Strikes, inflation, slump… back to the 70s? More like the unwinding of Thatcherism | Will Hutton

THis is not the 1970s all over again, notwithstanding the apparent similarities – oil shocks, recession, seasons of discontent, inflation. What we are living through is something more profound. It is the painful unwinding of the dysfunctional thatcherite economic model, driven by credit, consumption and property prices, so careless of investment, productivity and good, high-performance workplaces. Its end started with the financial crisis, accelerated with Brexit and is now sealed by the economic fallout from Ukraine.

What is not obvious, given the backward-looking national economic conversation dominated by Thatcherite shibboleths and myths about the horrors of public debt, is what is going to succeed it. With the right leadership, it could be a moment for developing new modes of growth, 21st-century business models and high-wage employment, an attack on regional inequality and a reframing of our relationship with Europe.

What is more likely, given the directionless, principle-free Boris Johnson government, is descent into the most difficult economic circumstances since the Second World War – with unparalleled social distress, bitter division and economic stagnation. The challenges have rarely been so acute, the future never been more up for grabs.

This week’s rail strikes are the latest trigger for fears that Britain is revisiting the 1970s and its trials of union power. But there is now no single industry such as coal-mining on which the country depends that can be used by a union for wage-bargaining leverage; there are no huge sites of mass employment vulnerable to; above all, rates of unionization have halved. This week will be inconvenient for many but the three strike days will resemble three miniature lockdowns rather than a three-day week with families huddling around guttering candles.

Indeed, knowing that the inconvenience is survivable has meant that public support for the action is surprisingly high. People may not know the detail of the statistics – total pay growth in the public sector is running at 1.5% compared with 8% in the private sector (including bonuses) – but they smell the rank unfairness, meanness and readiness to embrace partisanship associated with everything Johnson touches. Why shouldn’t public sector workers resist swinging cuts in real pay and large-scale job losses?

This represents a wider mood swing. Whether it’s homeowners struggling to fix their mortgage rate as rates jump higher or people walking miles to a food bank because they can’t afford to drive, there is a widespread sense that not only life is suddenly tough and getting tougher but no one has our backs. The institutions that could be turned to for support have been weakened and hollowed out by 12 years of Toryism. Civil society must fight back.

Sharon Graham’s election last year as general secretary of Unite, with her commitment to focus on the core of trade unionism — fighting for better pay and conditions — rather than the dead end of Corbynite politics, was a tribute to this mood. So, too, are the millions of savers insisting that they want their retirement incomes to flow from investments that make the world better: an astonishing third of all the £9tn funds under management in the UK are earmarked to be invested in properly governed companies committed to environmental and social betterment – ​​and growing exponentially.

The over-50s resigning from the unpleasant world of high-stress work in their hundreds of thousands are yet another dimension of this quest for better. Taken together with EU nationals returning home, this means that the labor force has shrunk by nearly a million. As the Bank of England noted in the minutes of its monetary policy committee meeting last week, 1.3m unfilled vacancies broadly match the numbers unemployed, an indicator of how tight the labor market has become (accentuated by the end of the free movement of labor as EU members).

The Bank also noted that core goods inflation is running at 8%, more than double the rate in the euro area. Veteran members of the monetary policy committee tell me the auguries are obvious if unpalatable: public sector pay must and will rise above the 2%-3% range pencilled in last autumn’s spending review, if only to stop savage and unsustainable cuts in real pay. Against this background, if the Bank wants to be serious about getting inflation back to its target of 2% and stop inflationary expectations, already rising, from becoming embedded, it will have to raise rates close to 4% – and the sooner it acts the better.

Recession, an investment strike, falling house prices, bitter pay disputes, real social distress, stubbornly high inflation and continued weakness in our trade with the EU stare us in the face – it’s what happens when an economic model implodes.

But just as Thatcherism emerged out of the 1970s, a new philosophy right for our times must emerge now. Its building blocks are still hazy but already apparent. The trillions of ESG (environmental, social and governance) savings need to be mobilized in partnership with government to pursue great national missions – levelling up, rebasing our energy system and grid to achieve net zero, opening up space, transforming our cities, building in new resiliencies, backing our science.

A new ecosystem needs to be created to support the growth of our companies of tomorrow – it’s important that the shadow chancellor, Rachel Reeves, has just announced a review into just that – and 21st-century great companies in turn need to be organized around the pursuit of purpose rather than short-term profit.

There must be a new settlement of rights and obligations at work, better relationships with empowered trade unions and serious commitment to developing our human capital. We need a social security system that protects us.

The priority of the state must be to proactively mastermind all this, rather than the Pavlovian pursuit of tax cuts and debt reduction. There needs to be a constitutional settlement that embeds the rule of law and integrity in government and guarantees freedoms and democracy. No more ethics-free, law-breaking King Boris and his court of sycophants.

There are a very rough few years ahead but those responsible for it will be punished electorally. The road is open for those who dare.

Will Hutton is an Observer columnist