More Brexit-influenced austerity will add to public debt, and hurt British exporters. It’s time the government understood that

Government promises that austerity would expand economic activity have just proved false. Britain has lived through the most dismal decade on record for GDP growth

On holiday in the safe Tory seat of Richmondshire in the Yorkshire Dales this week, we watched as a dedicated sheep farmer demonstrated the skills and athleticism of his working dogs. Five generations of Richard Fawcett’s family have, since 1918, farmed The Croft at Hardraw, Wensleydale. Today, he explained to the watching crowd, the family enterprise was under threat from the possible removal of subsidy.

This is a threat posed not just by Brexit but by an ideology, if that is not too strong a word, deeply ingrained in orthodox economics: namely “the Treasury view”, summarised as follows: public subsidies and grants should be cut so global competitiveness prevails, and government budgets always balance.

Central to “the Treasury view” is the belief – and it is a belief – vital subsidies like those made to farmers, or local authorities, or the NHS, are a) unnecessary in a globalised economy where the services and products of farmers or doctors and nurses can be obtained elsewhere at lower public cost; and b) that the services of, for example, hill farmers, are unaffordable for a nation with one of the biggest economies; with rich and fertile farmland and hard working farmers; with a history of extraordinary innovation and resilience; with sound institutions; and with a developed monetary system backed up by more than 30 million taxpayers.

Few other nations can boast such a wealth of human, institutional and ecological resources.

Yet Treasury orthodoxy dictates farmers may be denied subsidies; local governments must have their grants slashed; the NHS should be starved of central government finance; and workers’ wages must be kept low – to permit the economy to become globally competitive and for it to expand, and public debt to fall.

That is not how things have turned out.

Under George Osborne’s original, 2010, plans, cuts to the growth of government spending would lead to a fall in the level of public debt of 70.3 per cent in 2013-14. Instead, Britain’s public debt rose, and peaked at 85.6 per cent of GDP in 2017-18. So three years of cuts in the growth of government spending became eight – and still public debt kept rising. In the original “peak year” – 2013-14 – debt was predicted to be £1.24 trillion. In 2017-18 it will be more than a half a trillion pounds higher, at £1.780 trillion.

As Paul Johnson noted on the BBC’s Today programme this week, Britain’s public debt, at 85 per cent of GDP, is now more than twice as high as it was before the global financial crisis. In the mindset of a dogged and irrational Treasury, the rising level of public debt is not a function of a weakened economy and low public investment. No, it is a reason to keep digging the austerity hole deeper.

But government promises austerity would expand economic activity have just proved false. Britain has lived through the most dismal decade on record for GDP growth. There was a slight bounce back in household spending, to 0.3 per cent in Q2 from 0.2 per cent in Q1, but at a time when sterling is more competitive than for years, exports fell 3.6 per cent, recording their worse quarter for six years. Business investment rose a little – 0.5 per cent – following a decline in the previous quarter of 0.4 per cent, but remains very low. And output figures show manufacturing fell back into recession in the first half, with declines of 0.1 per cent in Q1 and 0.9 per cent in Q2.

While it is the case that between 2008-09 and 2016-7 employment rose by 2.1 million, the Resolution Foundation this week found more than half – 55 per cent – of people that moved into work lived in households in the bottom third of income distribution figures, and two thirds came from the poorer half of households – a group likely to have relatively low levels of formal education. In other words, at a time of low levels of productivity, instead of investing to upgrade skills and wages, Britain is cutting spending on education and expanding low skilled and low paid economic activity.

The insecurity of British farmers intensified on Friday, when the head of the World Trade Organisation (WTO), Roberto Azevedo, warned of the threat to British exporters posed by a no-deal Brexit. “If other countries begin to sense an opportunity to increase the market share, or increase the quota here or there, they’re going to go for that … It is very unlikely that you’re going to have 100 per cent agreed outcome for all WTO members between now and March.”

The approach of leading government ministers is to say: so be it. Brexit should expose Britain’s farmers to the “globalisation” of food production, even if the icy winds of international competitiveness and government cuts destroy the achievements and traditions of families like those farming in Wensleydale.

After all, they argue, 56.8 per cent of the voters in Richmondshire – of which Wensleydale is a part – voted for the Leave campaign.

Ann Pettifor is a council member at the Progressive Economy Forum, and director of policy research in macroeconomics (PRIME)