liz Kendall, the work and pensions secretary, has promised to make cuts to the benefits budget, by forcing disabled people into low-wage exploitative jobs.
The prospects for British capitalism are dire, with serious bourgeois analysts predicting a stagflationary crisis: low growth coupled with the scourge of rising prices.
Nothing that Reeves and co. do will reverse the fortunes of British capitalism, which has been stagnating for over a decade, and declining for nearly a century.
The British ruling class are tobogganing with their eyes closed towards an economic catastrophe.
Growth or instability?
The Labour leaders can make a big song and dance about growth. But just saying the word ‘growth’ repeatedly does not make it any more realistic.
Ultimately, on a capitalist basis, governments have very little means by which they can direct the economy and generate growth.
Without ownership or control of the ‘commanding heights’ of the economy, such as the big banks and major monopolies, the only tools the state has are fiscal policy (taxing and spending) and monetary policy (interest rates and the money supply).
The logic of capitalism in ‘normal times’ is that when growth slows down, central banks lower interest rates to stimulate borrowing and spending, in order to speed up the economy.
Then, once inflation starts to rise, central banks hike interest rates and governments raise taxes, in order to encourage saving and dampen demand (‘purchasing power’).
However, we do not live in normal times.
Recently, the BoE lowered interest rates in an attempt to stimulate investment. But there is no guarantee that this will translate into growth in the real economy.
In the final analysis, the capitalists invest to make profits, not simply because money is cheap.
And right now, with markets saturated and few profitable avenues available, it is likely that looser monetary policy (i.e. cheaper credit) will result in existing asset bubbles – like overpriced stocks and housing – being further inflated, fuelling economic instability.
Military Keynesianism
The Labour leaders have cynically suggested that greater military expenditure could stimulate economic growth and create jobs in UK manufacturing. But the ruling class are delusional if they think that increased ‘defence’ spending will help ailing British industry.
Some arms companies will no doubt make extra juicy profits thanks to taxpayers’ money. But the overall result will be to divert resources that could otherwise be used to invest in productive industry and infrastructure.
If the government really cared about supporting the country’s industry, then why have they let the steelworks in Port Talbot and Scunthorpe go to the wall? Why are they spending billions and billions on useless scraps of metal like Trident, which could otherwise go towards building council homes and public hospitals?
‘Military Keynesianism’ will not lead to growth or decent jobs. Instead, Starmer’s militarism will mean deep cuts to public services and welfare, alongside rising prices and a greater squeeze on workers’ wallets.
Turmoil and shocks
Britain’s stagnation is a product of over decades of deindustrialisation – itself the result of the capitalists’ short-sighted search for quick profits.
For years, Britain benefited from globalisation and the expansion of world trade, with capital flowing into finance and services.
In the process, however, this reliance on the City of London, and failure to invest in industry and infrastructure, has hollowed out the UK economy, leaving it exposed to economic shocks.
In this context, British capitalism is particularly vulnerable to global turmoil – such as wars and protectionism – that disrupts trade.
For ordinary families, this turbulence translates into higher prices and a greater pinching of the household purse.
Already, last month, inflation reached 3 percent, the highest level in ten months. And it is predicted to rise to 3.7 percent by the middle of this year. This is due to a number of factors:
- Low growth, which puts pressure on central bankers to lower interest rates and increase the money supply, through credit.
- Unsustainable government borrowing, which further increases demand for goods and services, on the basis of debt.
- Rising energy prices, due to continued global supply shocks and the failure of the capitalists to invest in new capacity and improved infrastructure (see, for example, the massive jump in water bills, thanks to the myopic profiteering of parasitic firms like Thames Water).
- Protectionism, tariffs, and trade wars, which increase the costs of production and distribution.
- Rising arms expenditure, with military industries competing for economic resources – i.e. capital and labour – with productive sectors of the economy.
In the face of this economic malaise, whatever the ruling class does will be wrong.
On the basis of capitalism, Starmer’s government and the BoE have no real control over any of these causes of inflation. All they can do is raise interest rates, increase taxes, and make deeper cuts to public spending.
But this will only further depress demand – pushing the economy into a slump, and bringing about a dangerous stagflationary spiral.
Explosive consequences
Under these conditions, workers and the poor – and even middle class layers – will be told to tighten their belts and accept a permanent reduction in living standards, while their taxes line the pockets of weapons producers and billionaire creditors.
This will have enormous social and political consequences.
In Westminster, Reeves’ new round of cuts is likely to provoke a political crisis within the Labour government.
“Some MPs predict the biggest rebellion of this parliament to date,” comments George Eaton in the New Statesman. “Welfare, they say, could be the tipping point for those already aggrieved by a succession of flinty policies: the winter fuel cuts, the non-compensation of the Waspi women and the 40 per cent reduction in the foreign aid budget.”
On the streets, meanwhile, Starmer’s programme of rearmament and austerity will lead to titanic class battles.
This government is already one of the most hated in living memory. And this is before the coming chaos hits.
When inflation reached highs of over 11 percent in Britain in recent years, in the wake of the pandemic, we saw the biggest strike wave in over three decades.
Another bout of price rises, accompanied by rising unemployment and savage cuts to public services, will provoke an explosion of the class struggle on an even higher level.
This is the future that lies ahead under capitalism. Only a revolutionary alternative can put an end to this warmongering and misery.
