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In 1981, a socialist leader was elected promising public control of industry, higher wealth taxes and a “complete rupture” with capitalism. François Mitterrand is now a curiously neglected figure – given that he ruled France for 14 years – but as Andy Burnham vows to end “40 years of neoliberalism”, Mitterrand’s fate feels once more instructive.
When Burnham declared a year ago that “we’ve got to get beyond this thing of being in hock to the bond market”, the Prime Minister’s fiercest critics likened him to Liz Truss. But Mitterrand’s presidency offers a more apposite parable of what happens if a left-wing government loses the confidence of the markets.
Two years after nationalising most private banks and France’s largest industrial groups, and raising the minimum wage by 10%, Mitterrand was forced into the tournant de la rigueur (or ‘austerity turn’). French public spending was cut by 44 billion francs, taxes on workers and consumers were increased by 40 billion francs and budget deficits were capped at 3% of GDP.
By comparison with the late president, Burnham’s ambitions appear strikingly moderate. But avoiding a Mitterrand moment has become one of his government’s defining tasks. It’s why you won’t hear Burnham repeat that earlier comment on the bond markets – which he would insist was misinterpreted – but will hear him declare that his administration is “grounded in fiscal responsibility”.
And he has little choice. Government borrowing costs are the highest in the G7, reflecting economic and political risks as well as the Bank of England’s overly aggressive bond sales. The national debt is 94.1% of GDP, its highest level since the early 1960s. And inflation, which had fallen consistently before the Iran war, has risen to 3.1%, with markets pricing in as many as five interest rate rises.
Weeks before the Budget on 28 October, John Healey’s room for manoeuvre is becoming painfully limited. The £23.6bn of “headroom” that Rachel Reeves left last November – the government’s margin for meeting the fiscal rules – is now estimated to have fallen to as little as £5bn.
In this post I’ll explore just how Britain became so fiscally exposed, explain why a wealth tax and rash welfare cuts are both bad options, and outline the space that a credible and progressive centre left should occupy.