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Why some Tories fear blood on the streets in a couple of years | Andrew Rawnsley

THe NHS dashboard is flashing with red lights, from escalating hospital deficits to corridors crowded with folk on trolleys.
THe NHS dashboard is flashing with red lights, from escalating hospital deficits to corridors crowded with folk on trolleys. Photograph: Photofusion / Rex Features

There I was, having an interesting conversation with a senior Tory about the road ahead for the government, when he surprised me by making the unprompted declaration: “I worry there will be serious public disorder in the next two years.” He didn’t start singing the chorus from Kaiser Chiefs’ I Predict a Riot, but he was not far off. In his eyes, people were underestimating how extremely rocky things could become over the next 24 months. Talking to other Tories, I find more than a few scanning the horizon with similar foreboding.

Superficially, this sounds strange because the state of play couldn’t look much better for Mrs May. The opinion polls indicate a robust lead for the Tories against a flailing opposition; Labour is fighting a rearguard battle in the two seats it is defending in this Thursday’s byelections. Even if it manages to cling on in one or both of Copeland and Stoke-on-Trent Central, the big point is that it shouldn’t even be a contest in seats that were previously so safe and it wouldn’t be close if Labour wasn’t in such a dreadful place.

Yet the lack of a functioning official opposition is more of a mixed blessing for the government than it may at first appear. One of the safety valves of democracy is that it offers the aggrieved the possibility that their rulers can be changed, which provides hope to those who might otherwise succumb to despair or rage. Absent a realistic chance of the government being thrown out through the ballot box, opposition may take to the streets.

One major reason for the government to be anxious about an ugly turn in public opinion is austerity. It hasn’t gone away. When Mrs May arrived at Number 10, one of the early ways she advertised herself as a change of regime was to ditch George Osborne’s plan to hammer his way to a budget surplus by the end of this parliament. If that fooled anyone into thinking that cuts to public spending are over, they are going to be disabused of that illusion. At the beginning of March, Philip Hammond will present his first spring budget. (It will also be his last because the chancellor has announced an intention to move the whole ritual to autumn.) “Spreadsheet Phil” is not really that different to his predecessor in his fiscal hawkishness. Colleagues running spending departments who agitate for some loosening of tight budgets receive a lecture from the chancellor about Britain’s “eye-wateringly large debt”. The government’s fiscal position has been deteriorating over the past 12 months. After six years of austerity, the deficit is still higher than it was for 80% of the time in the 60 years before the financial crisis. As the Institute for Fiscal Studies recently pointed out, the real level of total spend on day-to-day public services has fallen only modestly in the past three years. It may not have felt like that to many people on the sharp end, but that is what the numbers say. The rate of reduction is now set to speed up. Spending cuts will continue for the rest of this parliament and into the next one at the same time as demographic pressures from an ageing population profile continue to raise the cost of big-ticket items such as health, social care and pensions.

A lot of the punishment was soaked up by local councils in the last parliament, as central government shoved cuts down the line. That is now visibly blowing back into areas for which ministers cannot shuffle off responsibility. This is notably true of the National Health Service. The dashboard is flashing with red lights, from escalating hospital deficits to corridors crowded with folk on trolleys. Sir Robert Francis, the QC who investigated the terrible failings in Mid Staffordshire, declares that the NHS is facing an “existential crisis”. Even the health secretary, Jeremy Hunt, admits that the service is under “extraordinary pressure”.

There is now little dispute that cuts to social care are a significant cause of the mounting strain on hospitals. I encounter more and more Tories who think the prime minister and chancellor made a major mistake when they refused to find more money for social care last year. The government is trying the old trick of passing responsibility back down the line to local authorities by telling them to raise more cash through increases to council tax. But a lot of councillors don’t like this suggestion and especially not when there are elections for county councils in England coming up in May. It is a fairly safe prediction about the budget that the chancellor will have to find some extra cash to alleviate the crisis in the health service. I think it another reasonably sure forecast that the additional funding will prove to be insufficient to ease the long-term pressures. He will be reluctant to splash the cash because the kitty is so bare and there is such a long queue of other services lobbying for a softening of the cuts to their budgets. There is a rising volume of complaint about hits to the funding of schools, while the outgoing commissioner of the Metropolitan police has given a valedictory interview warning that the force can’t take any more manpower reductions without compromising the safety of Londoners.

At the same time as cuts are set to get sharper, the tax burden is becoming heavier. The country will be paying more to its government in return for fewer services, a nasty double whammy. According to the sages at the IFS, the tax take is on a trajectory to reach its highest level as a proportion of national income in 30 years. That is generating angst within the Tory party, a party that regards low taxation as central to its identity. See the mounting furore over the revaluation of business rates. This may be revenue-neutral overall, but it creates a lot of losers, who are inevitably a great deal more vocal than the winners. We will see increased agitation from Tory MPs when parliament reconvenes this week, not least because many of the losers are small businesses in their constituencies. The political toxicity is increased because among the gainers are the multinational barons of online retail. My guess is that we are only one or two more Daily Mail front pages howling that the revaluation is unfair before Number 10 orders the chancellor to take some remedial action. Which will leave even less money available to relieve other pressures.

On top of spending cuts and tax rises, a third shoe is about to drop. That is a renewed squeeze on living standards. Disposable incomes had been improving for a while thanks to a combination of falling inflation and improving wages. Most observers reckon that trend is now reversing. Inflation is rising again, not least because of the plunge in the value of the pound since the Brexit vote. For certain groups of society, notably the “just about managing” that Mrs May likes to talk about so much, the squeeze on their living standards is going to be even more painful because of scheduled reductions to in-work benefits.

The grim picture I have painted could look brighter if the economy were to do better than expected. The reverse is also true. The picture could be a great deal blacker if there is a growth surprise that is negative. The Treasury can’t rule out the possibility of a downturn making a nonsense of all its assumptions. The potential for a botched Brexit to unleash mayhem is just one of several perils ahead. Another risk is blowing in from across the Atlantic. Wall Street is being powered to record highs by a rosy view among investors of what Donald Trump means for growth and corporate profits. Shrewd observers think this Trump Bump will very likely be a precursor to a Trump Dump, which could then turn into a Trump Slump.

The most worried are older heads who have lived through earlier periods when financial markets have been busy blowing bubbles, only for those bubbles to pop in the most spectacular and ruinous fashion. Alan Greenspan, the former chairman of the Federal Reserve, learned some hard lessons about boom and bust by presiding over one. He recently issued a warning that Trumponomics could plunge America into a period of 1970s-style “stagflation” in which low growth is combined with spiralling inflation. That is not the only external threat to the British economy. Across the Channel, the structural problems of the eurozone have not gone away. Even if it has not felt like it to a lot of people, the upswing in the world economy since the financial crash is now very long in the tooth by historical standards. It is a reasonable bet that we are closer to the next recession than we are to the last one.

When that senior Tory confided his anxiety that public disorder could break out in the next 24 months, my first response was to think him hyperbolic. Then I considered it further. More and deeper spending cuts for as far as the eye can see. Accompanied by rising taxes. Plus another crunch on living standards. With the risk that an economic shock could turn an extremely challenging outlook into a really grisly one. I now think it not at all unreasonable to worry that there will be blood on the streets.