The first three weeks of Liz Truss’s Conservative administration have been marked by policy interventions and economic chaos.
First, to control spiralling energy prices, the government announced a scheme to cap household and business energy bills, and to explore potential structural reform of energy markets. The reaction was mixed: commentators recognised the urgent need for short-term price controls, but some were critical that the controls did not penalise highly profitable energy companies.
The reaction to the second major policy – the largest set of tax cuts in generations – was altogether different. Alongside acclaim from the right, Truss and her Chancellor, Kwasi Kwarteng, have faced opprobrium from economists around the world and of all intellectual persuasions. The policy seems so outlandish and so unlikely to generate the growth promised by the Tory leadership that it defies rational explanation. Out of this confusion and disbelief, conspiracy theories have proliferated, such as the suggestion that the tax cuts were designed to deliberately crash the pound.
Largely absent from the tonnage of commentary on the unfolding crisis, however, is a credible sense of what the UK political economy actually is, and the principal social and economic forces and relations that comprise it. Observers rely on growth and employment rates and other economic data to make sense of it all, but those are just numbers; they are not the economy itself.
What are the key forces and relations that define Britain’s economy today? To use the conventional categories of classical economics, the relationship between “productive capital” – firms producing goods and services for sale – and those working for such firms remains pivotal. But a body of scholarship, influenced by the work of the French economist Thomas Piketty, has described the increasing importance in recent decades of the relationship between “rentiers” and renters. The latter pay the former “rent”, that is, income generated by having exclusive control of a valuable asset, such as property.
Rentier capitalism encompasses more than just housing and land, which are the assets typically associated with rent and the rentier. Nor is the only other significant locus of rentierism the one that so infuriated John Maynard Keynes – the ownership, and earning of “rent” on, financial assets. No. Rentiers today also earn prodigious rents on proprietary assets ranging from natural resources to intellectual property, digital platforms and infrastructure.
If the contemporary UK is politically and economically distinctive, it is because the rentier-renter relationship dominates life in this country to a greater degree than in any other Western state. Rentiers such as AstraZeneca, HSBC and Shell predominate among its leading firms, and many individuals, such as those letting second homes to tenants, are rentiers themselves.
Owing to four decades of the privatisation of public assets and the strict legal enforcement of inalienable rights to private property, the UK has become a rentier’s paradise. The policies of the latest Tory administration must be examined and judged in this context. Britain’s political economy is no longer the one that prevailed in the days of Margaret Thatcher and Tony Blair.
What is the role of the government in social and economic relations? Scholars of political economy have long argued that the capitalist state must be understood principally with respect to how it mediates relations between labour and productive capital. Where Marx famously described the state’s executive branch as “but a committee for managing the common affairs of the whole bourgeoisie”, 20th-century state theorists such as Ralph Miliband and Nicos Poulantzas saw the state as somewhat more autonomous.
But the UK state today is better understood with respect to its role in mediating between rentiers and renters. Its primary objective, to paraphrase Marx, is to support the common affairs of the whole rentier establishment.
Failure to recognise the new nature of Britain’s economy was one reason why many people couldn’t understand why the Tory right desired a hard Brexit. If the UK’s productive capitalists, engaged in extensive trading relationships with the continent, were firmly opposed to Brexit, why, it was asked, were the Tories – the party of capital – in favour of leaving the EU? The answer is that the Tories were no longer the party of productive capital. They had become the party of the rentier.
This results in two strategic imperatives. The first is to enhance the climate for investment in rent-generating assets. It is necessary that assets such as land and infrastructure be presented as things that investors can and want to own. Vertically integrated electricity systems, for example, must be divided into separate generation, transmission and distribution assets, which can be invested in independently of one another. Public land must be sold free from requirements to develop affordable housing, or to do so within a specified timescale.
Second, governments must sustain renters’ ability to pay rents to rentiers. If users cannot pay their bills, assets such as water or gas networks will rapidly stop making money and become unattractive to investors. If the post-war Keynesian state supported workers’ ability to buy the products of their labour, the modern state is now helping renters to pay rents.
The new Tory policy for capping UK energy bills fulfils both of these imperatives. It limits the amount that users will have to pay for electricity and gas services. Meanwhile, it avoids alienating investors in electricity and gas infrastructures since the policy will be funded principally by government borrowing rather than reducing the rents that rentier-owners make money from.
[See also: What we learned from the Labour Party conference]
The fall in the value of sterling since Kwarteng announced his tax cuts also represents a potential boon from the government’s point of view. Almost all of the UK’s energy assets, for example, are owned by foreign investors; Tory administrations of the past decade have invested considerable effort in wooing such investors. As the pound falls, so those assets become cheaper and so more attractive to vulture investors eyeing them eagerly from abroad.
The housing market seemingly represents a unique set of issues on its own. Many commentators have already pointed out that if, as seems likely, the government’s tax cuts and the accompanying loss of confidence in sterling compels the Bank of England to raise interest rates faster than it had otherwise been planning, the housing market will fall dramatically. Given the tight relationship between the Conservative Party and homeowners, the collapse of the housing market is surely against the Tories’ political interests. Or so the theory goes.
But under the conditions of rentier capitalism, this isn’t necessarily the case. Across various Western countries, including the UK, housing is now less an owner-occupied asset, and more one that is owned by rentiers. These rentiers are not just small-time buy-to-let landlords, but increasingly large corporate landlords represented by financial institutions such as foreign asset managers. This even extends to social and “affordable” housing: on 27 September it was revealed that investment funds focusing on this type of housing now account for the largest segment of the UK’s burgeoning “social impact” investment market.
To assume that a falling housing market would be a concern for the new Tory leadership is analogous to assuming that it should have opposed Brexit. It is to rely on outdated understandings about where the party’s main fealties lie. What if, in its pandering primarily to rentiers, it is shedding its loyalty not just to productive capital but to homeowners?
As the global financial crisis of 2008 demonstrated, a falling housing market is not a threat to institutional investors so much as it is an opportunity. Back then, asset managers waited until property prices bottomed out and mortgaged property owners were – as Blackstone’s CEO infamously put it – maximally “beaten up”, only then going in to “wipe the blood from the streets”. A similar strategy is not unimaginable next time around. In mid-2022, pondering the likely market turmoil associated with higher interest rates, one institutional property investor was reported as remarking: “I haven’t been this excited since the [global financial crisis].”
Though Truss and Kwarteng invoke Thatcher – a ritualistic practice among the latter’s successors – the Iron Lady herself would have been horrified by what the UK’s housing market has become. With nearly half of council homes sold under the Right to Buy government scheme in England now being in the private rental sector, Right to Buy has morphed into Right to Rent – far from Thatcher’s idea of a property-owning democracy.
Ironically, if Thatcher has a true heir today, it is – at least where housing policy is concerned – the leader of the Labour Party. In the week that the media was alight with indignation about Tory tax cuts, Keir Starmer claimed Labour as “the party of home ownership”, with a target of 70 per cent owner-occupation. But Labour, as so often, is living in the past. The UK – and the Tory leadership – has moved on into darker terrains.