Oct
2022
Beginning to See the Light: Going, going. So, what’s next?
DIY Investor
19 October 2022
‘But you gave away the things you loved
And one of them was me..’
Despite throwing her friend and long-time colleague under a bus, Truss’s premiership appears to be heading only one way.
When I thought about this, two questions came to mind; firstly, the backward looking ‘How did we get into such a mess?’ Followed by the forward looking, ‘Where do we go from here?’
Looking backwards, if we accept that the GFC was caused by government, the rot sent in with austerity imposed after 2010 by the Cameron government. This was ‘new’ Tory, a combination of trendy Notting Hill / Chipping Norton, call me Dave, and mind numbing austerity. One of the many impacts of this austerity, was that for most people they saw a real fall in their wages, putting us on a level with Greece and Cyprus.
Simmering alongside this was the hard-rights discontent with our membership of the EU, which started about the time we joined, and was now about to get an adrenaline shot, with the return of Nigel Farage as UKIP leader.
At the 2014 European elections, UKIP won the most votes in a UK-wide poll, with 27.5 per cent, giving them 24 MEPs. In the autumn, it finally gained representation at Westminster when first Douglas Carswell, and then Mark Reckless, defected from the Conservatives and won by-elections in Clacton and Rochester and Strood, respectively.
At the 2015 general election, UKIP won 13 per cent of the vote, beating the Liberal Democrats into fourth place.
At this point Farage became the catalyst for what I have previously described as the single biggest event in post-war UK politics, Brexit. So worried was ‘Dave’ by the ascent of UKIP that he promised a referendum on our EU membership – the rest is history.
‘Farage became the catalyst for what I have previously described as the single biggest event in post-war UK politics, Brexit’
Whilst Brexit was the most divisive event in post-war Britain, the struggle to make it happen post the referendum unified the Tory’s. Boris Johnson’s ‘Get Brexit Done’ 2019 election campaign cemented the transformation and, as far as Brexit went, silenced Labour.
However, once we formally left the EU, the Brexit-imposed discipline within the party began to unravel. This was exacerbated by Covid, Johnson’s behaviour didn’t help, and he was ousted. Enter Liz Truss.
The Truss-Kwasi Kwarteng ‘Growth Plan 2022’ is already the stuff of legend. It features U-turns, disharmony between the BoE and the government, a BoE bail-out, and a run on Sterling and Gilts. In addition, it weas criticised by Former US Treasury secretary Larry Summers, President Biden, and the IMF, to name but a few.
It was intended to turbo-charge an economy that had been chugging along. Without noticing we were becoming a middle of the road non-entity. Unfortunately, we behaved and believed we were a super-power.
To try and understand Brexit, I found reference to a comment by Tony Blair; he saw a Britain that was ’emerging from its post-empire malaise’. If you like there was a desire to regain the confidence and sureness of identity that, in people’s imagination, went hand in hand with running an empire. ‘Take back control’, had the instant appeal necessary to fire-up Brexiters and waverers. It captured the mood fuelled by post-GFC economic insecurity, and those using immigration as an excuse.
Whilst there were always doubts as to whether there were any economic benefits to Brexit, we can now say, with the benefit of hindsight, that they were tenuous at best. Brexit sits at the heart of todays economic issues. Prior to referendum critics were dismissed as ‘remoaner’ scaremongering, now there forecasts now look correct.
We should have seen the problems coming, almost as soon as the referendum result was announced the pound fell from 1.50 to 1.33 to the dollar, and ultimately hit its lowest-ever recorded level of 1.03 on 26 September of this year.
Other hollow promises included border control which is as porous today as it ever was. Our post-Brexit trade deals are insignificant compared with the loss of our largest trading partner. The jewel-in-the-crown deal with the US is not even on the agenda, as Truss admitted last month.
Covid served to cover up the initial damage caused by Brexit, however, last year, the Office for Budget Responsibility estimated that Brexit’s long-term impact on economic growth would be more than twice as damaging as that of Covid.
‘Brexit’s long-term impact on economic growth would be more than twice as damaging as that of Covid’
Modelling by the Centre for European Reform found that solely because of Brexit, British trade in goods was down during the first half of last year, ranging between 11 and 16% month to month.
For many leave voters, ending the free movement of labour between Britain was their rationale for leaving, however it has left us short of labour in many sectors. According to the Office for National Statistics, the number of job vacancies stood at 1,246,000 in the third quarter of this year, up from about 823,000 before Brexit and Covid.
OBR analysis from May shows a number of economic indicators all going in the wrong direction: as a result of leaving the EU, long-term productivity will slump by 4%, both exports and imports will be around 15% lower in the long run. Newly signed trade deals with non-EU countries ‘will not have a material impact‘, and the government’s new post-Brexit migration regime will reduce net inward migration at a time of critical labour shortages.
Despite Rees-Mogg telling us in 2019 about ‘broad, sunlit uplands that await us‘, the reality is devastating. Brexit has shrunk the UK economy; there was a 5.2% fall in GDP, a 13.7% fall in investment, in addition to the fall in trade highlighted above. That self-inflicted contraction helps explain why we felt international shocks, E.G., surging inflation, harder than most. If your economy is smaller, you either have to tax people more to pay for the services they expect, or you cut those services, or you borrow. There are no other ways out.
At least there wasn’t before Trussomics, the power of wishful thinking, positivity, we are great, we can do it! Unfortunately, post-Brexit the link between governance and reason, between policy and evidence disappeared. Brexit gave us the power of magic; weaken your trading ties to your nearest neighbours and get richer! With this government crossed the Rubicon, anything was possible, it you only believe. The end game was cutting taxes for the richest, make ‘absolutely’ no cuts to public services and control borrowing, all at the same time.
Truss et all mocked ‘remainers’ and realists but we were right. So was Rishi Sunak. So was Tom Scholar, the embodiment of such boring, reality-based thinking that Truss fired him.
That’s the past, what is the present and future.
The first issue is who is PM? Do we even have one? Jeremy Hunt seems to de facto PM, and he has come up with something almost as appalling at Trussomics, moving on from Truss’s Thatcher tribute act, and becoming Osborne and Cameron…call me Jeremy!
Hunt is returning us to the austerity of 2010, but with one big difference. Twelve years ago, tax increases and spending cuts from the Treasury were offset by interest rate cuts and money creation from the Bank of England: this time they won’t be.
As a country, despite being full of our own self-importance we continue to trail the rest of Europe. Between 2007 and 2018 only Greece and Cyprus experienced lower economic growth. Incomes in France grew by 34% and in Germany by 27%, while the typical UK income dropped by 2% (1).
A recent report shows ‘Public services won’t have returned to pre-pandemic performance by the next election, which in most cases was already worse than when the Conservatives came to power in 2010.’ (2)
A report from the Resolution Foundation shows: ‘Low-income households in the UK are now 22% poorer than their counterparts in France, and 21% poorer than low-income households in Germany.’ Despite this, the Tories have managed to look after their own; pensioners, who overwhelmingly vote Tory, have been protected with an average £510-a-year real pension rise since 2010, while families with children have lost an average of £375 during the same period. (3)
Having consigned virtually all of the not a budget to the bin, Hunt has, in my opinion, finally trashed any credibility the Tory’s may have hoped to maintain. The only saving grace of the Truss/’Crazy’ axis was the policy of freezing energy bills at £2500 p.a., for the next 2-years. Even at that level it was double what people had been paying, nevertheless it was more generous that what Labour had proposed. With uncertainty returning Hunt has consigned many to more misery.
‘the ultra-low rates of the last 14-yrs are history’
Whatever the BoE may do with interest rate, the ultra-low rates of the last 14-yrs are history. The Bank remains anxious about inflation, which will be boosted when the energy price cap ends in April, and the cost of borrowing will only rise in the coming months.
The conclusion is simple, weaker growth, a deeper recession, and misery for many.
As to the future, new leaders are being suggested; Mordaunt and/or Sunak, Ben Wallace, a return for Johnson. In truth, if there is to be a new leader there must be an election. The Tores simply cannot keep foisting unelected PM’s on us as it suits them.
But, an election is the very last thing they want. Labour is running so high in the polls that are sorts of wild Labour majorities are projected. I remain sceptical for several reasons.
Firstly, polls are one thing, voting in a general election is a different matter. I suspect many current dissenters will find the lure of the Tory’s too much, and, or, be fearful of Labour.
In addition, there are powerful voices that applauded ‘Crazy’s’ not a budget:
Alex Brummer, Daily Mail: ‘The boldness and courage of Kwasi Kwarteng’s debut budget is seismic. By taking a hatchet to taxes and placing growth front and centre of economic policy, the chancellor has produced a genuine Tory package elbowing to one side the Treasury’s fiscal conservatism.’
Allister Heath, editor, Sunday Telegraph: ‘The best budget I have ever heard a British chancellor deliver’.’
Nigel Farage, ex-Ukip leader: ‘Today was the best Conservative budget since 1986.’
Mark Littlewood, director-general of the Institute for Economic Affairs: ‘This isn’t a trickle-down budget, it’s a boost-up budget. It’s refreshing to hear a chancellor talk passionately about the importance of economic growth.’
These are powerful voices; two of the country’s most popular newspapers, the man who sparked Brexit and united sufficient voters to succeed, and the head of a very influential thinktank. These are not the sort of entities to lay down and accept defeat, or, more specifically, a Labour government.
I have constantly warned that we are returning to the politics of the 1930’s, fascism, and that still concerns me.
There has been a leadership void in this country for many years, which coupled with increasingly polarising right-wing Tory governments, each one more talentless than the last, has seen the prosperity of the majority suffer. Whilst the Johnson administration promised much, it achieved little. Despite this he is still viewed by many as the one person who can unite and save the situation. In a YouGov poll of Tory MPs today (18-10) he was their first choice with 32% support.
We have recently seen Giorgia Meloni’s Brothers of Italy party take power in Italy and this sets an example others will look to follow.
As the writer Roberto Saviano points out, ‘Italy has always been a laboratory: it has foreshadowed the crises of other countries. Italy had Mussolini before Hitler and the left-wing extremist Red Brigades before Action Directe appeared in France and the Red Army Faction followed suit in Germany. Italy had Berlusconi before the US got Trump. And after years of Berlusconi misrule, Italy produced the Five Star Movement, the first populist party led by a comedian, before the rest of Europe caught up. Five Star’s agenda was political disruption, often without any thought to the consequences.’ (4)
Meloni cleverly kept the US onside with a pro-America, anti-Russian and anti-Chinese stance, and reassured both financial markets, and the EU, that her government would keep public debt in check. This, she hopes, will allowed the space to build her power and carry out her domestic agenda. She knows that no one wants to risk ostracising the Italian government during a security, energy and cost of living crisis just to come to the defence of migrants, or to protect women’s reproductive rights.
Meloni’s party succeeded because it was able to expanding its electoral base, poaching militants from other parties ready to jump on what was supposed to be a winner’s bandwagon. This is what I fear; Johnson was able to create an unlikely electoral alliance in 2019, primarily because Farage and the newly formed Brexit Party stood aside in seats such as the ‘red wall’ allowing the Tory’s to steal in.
People might scoff , but Farage is supported by many of those ‘left behind’, and Johnson, whatever else he might be, is a great vote catcher. As the political and economic situations worsens people will look for alternatives, and simple messages such as ‘Taking back control’ resonate with them.
‘People might scoff , but Farage is supported by many of those ‘left behind’, and Johnson, whatever else he might be, is a great vote catcher’
Whilst some will understand the Brexit, even allowing for Covid, was a disaster, the pandemic is still fresh enough in peoples memories that it becomes a viable excuse.
Don’t assume Labour will win. The right’s ability to manage alliances and reinvent themselves is well documented. Another round of austerity will be the spark that lights the fire.
Gone are the days when the victory of far-right populists and extremists appeared unthinkable or untenable. Now there is a new right-wing normality; the space that was previously occupied by Jacques Chirac, Margaret Thatcher or Angela Merkel, is now the domain of Trump and Meloni. ‘Meloni may succeed in mutating the far right from the status of outsider in European politics to tenacious insider’.
‘Well, you better watch out
Well, you better beware
Cause they’re coming from all sides of the country now
You’d better beware’
Notes:
For a political commentator, the last week or so must have been manna from heaven; for everyone else it has been a case of WTAF.
There was a certain inevitability about Mr Kwateng becoming acquainted with the underside of ‘a large motor vehicle carrying passengers by road’ but the rest of the sideshow is just breathtaking; up to, and including Ms Truss apparently riding out Keir Starmer’s urgent question in Boris’ fridge.
So, it was left to Jeremy Hunt to repair the damage, which he did by, er, retaining the removal of the cap on bankers’ bonuses and reducing the duration of the cap on energy proces from two years. Those facing hikes in their mortgage payments – for no good reason- must wonder if Mr Hunt has been recently added to the lexicon of native East Enders – as in ‘don’t be a Jeremy’.
So what was Philip thinking:
‘This week we consider what the post-Truss UK will look like.
To do so, I have returned to this column’s genesis, Brexit. I have always written that this was the single most important event in UK politics post-WW2, and that Farage has been one of the most influential politicians of the 21st century.
Brexit looms large over the country. We now know that the promises were false and the predictions of failure were correct.
Irrespective, it has left us with a Tory party devoid of competence and reality. We have flipped from austerity, to levelling-up, to full-blooded economic expansionism, and back to austerity.
Our economy is in shreds, public services are held together with glue, and our credibility is diminished. The fact that the busiest bank is the food bank tells us all we need to know.
Despite this, Ben Wallace, the highly regarded government defence minister, expects increased defence spending promises to be honoured. He is reported to have said he “will hold the prime minister to the pledges made”, prompting fresh speculation he may quit if the pledge is not met.
The source, referring to the crisis in Ukraine, added that “current world events, and allies commitments show that defence is not a ‘discretionary’ spend but a priority.”
We have a £60bn+ whole in the budget, people are living in poverty, and he wants £50bn more spent on defence. That’s offensive!
One thing that shines out in all of this is priorities; Labour’s priority seems to be people, the Tory’s is themselves. Shameful.
But, there is worse, Johnson is the popular choice to take over…..It feels like I am living in a soap opera.
Lyrically we start with Carly Simon’s classic “You’re so Vain”. There are many in the Conservatives this could have been written for. We play out with the Wipers, “Return of the Rat”. No prizes for guessing who.
@coldwarsteve
Philip Gilbert is a city-based corporate financier, and former investment banker.
Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s
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