Cooking the Books: ‘The markets’ before people (2024)

The Cooking the Books column from the October 2024 issue of the Socialist Standard

It was always a bit of a mystery why Rachel Reeves was so insistent on presenting the Labour Party as the ‘Party of Business’ and emphasising that, if she became Chancellor of the Exchequer, she would enforce stringent government spending rules with a rod of iron.

This can’t have been aimed at catching votes; that would be too much like asking for turkeys to vote for Christmas. Nor even to reassure British business; these would know from past experience that a Labour government would be a safe pair of hands as far as looking after their interests was concerned. It seemed that the only explanation could be to reassure ‘the markets’ so as to avoid the fate of the unfortunate Truss government; to reassure, in other words, the international speculators who buy and sell currencies and who lend money to governments by buying the bonds they issue.

That this may well have been the reason was revealed on Sunday 1 September by the member of the Cabinet sent out that day to tour the radio and TV studios to defend the Labour government’s decision to take away the winter fuel allowance from most pensioners. Newspaper headlines the following day reflected what Lucy Powell, the Leader of the House of Commons, had said:

‘WINTER FUEL PAYMENT CUT HELPED STOP “RUN ON THE POUND” SAYS LUCY POWELL. “We would have seen the markets losing confidence”, Leader of the Commons said’ (iNews).

‘UK FACED ECONOMIC CRASH IF WINTER FUEL PAYMENT WAS NOT AXED, POWELL SAYS. The Commons Leader says Rachel Reeves’s decision to cut the payment was a “difficult decision” with “no alternative”’ (Belfast-based Irish News).

Her exact words, as recorded by these newspapers, were, respectively:

‘ . . . why we had to do that was because if we didn’t, we would have seen the markets losing confidence, potentially a run on the pound, the economy crashing . . . ’ (inews)

and

‘If we hadn’t taken some of these tough decisions we could have seen a run on the pound, interest rates going up and crashing the economy. It’s something we were left with no alternative but to do’ (tinyurl.com/yhs7t6se).

What she meant couldn’t have been clearer: that to retain the confidence of the international speculators and investors who trade in currencies and government bonds, the new Labour government had no alternative but to cut government spending.

Some might question whether the situation was that drastic. But that’s not the point. The government considered that it was and, in their role as guardian of the general interest of the British capitalist class as a whole, took the required action to maintain the confidence of ‘the markets’ by cutting its spending. In theory they could have cut something else — so-called defence spending, for instance — but, presumably to convince the markets how serious they were, deliberately chose to cut some social benefits, in this case those for pensioners.

In any event, the markets were satisfied. Under the headline INVESTORS DEFY ECONOMIC GLOOM WITH SCRAMBLE FOR UK BONDS, the Times (4 September) reported:

‘The record demand for gilts suggests that financial markets are shrugging off worries about the UK’s fiscal sustainability for now, after the government said it needed to carry out immediate spending cuts to prevent a collapse in the pound.’