Chancellor Philip Hammond’s Autumn Statement marked another stage in the low-intensity warfare that has gripped the Tory party. They’ve been squabbling since David Cameron struck his ill-fated deal with the European Union (EU) in February.
The argument focused on the fairly gloomy projections for the British economy produced by the Treasury’s supposedly independent Office for Budget Responsibility (OBR).
Along with the Bank of England and most economic forecasters, the OBR predicted that the economy would fall off a cliff if Leave won the EU referendum.
This proved, as Financial Times columnist Wolfgang Münchau commented, “A monumental tactical miscalculation”.
Tory Brexiteers and some tabloids mounted a campaign against the OBR for talking the economy down because it wants Britain to stay in the EU.
Hammond himself probably found the forecasts useful as a way of disciplining the Brexiteers around the cabinet table. He’s pressing for a deal with the EU that keeps Britain in the single market. But so far the economy seems to be holding up quite well. Instead of dropping by 1 percent as all the forecasts projected, business investment rose by 0.9 percent in the third quarter of 2016.
Someone well-connected in the business world told me Jaguar Land Rover would cut its investments in Britain because of Brexit. But it’s just announced it will add another 10,000 jobs in electric car production to its British operations.
Where the forecasts are at their grimmest is when it comes to wages. The Institute for Fiscal Studies (IFS) analysed the OBR’s figures (see page 17). It argued that in 2021 average earnings will be lower than they were at the time of the financial crash in 2008.
Nothing if not a team player, the IFS blames Brexit for this grim outcome. The pound has fallen sharply after the referendum. This raises the price of imported goods, which will push up the rate of inflation and cut real wages.
But this forecast needs to be put into perspective. Average earnings fell by 9 percent in the five years after the crash, long before Brexit was more than a vague cloud on the horizon. The Resolution Foundation has a chart based on the OBR’s figures.
It shows the period since 2008 as marking one of the four historic drops in British real wages over the past 250 years.
So the pressure on real wages isn’t something that began in June. Mainstream economists try to explain it by the very sluggish growth of productivity in British industry.
But this only pushes the problem back—why is productivity stagnating? To my mind the best explanation is provided by Marxist economists such as the blogger Michael Roberts.
He argues that sluggish productivity both here and in the United States is caused by low investment. This is in turn caused by the chronically low levels of profitability that lie behind the crash and the Great Recession.
It’s true that real wages were beginning to recover in the last couple of years. Inflation will surely rise thanks to the fall in the pound.
But who suffers as a result isn’t predetermined—it depends on the outcome of class struggle.
In other words, workers can and should fight to push for above-inflation wage increases. This would eat into profits, but this just points to a basic truth about capitalism, namely that workers and bosses have conflicting interests.
As the great economist David Ricardo showed 200 years ago, when prices rise either wages or profits must fall. And capitalism isn’t a charity.
In both Britain and the US in recent decades, when productivity has risen, wage increases have lagged behind. The bosses took the lion’s share for themselves.
So Brexit may make the economic situation worse, though the actual evidence for this is so far pretty scant.
But who suffers as a result depends on how well organised and determined the two main classes are.
This puts a heavy responsibility on that almost silent group, the trade union leaders.