inequality‘Lights are flashing, cars are crashing
Getting frequent now’

 
The last 2-years have seen us lurch from crisis, now we are grinding inexorably to a halt. As was the case last year Christmas could again be cancelled, leaving us sitting without heating, no food to eat, with cars we can’t drive as there is no fuel. If we were a ship, we would be sailing towards the rocks, with no one at the helm capable of steering a safe course.

This excuse for a government have taken the Tory’s obsession with small government to a new level; non-existent government.

The opposition is a supine as the government is clueless. Starmer has the most open of goals to shoot at, yet he doesn’t pull the trigger. If I can see, and write about the similarities with the ‘Winter of Discontent’ and now, why can’t he?

Thatcher was quick to exploit this, who can forget the ‘Labour Isn’t Working poster’. Perhaps the difference now is that Thatcher was the mass media’s darling something Labour rarely is.
 

‘The opposition is a supine as the government is clueless’

 
This government is clearly dysfunctional; much of the problem stems for a lack of HGV drivers exacerbated by their refusal to reconsider the post-Brexit visa rules. Naturally, this has been the subject of another U-turn as we ‘welcome back’ 5,000 fuel tanker and lorry drivers, along with 5,500 ‘poultry workers’. They will ‘welcome’ until Christmas Eve, and then, once they have saved the festive season, they will be sent home. And we wonder why continentals don’t like us!

With the opposition so supine and the government clueless, who is there to save us. In 1979 Thatcher was that person, whilst she was, and for many still is, a divisive figure, she had gravitas. She was a politician of stature. Do we today have a politician with the skills to lead us out of this mess? Are there any that instill confidence?

With hindsight, John Major was likely the last PM to have any standing.

The 1970’s class had experienced war, and saw what was required to rebuild a country, and the social and political upheaval that followed the oil price shock of 1973. What this taught them was crisis management, the probability of failure, and the skills and experience needed to cope. Power was something you earn rather than ordained at the ballot box.

Tony Blair and New Labour was often style over substance, or, as Dennis Healey put it, ‘bullshit and nothing else’.
 

‘Do we today have a politician with the skills to lead us out of this mess?’

 
In fairness to Gordon Brown, when clear and decisive action was required during the GFC he responded well. RBS and Lloyds HBoS were too big to fail, no one liked it but that was the reality.

Cameron and those that followed are of a type, chaps who were prefects and blackboard monitors, imbued with a sense that it was their destiny to rule over us. Professional politicians with no experience outside of politics, who’s main asset was personal ambition. Unlike previous generations many of the brightest, most capable people sought to avoid politics, as Zadie Smith wrote, ‘I saw the best minds of my generation accept jobs on the fringes of the entertainment industry’.

The current crop, Johnson, Stamer, and their acolytes are big on ambition but devoid of substance. Johnston is fixated with Churchill but bears no resemblance to his leadership skills, and falls back on quotes such as people who ‘work hard and play by the rules’; presumably he means ‘hardworking families’? Starmer seems to have the handbrake on, I can’t help but wonder what he might be like it he put the throttle to the floor.

Looking at the cabinet I see the most uninspiring, hapless bunch of adventurers, picked for loyalty to the Brexit cause and Johnson. As with any Tory government law and order is key, therefore there is a focus on the Home Secretary. The current incumbent has taken spitefulness to a new level. If that is a qualification for being an effective politician history is littered with cast offs.

By its very nature most crisis management is reactive, however any capable government should have plans, back-up’s, reserves, that can mitigate the crisis.

The ‘gas crisis’ is a good example of this; the UK’s holds only enough gas to meet the demand of four to five winter days, 1% of Europe’s total available storage. The Netherlands has capacity more than 9x the UK’s, while Germany’s is 16x the size.

Because they have supply (reserves) our neighbours also have lower gas market prices. However, according to the business secretary, Kwasi Kwarteng, any connection drawn between soaring prices and meagre storage levels is a ‘red herring’; ‘There’s no way that any storage in the world will mitigate a quadrupling of the gas price in four months, as we’ve seen,’ he told MPs this week. ‘The answer to this is getting more diverse sources of supply, more diverse sources of electricity, through non-carbon sources.’
 

‘Looking at the cabinet I see the most uninspiring, hapless bunch of adventurers, picked for loyalty to the Brexit cause and Johnson’

 
We now pause for a basic lesson in economics; if supply is lower than demand prices rise, conversely is supply outweighs demand prices fall. A government so wedded to free-market principles should be able to understand the law of supply and demand.

The red herring is in his comment, ‘more diverse sources of supply, more diverse sources of electricity, through non-carbon sources.’. Whilst few disagree with the tenet of the statement is has nothing to do with short-term supply issues. One might also ask what have the Tories been doing to diversify during their 10-years in power?

Kwarteng did at least have the common sense to admit that the closure of the country’s main gas storage site off the east coast four years ago was ‘a mistake’. The Rough storage facility, owned by Centrica, the parent company of British Gas, provided 70% of the UK gas storage capacity for more than 30 years before it shut in 2017 following a government decision not to subsidise the costly maintenance and upgrades needed to keep the site going.

In 2013, the then energy minister Michael Fallon said the decision to allow Rough to close would save the UK £750m over 10 years. Instead, a diverse range of energy sources would ensure the public received ‘reliable supplies of electricity and gas at minimum cost’.

It was a matter of months after the closure of the Rough site that the UK’s energy operator, National Grid, issued a formal warning that the country did not have enough gas to meet demand during the freezing ‘beast from the east’ storm which battered the UK in March 2018.

The gas market surged by almost 75% within the day. Note to Mr Kwarteng: supply and demand.

Another aspect of Centrica’s decision to close ‘Rough’ that is often overlooked is the ‘obligation’ to pay shareholders a dividend (1). Our reserves were sacrificed on the altar of funds managers / investor’s expectations. Small wonder many people feel that privatisation of basic rights such as heat, and water was folly.

Part of the privatisation process was the breaking-up of suppliers into separate companies for transmission, distribution, generation, and supply.
 

‘many people feel that privatisation of basic rights such as heat, and water was folly’

 
The monopoly grid companies have invested little in upgrading the system for renewable energy, preferring to extract vast amounts in dividends and interest. National Grid shareholders took £1.4bn out of the company in both 2020 and 2021, although that is still below their record take of £3.2bn in 2017. The private generators didn’t invest in renewables until we started injecting public money. The supply companies didn’t compete and just enjoyed extracting dividends, until Theresa May instigated a price cap which was a humiliating acknowledgement of market failure.

Public ownership would have helped combat rising world gas prices. Whilst the pressures of the wholesale cost would be the same, the public sector is there to serve the public interest not shareholders. Surpluses could have served to cushion events such as this.

In Germany two-thirds of all electricity is bought from municipally owned energy companies (‘Stadtwerke’), who own and run the majority of the distribution companies and have also played a leading role in developing renewable electricity generation. The Stadtwerke of Munich city council has been supplying enough renewable energy for the needs of every household in the city since 2016, and by 2025 will supply enough for all the local industries.

In France, two-thirds buy their electricity from EdF, majority-owned by the French state, which also runs the grids and generates most of the electricity. In Italy, a similar proportion buy from AU, a public company owned by the regulator.

Renationalisation would, in all probability, only happen under a Labour government. Unfortunately, Labour aren’t very good at winning elections; they have only ever won five majorities in their history.

To change this Labour, needs to be trusted to run the economy. If not, people will vote Tory even if they have no real affinity with them.

Clement Attlee, elected with a radical programme in 1945, was considered a safe pair of hands, with the added advantage of having been deputy PM during the war. In this role he was effectively in charge of a domestic economy being run along quasi-socialist lines.

Blair’s hat-trick of victories showed that Labour had to occupy the centre ground in order to defeat the Tories.

However, recent events have shown that the electorate is open to ‘left-wing policies’. For example, the furlough scheme, the opposition to privatising the NHS, and support for the continuation of the £20-a-week uplift to universal credit.

The Labour government of the 1960s understood that modernisation and improving Britain’s weak productivity record required both a top-down and bottom-up approach. To encourage worker to move from declining sectors they introduced a system of earnings-related unemployment benefits to make the transition to new jobs easier and to try to make the UK workforce less scared of change.

Whatever people might now say about that Wilson administration, there was a 44% increase in labour reallocation between industrial sectors in the decade after 1968, surpassing all other decades of the 20th century other than those including the world wars.

To the untutored eye Johnson has recognised this and is ‘stealing Labour’s thunder. Or, as Matthew Goodwin said, many people feel that privatisation of basic rights such as heat, and water was folly (2)
 

‘many people feel that privatisation of basic rights such as heat, and water was folly’

 
This isn’t new, during the last 10-years there have been several occasions where the Tories have nabbed Labour’s ideas, E.G., in 2017 when Theresa May capped energy costs, the Times headline said: ‘May parks tanks on Labour’s lawn.’

This is based on the precept that a laissez-faire state is right-wing, whereas an interventionist state is left-wing. Therefore, whenever the Tory’s intervene in the economy, or spend money on public services, it must be doing something left-wing.

Intervention = left-wing served as an underpin for much of Blair’s strategy. The fall of communism, and a succession of Tory governments led New Labour to reject left-wing orthodoxy, in effect parking their tanks on the Tory’s lawn. However, a simple return to the ideas of new Labour will not be sufficient to return Starmer to Downing St.

We pause at this point to remember my two mantras of Toryism:
 

  1. To do whatever it takes to retain the party’s rightful place governing the country,
  2. The only people that matter are Tory voters

 
These mantras were expressed more eloquently by the political theorist Corey Robin, who argued that conservatism is primarily an exercise in the preservation of hierarchy, and specifically the resistance, or reaction, to attempts to redistribute wealth and power more widely by the left. (3)
 

‘the conservative has favoured liberty for the higher orders and constraint for the lower orders.’

 
The Tories are pragmatic, ready to ignore their so-called principles so long as the actions don’t ultimately limit their ‘elites’ or empower ordinary people too much. Or, as Robins’ writes; ‘the conservative has favoured liberty for the higher orders and constraint for the lower orders.’

As the Guardian journalist writer, Owen Jones, wrote: ‘When I was at university, a one-time very senior Tory figure put it succinctly at an off-the-record gathering: the Conservative party, he explained, was a ‘coalition of privileged interest’s’. Its main purpose is to defend that privilege. And the way it wins elections is by giving just enough to just enough other people.’
 
Covid has shown this pragmatism in action:
 

  • The furlough scheme wasn’t an act of socialism, but of self-preservation.
  • As was universal credit uplift, and why it was taken away at the very first opportunity.
  • The government introduction of the Coronavirus Act allows the police to detain anyone they deem ‘potentially infectious’, whilst Johnson and Sunak exempted themselves from the requirement to self-isolate, before yet another U-turn.
  • The increase in NIC’s will be spent on the NHS and social care but is funded disproportionately by low earners.

 
What we should consider is how the power of the state is being wielded, and in whose interests? A true left-wing government wouldn’t put the cost of social care on the backs of the country’s poorest working people.

To retain its own identity Labour needs to do the one thing the Conservatives are constitutively unable to: the creation of a credible programme for the redistribution of wealth and power.

As I have written before Labour needs to realise it’s fighting a populist Tory party, one that won’t be defeated with yesterday’s thinking, some of which the Tories, who have the advantage of being in government, have already stolen.

Before signing off a final word on Evergande the beleaguered Chinese property developer. There have been historical parallels drawn with the impact this could have on the Chinese economy with 2008 in the US, and the Japanese property crash of the late 1980s.

A key difference is that the U.S. and Japan had more traditional capitalist financial systems where lenders could, and did, retreat when real estate crashed, China, being more centralist, has no such vulnerability.

In other ways, the Chinese economy is more vulnerable to a real estate crash than either America’s or Japan’s was. Real estate and related industries account for almost 30% of China’s GDP. For Xi to achieve his goal of shifting the Chinese economy away from real estate towards manufacturing will be a painful adjustment. Using Evergrande’s fall and any resultant real estate crash as a catalyst for change will be a true short, sharp shock to the system.
 
Chinese citizens are highly dependent on real estate for their wealth:
 

  • homeownership is C.90%,
  • estimates suggest that urban Chinese people have more than 70% of their net worth in property.

 
Japan was the opposite, houses tended to depreciate rather than appreciate, because the government scraps and rebuilds them every so often. Therefore, when land prices crashed, the middle class was partly immunised from it, whereas if China’s land prices go down, the general populace will suffer badly.

This could have serious implications for wealth/inequality among the Chinese people. With a third of Chinese GDP dependent on the property sector, (and about 4 million jobs at Evergrande), the collapse of one of the biggest players, and the likelihood others will follow is much more than just a systemic risk.

Property is a key metric in the aspirations to wealth of the rising Chinese middle classes, who will be the biggest losers from the property investment schemes they entered into. There are reports of investor protests in key China cities putting pressure on the govt to act to mitigate personal losses.

The biggest risk could be people’s perception that the Party has failed in its promise to deliver wealth, jobs, and prosperity for the masses, rather than just Evergrande defaulting. China is an economy still reliant on exporting other nations technology, and a massively overvalued property sector all suggest a much less solid economy than the Party promotes.

This really is a suitable place to finish, as we grind inexorably to a halt, we can contemplate what the bursting of the property bubble in China could mean domestically, and globally.
 

‘We walk together
We’re walking down the street
And I just can’t get enough’

 
Notes:
 

  1. https://www.centrica.com/investors/shareholder-centre/dividends/dividend-history/
  2. ‘The Reactionary Mind’, 2011
  3. https://www.matthewjgoodwin.org/

 
Back to party politics this week as Philip considers the chaos that is currently Britain, and the paucity of leadership on both sides of the house – ‘I cannot think of more uninspiring politicians than the current crop; they are the worst since the last lot!’ – rather sets the tone.

He posits that ‘privatisation of sectors such as energy and water was wrong, they are basic human rights. Instead they have become toys of capitalism, forced to bow to fund managers’ dividend fascination, rather than serving the public’.

In truth, with rocketing gas prices, queues around the block for fuel and warnings that there may be very many youngsters underwhelmed when Santa finally fills their sacks – assuming he can get some nosebag for his reindeer – its difficult not to feel just a bit miz.

I suppose under any other circumstances we would be slightly discombobulated by Mr Kwarteng’s inability to grasp basic economics, but the only thing that would really jar would be if a minister in this cabinet appeared conspicuously capable.

No such risk from Grant ‘Two Planes’ Shapps – AKA Sebastian Fox, Corinne Stockheath or Michael ‘I’ll make you stinking, filthy rich’ Green – when questioned if supply chain issues were a result of Brexit, he swatted it away by saying that a shortage of drivers was causing fuel shortages and empty shelves in ‘Germany and Poland’. It took the next caller to LBC, from Germany, to confirm that as yet more old flannel from the cabinet’s resident spiv – a chimera that fuses Private Walker and Frank Butcher.

Whilst Philip’s picture of a country in disarray is entirely recognisable, details of the monstrous assault on Sarah Everard began to emerge on deadline, and what a sorry state of affairs when women cannot feel safe on the street; advice that a woman feeling uncomfortable in the presence of a police officer should either ‘flag down a bus’ or ask to use his radio to verify his authenticity beggars belief and questions just how far we have fallen.

It is a well trodden path, but a populist government with an 80 seat majority is going to be pretty tough to shift, and particularly so for an opposition party that has a leader with the charisma of a ham salad; it will be interesting to see how things look when chunky winter fuel bills land, NICs increase, food is more expensive/scarce and inflation starts to bite. 

Philip is right to call up memories of the Winter of Discontent, and we both recall a thoroughly miserable time with more rats than sequins in Leicester Square; it’s not looking promising, but let’s hope that the future looks nothing like that.

One thing we do have with the upcoming COP26 climate conference is the opportunity to shake up the snow globe and plan for a fairer, greener future; however, the jury’s out. Boris is still dishing out fossil fuel licenses like a drug dealer dispensing wraps at the school gates, and whist planning massive road building and airport expansion, claims the UK is the world leader in tackling climate change. 

Greta Thunberg is unimpressed, she sums up Boris’ bloviating as ‘blah, blah, blah’; all mouth and no trousers. Maybe Glasgow is where Boris meets his ‘Waterloo’?

Two tracks this week, just for fun – we revisit Joy Division with the excellent ‘Disorder’ and may need a little jig around the kitchen to Depeche Mode and ‘Just Can’t get Enough’ as the only affordable way to keep warm.
 

 

Philip Gilbert 2Philip 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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