Beginning to See the Light: The Hand That Rocks The Cradle 

 

‘For the ghost and the storm outside 

Will not invade this sacred shrine 

Nor infiltrate your mind’ 

 
This week we pick-up on a theme I touched on in the editorial to last week article, ‘Theatre of the Absurd’. The theme was that the Truss government is the catalytic explosion caused by the dynamite that was the vote to leave the EU. 

This explosion is the result of a continual drift to the extreme right of the political spectrum, culminating in what was, in truth, a bloodless coup. This allowed Truss et al to take the levers of power with the support of C.30% of the Tory parliamentary party, and  80,000 white middle-class males party members, representative of less than 0.5% of the electorate.  

In a true democracy she has no mandate to govern other than the one she inherited, and certainly no mandate to rip-up those manifesto promises and replace them with extremism. 

To date, her most obvious change was in their finance statement which led to investors losing faith in the credibility of the Truss administration to run a sustainable tax and spending policy. 

The Bank of England (‘BoE’) said a dramatic rise in interest rates on long-dated UK government bonds after the chancellor’s mini-budget had triggered a ‘self-reinforcing’ spiral in debt markets, putting the stability of Britain’s financial system at risk including pension funds managing >£1 trillion on behalf of retired people across Britain. 
 

‘She has no mandate to govern other than the one she inherited, and certainly no mandate to rip-up those manifesto promises and replace them with extremism’

 
Had the BoE not intervened, promising to buy up to £65bn of government debt, funds managing money on behalf of pensioners across the country ‘would have been left with negative net asset value’ and cash demands they could not have met. 

Ministers tried to defend the government’s position citing global factors. This failed when the BOE published a chart showing that the rise in borrowing costs was not replicated in the US or the EU. 

In the period immediately before the Bank intervened, yields on 30-year UK government bonds rose by 35 basis points on two separate days. The biggest daily rise before last week, on data going back to the turn of the century, was 29 basis points. 

The mini-budget is intended to deliver growth; in her speech at last week’s party conference, Truss she said her government would prioritise ‘growth, growth, growth‘ while attacking what she called an ‘anti-growth coalition‘ that was holding the country back. 

This dash for growth, she said, would create more avenues for legal immigration, a belated recognition that flourishing economies are open ones, a somewhat mixed message as the home secretary, Suella Braverman, wants to reduce immigration to the ‘tens of thousands‘. 

The  audience lapped-up her attack on the ‘anti-growth coalition’ which she blamed for Tory failures to deliver over the last 12-years. It contained all the people they dislike: Scottish nationalists, Brexit deniers, north London liberals who say snide things about them on the BBC.  

The definition of ‘anti’ being anyone who doesn’t agree with her, or see the world in the same way. 

The reality that she and her hordes cannot face up to, is that it isn’t ‘Brexit deniers’ who will knock an estimated 4% off Britain’s productivity, but Brexit enthusiasts. 

Not only are Truss and her hordes unelected, they are, in many ways, front people for dark-money thinktanks, such as the Institute of Economic Affairs (IEA).  
 

‘it isn’t ‘Brexit deniers’ who will knock an estimated 4% off Britain’s productivity, but Brexit enthusiasts’

 
Led by Mark Littlewood, the IEA ‘incubated Truss and Kwarteng during their early years as MPs. They are in effect the sorcerer’s apprentice, and we are their guinea pigs. The economic Armageddon championed by Truss and Crazy is the neoliberalism championed by the IEA 

The use of the term dark-money comes from their refusal to reveal the sources of their funding, as lobbyists for hidden interests. We know from leaks and US reports that these include, in some cases, tobacco firms, oil firms and foreign oligarchs.  

Research by the University of Bath found that the IEA has received funding from British American Tobacco, Imperial Brands (previously Imperial Tobacco), and Philip Morris International. 

Source: https://tobaccotactics.org/wiki/institute-of-economic-affairs/ 

In 2014, the IEA established and fully funded the think-tank collective Epicenter, a collective of European think tanks, which provides a ‘free-market perspective’ in European policy debates on topics including public health (1). In 2020, it became funded by its ‘member think tanks’, including IEA. Epicentre launched the ‘Nanny State Index’, designed by Christopher Snowdon, in 2016. The 2021 version of the Index claimed that ‘nanny statists’ had ‘exploited’ the global COVID-19 pandemic. 

In May 2019, 32 Conservative MPs were named as linked financially, directly or indirectly, to the IEA by a BMJ investigation. Several members of Boris Johnson’s administration had links to the IEA, including Dominic Raab , Priti Patel, Jacob Rees-Mogg , Matt Hancock, Theresa Villars, and Kwasi Kwarteng . 

Michael Hintze, another IEA trustee, has also made gifts or donations to MPs, including Robert Buckland MP, and Boris Johnson MP. 

Source: https://tobaccotactics.org/wiki/institute-of-economic-affairs/ 

The IEA has inspired Truss’s policy prospectus and its alumni pack the ranks of government, including the prime minister’s chief economic adviser Matthew Sinclair.  

Another offshoot of the IEA is the Free Market Forum (FMF), a successor to both the Free Enterprise Group (‘FEG’) and FREER, which aims to ‘provide resources for and working closely with local councils and councillors, elected Mayors, political activists and universities to inspire the next generation of classical liberals and promote the understanding of free markets across the UK.’ 

A number of the FEG’s active members have, or currently hold senior positions within the Conservative Party, these include Steve Baker, Matt Hancock, Sajid Javid, Kwasi Kwarteng, Jesse Norman, Priti Patel, and Liz Truss. FREER provided a springboard for those elected in 2017, including Conservative Party Vice-Chair Lee Rowley, former Treasury Minister Simon Clarke, and his successor Kemi Badenoch. 

The FMF counts 60 Tory MPs among its ‘parliamentary supporters‘ including Truss, Kwarteng, the deputy prime minister, Thérèse Coffey, the levelling up secretary, Simon Clarke, and the trade secretary, Kemi Badenoch. 

The former chancellor Norman Lamont and ex-minister John Redwood are also backers, while her No 10 deputy chief of staff, Ruth Porter, is on the advisory board. 

Source: https://www.freemarketforum.org/history 

The FMF has drawn up a blueprint of ‘slash and burn’ ideas that could form the basis of the government’s supply-side reform programme, primarily involving deregulation, as part of the chancellor’s medium-term fiscal plan. ‘Crazy’ is expected to announce changes in eight areas including planning, business regulation, childcare, immigration, agricultural productivity and financial services. 
 

‘a blueprint of ‘slash and burn’ ideas that could form the basis of the government’s supply-side reform programme, primarily involving deregulation’

 
The paper, published by the FMF in September last year, is billed as ‘a collection of policies for a better brighter Britain by the end of this decade‘, which it says will ‘kickstart the conversation about where we go next, and place the FMF at the forefront of those discussions‘. 

The IEA’s Annabel Denham proposes scrapping free childcare provision, arguing that the 15 hours a week provided costs the state around £6bn a year ‘but there isn’t much to show for it’. She suggests that adult-to-child ratios are ‘unnecessary and damaging‘ and early years assessments should be dropped. 

This would have serious consequences, full-time nursery for children under the age of 2-costs almost two-thirds of a parent’s weekly take-home pay in England, according to new analysis by Business in the Community (BITC), the Prince’s Responsible Business Network. 

The analysis, which uses the Coram family and childcare survey results alongside Office for National Statistics (ONS) income data, shows parents in the east of England and inner London spend the greatest percentage of their take-home pay on childcare, handing over 71% of their weekly earnings. In Blackpool, it is 69%, and in Newport, 62%. 

The Tory MP Richard Fuller, currently economic secretary to the Treasury, suggests moving education online so parents can pick teachers for their children. ‘The ability to learn remotely provide[s] opportunities … give schools the ability to identify the best teachers and offer access to time-slots.’ 

Prof Len Shackleton, an IEA research fellow, proposes allowing graduates to teach in state schools without teacher training qualifications, as part of a lifting of requirements for entering skilled professions such as law and social work. 

Another idea is amending the Equalities Act so white working-class boys are better protected 

Another proposal, from the Cabinet Office minister Brendan Clarke-Smith, suggests restoring the link between tax and household income. 

‘Under the previous system … a married woman’s income had been seen as part of her husband’s,’ he writes. ‘Of course attitudes towards women’s careers have changed … however the debate over the merits of individual taxation have raged on.’ 

Sam Collins, then the FMF’s outreach director, proposes revisiting ‘uniform‘ minimum wage rises as they are ‘set centrally for the entire country‘ but have led to ‘significant and harmful unintended consequences’. 

Dr Kristian Niemietz, the IEA’s head of political economy, wants to release green belt land for more housebuilding. He suggests green belt land within an 800-metre radius of a commuter station, which is not otherwise protected, should be released, with extra infrastructure paid for by taxing the uplift in land value. All of which will displease ‘blue belt’  

Other less controversial proposals include tackling NHS staff shortages, encouraging cooperatives and extending the super-deduction on businesses, which allows companies to cut their tax bill by up to 25p for every £1 they invest, to help promote growth. 

However, there is no sign of support for nurses. Speaking on Sky News, the health secretary, Thérèse Coffey, said there was limited scope for negotiation. Coffey said: ‘We’ve honoured the independent pay review body’s recommendations on this. That was higher than many of the other pay rises that other public-sector workers are getting. Dare I say it, having respect of the independent pay review body, I’m not anticipating that we’ll be making any further changes.’ 
 

‘the government’s offer of a 3% wage rise ‘makes a difference to a nurse’s wage of 72p a week”

 
The RCN will ballot nurses this week regarding strike action, say the government’s offer of a 3% wage rise ‘makes a difference to a nurse’s wage of 72p a week’. 

In a summary of their plans, Sam Collins, the head of FMF, said: ‘Regulation has been estimated to cost the UK economy £220bn a year. If the prime minister wants to succeed with her economic agenda, there will need to be significant reform to make it easier for businesses to form and grow. 

‘Many of the 30 policy suggestions made in our paper focus on removing these barriers to growth that make it harder for people to build houses, start businesses, create jobs, or move into new sectors. 

‘But it is not just growth numbers on a spreadsheet that supply side reform impacts. The cost of living crisis facing British families is caused, in part, by government regulations artificially keeping the price of everyday items such as food, child care and energy artificially high. 

‘Supply side reforms, well targeted, will not only help the economy grow but also help improve the financial situation of the most vulnerable.’ 

Whatever supply-side reforms are introduced, the Institute for Fiscal Studies reports that ‘Crazy’ will need to find £60bn of savings by 2026 to cover the cost of his unfunded tax cuts and the costs of extra borrowing triggered by a panicked reaction of investors to his ‘mini-budget’. 

Furthermore, there is more negative news on the growth front; economic forecasts by the investment bank Citigroup that the IFS uses to underpin its analysis shows the UK will struggle to grow at more than 0.8% on average over the next five years. 
 

‘the UK will struggle to grow at more than 0.8% on average over the next five years’

 
This is less than half the growth rate forecast by the Office for Budget Responsibility in March, and reflects the fallout from the mini-budget, as well as a slowing global economy, and our weakened trade balance post-Brexit. 

The IFS said government plans to inject vigour into the UK economy over the next five years to pay for a boost in spending were likely to have only a limited effect, leaving ministers to make hefty reductions in public services and to keep a tight rein on welfare benefits. 

The IFS director, Paul Johnson, said all the options open to Kwarteng were unpalatable as they either increased the public deficit, or to avoid this, involved swingeing cuts to public spending or broke manifesto commitments. 

One area of contention is linking benefits to wages (5%) or inflation (10%); choosing the lower measure could save C.£13bn. A reduction in public investment by a third to 2% would save £14bn, while a return of austerity across most Whitehall departments, excluding health and defence could save £35bn. 

Today, Chris Philp, claimed the government would apply ‘spending restraint‘ not cuts. When questioned he said: ‘Spending restraint is not the same as real-terms cuts. We do not plan real-term cuts but we do plan iron discipline when it comes to spending restraint.’ 
 

‘economists tell us we will not achieve Truss’s magic 2.5% p.a. growth’

 
At the end of this economists tell us we will not achieve Truss’s magic 2.5% p.a. growth: 

Deutsche Bank said the government’s tax cuts and energy support scheme would help to add about 0.5 percentage points to UK GDP over the next year relative to its previous forecasts. However, higher interest rates from the Bank of England would shave off close to 0.8 percentage points from GDP relative to its previous estimates. In other words that’s minus 0.3%. 

Rather than Britain coming close to Truss’s growth target of 2.5% a year, Deutsche Bank said the country’s growth rate would settle at closer to 1.25% a year by the middle of the decade. 

Highlighting the risks to the economy with inflation at a 40-year high, the British Chambers of Commerce (BCC) said more than three-quarters of companies in a survey of 5,200 firms had not increased investment in the last three months. 

Torsten Bell, the head of the Resolution Foundation thinktank, said: ‘There is no plausible route by which these tax cuts lead to particularly that scale of increase in your trend growth rate.’ 

In the short-term we can expect more market turbulence, U-turns, and spending cuts that aren’t spending cuts. 

I wrote last year about the Tory’s diving right to govern, and that each leadership choice is part of an ongoing social experiment, what we are now experiencing is the last waltz. Whilst Covid and the energy crisis are global events, Brexit and this governments mini-budget fiasco are of our own making, and were wholly avoidable. 

We have allowed ourselves to be ‘taken-over’ by a hard right, unelected government, that is representative of a tiny minority of the population. 
 

‘We have allowed ourselves to be ‘taken-over’ by a hard right, unelected government, that is representative of a tiny minority of the population’

 
As is the case with autocrats throughout history you are with them or against them. If you’re against them, you are an enemy talking the country down, anti-growth, a ‘remoaner’. 

Truss is deluded not aspirational, not capable of understanding that for many getting through to the end-of-the-month is an aspiration 

Instead of inclusiveness, we have a government that supports exclusion of the majority by the minority. 

Instead of parliament we have thinktanks in the shadows influencing, and perhaps, deciding government policy. 

They need to open their eyes, it isn’t negativity, its reality. 

‘Can’t go on no more 

The people getting angry’ 

 
Notes: 

1. EU Transparency Register, European Policy Information Center, 18 December 2018, accessed January 2019 

 
 
Fascinating insight from Philip this week as he explores the influence exerted by free-market think tanks such as the IEA and the Free Market Forum. 

With their levers being pulled by a whole range of vested interests and lobby groups, it becomes easier to understand why certain, pretty dubious decisions are being made. Where deregulation greases the wheels of growth and development it can be argued to be a good thing, but when it removes professional protections, and endangers the environment, it can surely have no place.

But Truss seemingly only has one gear – forward – and the havoc she wreaks will be in direct proportion to the length of time she is allowed to drive the bus before a shepherd’s crook appears from the back benches. 

So, who are these shadowy characters?:

From time-to-time you hear reference to the IEA and other think tanks, and I decided to take a closer look. They operate from the shadows, and are secretive about their funders, and who they might represent. There are numerous investigative papers out there, I used one of them that focussed on the tobacco industry and their involvement.

Essentially, they are right-wing free marketers, all batting for their side; oil, tobacco, big dollars seeking to shape the world as best suits them. What is scary, is their role as incubators of young Tory “talent”. Do they influence them, shape their thoughts, or simply brainwash them?

Our current government seems to be deep into this rut, and we highlight a paper by an IEA offshoot, the Free Market Forum, who have some very wild ideas. All of which seem to negatively impact the majority.

Everyone except the government appears to accept that their economic plans wont achieve their growth targets. In addition, everyone except them thinks that the £43bn of tax cuts need to be funded by spending cuts. There is very much a “them and us” attitude, with all the “them” being neggies, doing the UK down, etc., etc..

This is a government for the minority. Post-covid their ideas look out-of-date; a series of academic studies and national statistics show the connection between economic growth and general prosperity in rich nations broke down years ago. The economic anthropologist Jason Hickel points out that many countries with a much lower GDP per capita have longer life expectancies and better education than the United States.

This might seem counterintuitive but it reflects who benefits from the majority of economic growth. Countries such as South Korea, Portugal and Finland invest sensibly in public services. They may not spend more, but their investment is aimed at prosperity for all, not the few. The US spends 4x as much on healthcare as Spain, yet US life expectancy is, on average, 5-years shorter.

A study of 10 European nations published last month, found that changes in happiness could best be explained not by varying rates of economic growth, but by varying levels of spending on public welfare.
“Greed is good” is so 1980’s. Never forget, Ivan Boesky, who made this phrase famous, went to prison!
I just hope that when we are rid of this lot the damage will be sustainable.
Lyrically, we start with the Smiths, and “The Hand That Rocks the Cradle. We finish with Specials “Ghost Town” coming to a town near you soon. 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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