Beginning to See the Light: The Death Throes a Dying Government 

 

‘I was dreaming’ when I wrote this

So sue me if I go too fast

Life is just a party

And parties weren’t meant to last’

 
Whilst the Tory’s could cling onto power for another 2-years, it already feels like they are mentally gone. The inspiration and freshness that could have been with levelling-up, is being replaced with tired, failed policies such as austerity, which will serve only to make the majority worse off and kill growth. It’s a simple equation: 

Austerity = falling growth + greater inequality 

The UNs poverty envoy, Olivier de Schutter, has warned Sunak that a new wave of austerity could violate the UK’s international human rights obligations and increase hunger and malnutrition. 

Speaking to the Guardian, the UN-appointed official, who has recently been investigating extreme poverty in Kyrgyzstan, Lebanon and Nepal, said: ‘This is the worst time to impose such cuts. You do not impose austerity measures when the whole population is facing a cost of living crisis. What you do is you raise taxes on the rich, you raise taxes on corporations.’ 

De Schutter added: ‘The immediate reaction of many households will be to reduce the quality of diets and ultimately the consumption of food. For children, learning is more difficult when you have an empty stomach and that is becoming a reality in the UK. That should not be allowed to happen.’ 

Already, 22% of the UK population (14.5 million people) live in relative poverty. ⁽²⁾ 

Should the forthcoming budget increase benefits in line with earnings, instead of inflation, it  would result in 450,000 more living in poverty in 2023-24 and 250,000 more living in ‘deep poverty’ – 50% below the poverty line. ⁽³⁾  
 

‘22% of the UK population (14.5 million people) live in relative poverty’

 
To deflect blame they turn to the tired, and pernicious policy of immigration. The unpalatable truth is that, post the Brexit referendum, this country has been moving down the path of racism. This is why Sunak reinstated Suella Braverman as Home Secretary, she revels in this making the incendiary comments that are lapped up by the Tory press and their readers.  

I would like to believe that events this week with immigrants and the Manston centre are the low-point, Unfortunately, I don’t believe it is, there is still worse to come.    

As we know, Manston is overcrowded by a multiple of three. To overcome this the Home Office have been moving detainees; on Tuesday evening a group of 11 asylum seekers from the centre were left at Victoria railway station with nowhere to stay, without winter coats, many wearing flip-flops.  

One of the men, a 29-year-old economics student from Iraq, was told on Tuesday afternoon that he was being taken to London. ‘We were told we should go to our families or friends. I don’t have any family in the UK,’ he said. 

When they arrived in London he told the driver that he had nowhere to go, but he was asked to get off the bus. He had no money of his own and had not been given any funds by the Home Office. ‘I asked what should I do for the night, it’s cold. He said: you need to go.’ 

This isn’t an isolated incident, on Saturday around 50-asylum seekers from Kent were also deposited from a bus by Victoria coach station at around 11pm, according to a witness; ‘They were still on the street at midnight, trying to work out what to do, where to go. They had no money, and hadn’t even been told where they were.’  

The immigration minister, Robert Jenrick, speaking about the overcrowding told Robert Peston: ‘We gripped this immediately when we appreciated the scale of the challenge at the weekend, it’s now falling very rapidly and I expect that we’ll get down to an acceptable level within about seven days.’ 

The man’s an evil fool; dealing with a problem isn’t moving it from A to B. 

Her numerous gaffs make Braverman not fit for purpose, but she is fit for Tory purpose. Her venomous deflection of her recent security failings, blaming opposition MPs for conspiring to facilitate an ‘invasion‘ by foreigners who only pretend to be refugees, is music to their ears. 

Sunak had promised ‘integrity, professionalism and accountability‘, when he became PM, suggesting that this was a bonus rather than what was expected. Obviously he isn’t one to let standards get in the way of political expediency.   

If you were to try and summarise Sunak’s current strategy it is a combination of austerity, which appeals to traditional, fiscal conservatives, and Brexit-driven immigration that appeases the ‘red wall.’ 

Moving onto austerity, it would seem that this time around the tourniquet is being applied by both the government and the Bank of England (‘the bank’, ‘BoE’), who, today, increased Base Rate to 3%. 

Threadneedle Street’s forecasts aren’t for the faint-hearted. Output has already started to contract and will go on falling for the next two years – the longest recession of modern times. Unemployment will almost double, with the jobless rate rising from 3.5% to almost 6.5%. Inflation will fall from 10.1% to well below its 2% target over the next two years. 
 

‘Output has already started to contract and will go on falling for the next two years – the longest recession of modern times’

 
The much feared wage-price spiral doesn’t seem to be materialising; data shows that the rate of annual pay growth for total pay was 5.5%, and the annual pay growth for regular pay was 5.2% in May to July 2022. ⁽⁴⁾ 

The Bank admits that cost of living crisis is being driven by global factors outside its control, such as supply chain bottlenecks post-Covid, and Russia’s invasion of Ukraine. There is no excess demand in the economy, making the policy of raising interest rates a blunt instrument. 

It appears that members of the MPC realise this, one,  Silvana Tenreyro, voted for only a 0.25% increase. He said the economy was already in recession and that most of the tightening of policy over the past year had yet to feed through to the real economy. 

As a result, the Bank is suggesting that whilst a further tweak to interest rates will be needed, anything more would be overkill. 

If you summarise the wider economic situation it is appalling; the bank believes the economy already entered a ‘challenging’ downturn this summer, which will continue next year and into the first half of 2024.  
 

• Output is lower now than at the start of the pandemic.  
• Property prices have started to fall.  
• Living standards are falling because wages are not keeping up with prices.  
• Average energy bills are double what they were a year ago.  
• Officials are ‘war-gaming’ the possibility of week-long energy blackouts this winter.  
• NHS England has more than 7 million people on its waiting lists.  
• Food bank usage is soaring.  

 
We already know that the chancellor in his autumn statement on 17 November will raise taxes and cut public spending. Hunt is working on the basis that Britain has been living beyond its means, and a new era of austerity is needed to rebalance the country’s finances.  

What he overlooks is that, unlike member of the Euro, we have our own currency; we can print money to cover our spending. If he wants an example of this he needs look no further than QE, where the Bank bought huge amounts of bonds, effectively funding government deficits thourgh both the GFC and the pandemic.  

Turning to the BoE it would appear that they are in danger making the same mistakes as in September 2008. Then, just before RBS came within hours of running out of cash, the Bank was considering raising interest rates because it feared inflation would become embedded. As David Blanchflower, an MPC member at that time,  said, the real threat was of recession. Within months, Base rate had been cut from 5% to a then record low of 0.5%. 

Moving onto 2010, the economy was beginning to show signs of recovery from the GFC when George Osborne decided it to start trying to reduce the budget deficit. His methods? Tax increases and spending cuts to keep the financial markets sweet. Sound familiar?  

At the time, Labour’s Ed Balls agreed that there needed to be a credible plan to reduce the budget deficit and the national debt, but only when the economy had fully recovered. He said then that  doing too much too soon would risk ‘undermining the very goals of market stability and deficit reduction which their policies are designed to achieve.’ 

Essentially, this is straightforward Keynesian economics argument. During the Great Depression Keynes argued unsuccessfully that it was self-defeating to tighten policy during a downturn. What happened? Slower growth, higher unemployment and a bigger deficit. 
 

‘Slower growth, higher unemployment and a bigger deficit’

 
Austerity this time around will be worse than in 2010. Then borrowing costs were at historically low levels, today the Bank and the Treasury are tightening policy at the same time. This can only exacerbate and prolong the recession. 

As Einstein said; ‘Insanity is doing the same thing over and over and expecting different results.’ 

An extension of this might be voting for the same madness and expecting something different. For example, after voting Tory in 2019 and being disappointed, will ‘red wall’ seats give them a second chance?  

If voters in the ‘red wall’ seat of Sedgefield in County Durham, are representative of the bigger picture, then Yes. They are willing to give Rishi Sunak another chance to improve their lot, as they feel Keir Starmer is ‘not making a case for himself‘. 

Members of a focus group convened by UK More in Common for the Guardian described Sunak as ‘the money man’, with a CV that proves he was the ‘best of a bad bunch‘ of Conservative leadership candidates. 

Their thoughts on Labour’s plan were: ‘I don’t think Keir Starmer will be able to do any of the things that he is saying he will do. I don’t have confidence that he can perform from the impression he leaves and how he comes across.’  Another said Starmer was good at ‘finger-pointing‘ and calling the Tories out but not good at setting out his own plan. 

I look forward to hearing their thoughts in a few months’ time, when they are using their heating, paying more for their mortgages, and have less in their pockets. 

When I wrote ‘Why did Turkeys Vote for Christmas?‘ in January 2020, I didn’t expect to be able to write a follow-up to it. Perhaps that Einstein fellow was onto something after all. 
 

‘Oh, you shouldn’t do that 

Don’t you know you’ll stain the carpet? 

Now don’t you know you’ll stain the carpet 

And by the way, have you got a dollar?’ 

 
Notes : 

1. ‘Under One Sky’, a homelessness charity who provided them with emergency supplies of food and clothes.
2. Joseph Rowntree Foundation 
3. Legatum Institute. 
4. https://www.ons.gov.uk/employmentandlabourmarket 

 
A bonus from Philip this week – as he rightly says, there’s so much happening.

In the few short hours since his last contribution, we’ve had the biggest hike in interest rates for thirty years, ‘Dodgy’ Bob Jenerick has provided a lightning-quick solution to the overcrowding at Manston by bussing migrants to Victoria Coach Station and dumping them there, and Ms Braverman has turned up the ‘invasion’ rhetoric by swooping down on the UK’s ‘southern border’ in a Chinook, replete with a bone dome and full on Top Gun swagger. FMOB.

Has the BoE got it right, or has the ‘old lady’ finally lost her conkers? David ‘Danny’ Blanchflower, former MPC member was unequivocal in a recent interview with @mrjamesob – turning the screw on those already on the financial rack is not the answer; taxing the wealthy and the ‘cash machine’ fossil fuel companies just might be. Don’t forget, the Treasury is getting a windfall all of its own from fuel duty on inflated prices.

So what we Philip thinking?:

 This follow-up highlights immigration and austerity. Whilst the two seem completely separate, they are politically joined-up.

It is clear that we are in for austerity Mk.III. This time it will be worse; interest rates are higher, making a double whammy, although today’s tone from the Bank was more dovish. It looks hopeful that rates might now peak at C. 3.5% rather than 5%+.

As is always the case with austerity, it will only serve to make everything worse. Unemployment, corporate failures, poverty, inequality, etc.. Moreover, as is often the case, it is unnecessary. We have our own currency and can print money as required; it’s called QE, you may have heard of it.

Politically, austerity will appeal to the fiscally prudent Tory’s. Curbing immigration, serves two purposes. Firstly, it keeps the hard-right happy. Secondly, when austerity begins to bite, “red wallers” and other racists will have a target; Immigrants.

Remember, the underlying rule of populism / fascism is nationalism, foreigners and immigrants drag the country down, taking our jobs, our opportunities.

We keep doing the same thing and expecting different results. For the Tory’s the end justifies the means, give the people someone to blame so the finger isn’t pointed at them.

What depresses me is that they will turn things around politically. It seems that they are innocent until proven guilty, whereas Labour are presumed guilty unless they can prove their innocence, or, in this case, competence.

Lyrically, we start with Prince and 1999. Few artists deserve to be referred to as “genius” but he does. As he says, this party wasn’t meant to last.

As the piece finishes with the definition of madness I thought it appropriate to end with the equivalent. There was only one choice, the Velvet Underground’s “Sister Ray”.

For the uninitiated, the song was written in 1968, by the bands singer Lou Reed, and features drug use, violence, homosexuality, and transvestism. I imagine it is often played at Tory Christmas parties!

Reed said of the lyrics: “‘Sister Ray’ was done as a joke—no, not as a joke, but it has eight characters in it and this guy gets killed and nobody does anything. It was built around this story that I wrote about this scene of total debauchery and decay. I like to think of ‘Sister Ray’ as a transvestite smack dealer. The situation is a bunch of drag queens taking some sailors home with them, shooting up on smack and having this orgy when the police appear.”

Enjoy!
 
@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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