By Philip Stephens
Published: October 21 2010 20:20
Britain is turning in on itself. Cool Britannia, self-confident globalism and liberal internationalism – all belong to a bygone era. Finance has gone out of fashion. The time has come to pull up the drawbridge and pay the bills. Introspection and austerity are the leitmotifs of the new age. Things are going to get grim.
This week David Cameron’s coalition government unveiled its plans to repair the large hole in the nation’s public finances. The prescription is for public spending cuts bigger that anything seen since the end of the second world war. The task? To eliminate a budget deficit of about 10 per cent of national income.
Taxes are going up and living standards are set to fall. Half a million public sector jobs are to be lost. Pay is to be frozen and pensions reduced. Investment in the physical fabric of the nation – roads and railways, schools, hospitals and housing – has been slashed. The BBC will be shutting down channels. George Osborne, the chancellor of the exchequer, was not exaggerating when he told the House of Commons that closing the deficit would be painful.
Britain is far from alone in embracing fiscal conservatism. Governments across Europe – and not just Greece and Ireland – have been running scared of the bond markets. The banking bust has left a sovereign debt crisis in its wake. The central bankers who blithely ignored the warning signs during the boom years are now the cheerleaders for austerity. Everyone wants to reduce their deficits in what is beginning to look like a race to deflation.
Washington stands out among the western crowd, still more concerned with sustaining economic growth and job creation than with tidying the fiscal arithmetic. The Europeans tut-tut. Germany sides with China in wagging a finger at US profligacy.
Some of us thought the banks were to blame for the economic mess. Now we are told that spendthrift government has been the road to ruin. To suggest that John Maynard Keynes had something useful to say about managing demand during times of economic stress is to be branded a deficit-denier.
Landing in Tokyo this week, as Mr Cameron’s government set about its ferocious spending squeeze, I could not help but think that Europe’s future is perhaps Japan’s recent past. Japan had its own crisis in the 1990s. Once through the worst, it decided it had better move quickly to balance the government’s books. Too quickly: the result was a decade of no or low growth.
Mr Cameron’s government prefaced Mr Osborne’s spending announcements with a review of Britain’s defence posture. The prime minister called it a strategic assessment. The officials and service chiefs charged with implementation complain the exercise has been little more than crude cost-cutting. Either way, Britain emerges a diminished power.
The government is holding on to some of the emblems of global reach. The navy is to get two new aircraft carriers. The Trident nuclear deterrent will be modernised. But there are insufficient funds to properly equip the carriers with fast jets, so one will be mothballed almost as soon as it is completed. Behind the “pocket superpower” facade, the armed forces are to be hollowed out.
Trident meanwhile has become a pawn in Mr Cameron’s coalition agreement with Nick Clegg’s Liberal Democrats. In one of the grimier trade-offs in the spending package, the prime minister has agreed to delay the Trident update in return for Mr Clegg’s backing for higher tuition fees for university students.
There were brighter spots in Mr Osborne’s statement. Britain alone among the big industrial nations is sticking to its pledge to increase spending significantly on overseas aid. Some argue that gives Britain a lot more authority in the councils of global affairs than another squadron of fighter jets.
On the other hand, Mr Cameron intends to shrink the nation’s diplomatic footprint. The Foreign Office faces a cut of about a quarter in its budget. Ambassadors have been told to put traditional diplomacy to one side; their first priority henceforth is to act as an on-the-spot sales force for exports and investment opportunities. Britain, the prime minister declares, is “open for business”.
That is as it may be, but it is also largely closed to foreigners – a confusing message for the rising economic powers with which the government wants to build closer relationships.
The general election saw something of a backlash against the sharp influx of immigrant workers during 13 years of Labour government. Nothing can be done to stem the flow from other European Union states, so Mr Cameron has called a halt to immigration from elsewhere. The best and the brightest from the emerging nations will have to find more hospitable destinations.
It is hard to quarrel with Mr Cameron’s decision to set a deadline for the withdrawal of British troops from Afghanistan. US president Barack Obama, after all, has done much the same. Building a shiny new democracy in Afghanistan was not an ignoble ambition. It has proved a hopeless one.
Quite a lot of people will tell you that a more general retreat from influence was also inevitable. Tony Blair’s premiership was but a small detour on the long road of relative decline. Britain was living on borrowed time and borrowed money. Cool Britannia was a last post-imperial hurrah.
The world now belongs to China, India, Brazil, Turkey and the rest. Mervyn King, the governor of the Bank of England, talks of a coming decade of sobriety. Others remark – and rightly so – that rebuilding economic strength at home is anyway an essential precursor to securing influence abroad.
The deficit must be dealt with later if not sooner. Britain cannot indefinitely pretend it is possible to match continental European standards of welfare provision with US levels of taxation. A political choice has to be made. The lesson from the wars in Iraq and Afghanistan was that even before the cuts military commitments were running far ahead of resources.
All of these things are true at least in part. On the other hand there must surely be a story of Britain’s ambition that reaches beyond balancing the books. Mustn’t there?
Copyright The Financial Times Limited 2010.
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