After all the doom and gloom of the Truss crash, the government now promises sunlit uplands. “There may be a recession made in Russia but there is a recovery made in Britain”, as the Chancellor of the Exchequer Jeremy Hunt concluded his long-awaited Autumn Statement yesterday.

Yet rather than charting a Conservative future, the occupants of No 11 and No 10 are taking the country back to New Labour — a centrist politics combined with the old orthodoxy of welfare capitalism propping up an ailing economy.

 With pensions and benefits rising by 10.1 per cent next April in line with September’s inflation, the UK’s welfare bill will go up by nearly £90 billion. Up to a point, this will cushion the blow from the triple shock of soaring energy, food and housing costs — though millions will have to rely on foodbanks or choose between eating and heating. By March 2024, the greatest squeeze on living standards in 70 years will have reversed any gains in income since 2013.

Thus twelve years of Conservative rule leave us with a lost decade for the economy — in particular working people. Their wages have stagnated, their savings are wiped out and their incomes raided by the taxman. The Tory legacy is at least as bad as New Labour’s after the terrible financial crisis of 2008-09.

 Hunt’s combination of tax rises now and spending cuts after the next election borrows straight from Gordon Brown’s playbook. Like New Labour, the centrist conservatives will fund the rise in benefits by a raid on workers. Stealth tax rises on wages by freezing the income tax thresholds until 2028 will drag millions into higher tax bands. Increases in Council Tax and in fuel duty will further hit working families.

In less than two months, we have gone from £30 billion of tax cuts and a two-year energy price guarantee costing up to £200 billion to a £55 billion package of spending cuts and tax rises.

Hunt is also emulating his Labour predecessor by shifting the fiscal goalposts to make his budget fit the political business cycle. Following the market collapse caused by the Kwamikaze “mini”-budget on 23 September, Hunt’s strategy has been to reassure the financial markets by committing to “stable public finances” over five years, thereby leaving enough fiscal headroom to pull a few rabbits out of the budget hat ahead of the next election. This is akin to Brown’s boom and bust, just in reverse order.

It is the old orthodoxies which drive the policies that will make most of us a lot poorer. The Office for Budget Responsibility, the fiscal watchdog, forecasts that living standards will fall by a staggering 7 per cent — the largest contraction since records began in 1956. The country is on course to experience the sharpest decline in economic output of all the G7 advanced economies. Britain is now the sick man of Europe and the global West.

While Hunt pinned the blame on global headwinds, the truth is that neither Covid nor the Russian War-induced energy and food price hikes can fully account for Britain’s economic ills. The fragile foundations of the UK model, which recent shocks have brutally exposed, are also the outcome of poor politics and policy for decades by successive governments. Deindustrialisation under Thatcher and financial liberalisation under Blair and Brown have left the UK too dependent on finance and real estate and lacking in industrial capacity on which resilience depends.

Policy making itself has been dysfunctional. As with New Labour, the Conservatives rule through a combination of calculated leaks and arbitrary fiscal targets. Their stated aim of stability is at odds with being in thrall to the very financial markets that spread volatility. Kwarteng’s failed fiscal fudge led to market turmoil that shone a light on fragilities in the UK’s pension funds, which characterise global financial capitalism and its dependency on cheap money and state-led bailouts.

After 2008, all this led to the huge increase in inflated asset prices while wages were kept low and investment and productivity flatlined. Little wonder that we have ended up in a vicious circle of low growth and low wages based on low skills, low investment and low productivity. Not to mention the hollowing out of the institutional ecology that is vital for a vibrant economy.

We need a radical rethink of fiscal policy

We need a radical rethink of fiscal policy. As my colleagues and I at the National Institute of Economic and Social Research have long argued, an alternative fiscal framework should design fiscal rules and targets that serve substantive objectives such as sustainable growth and shared prosperity. More robust policy would also put an end to the toxic culture of leaks, create greater political scrutiny and more input from a wide range of experts — not just the spokespeople for the City of London who sit on Hunt’s new Economic Advisory Council.

New Labour kept the Thatcherite settlement afloat through greater welfare and public sector expansion but failed to build up productive capacity. The centrist Conservatives are failing to fix the sinking ship. The battleground of the next election is not arbitrary fiscal targets but rather a new economic model that grows national assets in which all can share.