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Project Corbyn confronts the markets

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A lot of threatening noises have followed the first Budget in the UK since Corbyn proved his electability in June. In that Budget, the Conservative Party’s Philip Hammond moved little distance from his predecessor George Osborne’s unwavering stance on public spending. For the past seven years public sector pay has fallen behind inflation and is on course to sink below what the Institute for Fiscal Studies considers its normal comparison with wages in the private sector. Britain, along with Greece and to a lesser extent Portugal, stands out in Europe as the only countries where real wages have declined over the past decade.

The cause of the UK’s anaemic growth, low taxation and low spending is a dog-eared commitment to an economic model that has long since lost its oomph. There’s no amount of quick cash to be made today that can mask the structural problems with Britain's productivity. Recently, the Office for National Statistics “significantly” downgraded its forecasts for productivity growth after its estimates were proved wrong repeatedly since the crash of 2008. This productivity problem is compounded by chronically low business investment rates, and so far it has eroded efforts to grow the trade surplus, the Tory’s stated reason for austerity.

So clear is the failure of the current economic orthodoxy that prior to the budget the Confederation of British Industry called for an end to austerity and for an increase in demand side investment. They’re not the only ones. The secretary general of the OECD thinks likewise, as do senior civil servants and that perennial bastion of progress, the IMF. No wonder the director of the IFS said last week that the forecasts in this year’s Budget made for "pretty grim reading".

Philip Hammond must be aware of this chorus, hence to deflect criticism he helpfully signposted the means for an offensive in his Budget speech. The Chancellor’s attempt at a joke regarding his love of maths, and Labour’s apparent weakness with the subject, was a signal to Tory outriders and members of the establishment press to key-in on this point.

The BBC’s Andrew Neil was first to take the bait, pushing Labour’s Shadow Chancellor John McDonnell on the cost of borrowing to invest. Unable to give a figure for the cost of Britain's current and future interest payments, McDonnell said he didn’t know. Headlines and opinion pieces roared over this apparent sign of Labour’s incompetence.

In one of many of such interviews, the Shadow Chancellor attempted to turn the tables on ITV’s Robert Peston by quoting the case for increased public borrowing from Peston’s recently published book. By holding up the mirror to establishment questioning, the rebuttal was characteristic of Corbynism in that it merely sought to reflect the extent to which anti-austerity has become common sense.

The truthful answer to the question of how much large-scale borrowing will cost is that it depends. So far, the Corbyn project combines the political aspects of austerity with opportunities for state-enabled private investment. Despite attempts to cast Labour’s left-wing as a throwback to the heady days of 1970s trade unionism, Britain's macro-economic circumstances are far closer to 1945. Corbyn’s agenda for a post-neoliberal “entrepreneurial state” reflects this.

Unlike 1945, however, financing Corbynomics depends on the markets, rather than the more assured borrowing that came as a corollary of post-war American hegemony. Hence the Shadow Chancellor's inability to name the price.

Labour’s fiscal credibility rule is meant to assure investors, as is the language of Corbynism that has often been an antithesis to the militancy many commentators were expecting and some on the far-left had hoped for. Yet the fallout from the budget signals that there may be rougher seas ahead for Labour. Even if it is still far from certain that business has no faith in Corbynonmics, at least some of its representatives show a willingness to issue threats and feign panic. Chief among the variables in the cost of financing a new New Deal will be Brexit, and while Labour may attempt to make hay over Tory divisions and chaos today, their harvest may turn sour if the outcome is a failure to create workable trade deals.

As it stands, and as Michael Burk makes clear, the real maths at hand is whether the cost of borrowing is likely to exceed the average commercial return on investment, currently around 12%. Such a prospect is a long way off for now. Yet as the market moves and the press push for pandemonium, the Corbyn project will increasingly rely on expanding its base of popular support. Over the past two years, Corbyn’s confrontation with Party detractors has produced outbursts of mobilisation, organisation and the development of political consciousness within Labour’s ranks. Meaning if the maths change, then so must the movement.

Lewis Bassett is a PhD student at the University of Manchester. He also works for Chris Williamson MP.