Beginning to See the Light: The worst is yet to come 

 

‘People all over the world (everybody) 

Join hands (join) 

Start a love train, love train’ 

 
As the unions, especially the RMT, become the latest the government is using to incite the electorate, it’s interesting to see Peter Hain, the former Northern Ireland minister, share my opinion: 

‘Instead, focus upon its real purpose: dog-whistling to Johnson’s base by triggering a humongous row with the old villain Brussels because that worked so well in the 2016 Brexit referendum. And keep that going – if at all possible – all the way to the next general election.’ 

‘Mussolini’ AKA my mother is proof this works. ‘Who runs this country? Not the EU and their courts’. She meant the European Court of Human Rights, but it has European in the title which, for her was sufficient. ‘We should sending them to Rwanda’. ‘The unions are ruining this country‘.  

What she can’t, or won’t understand is that this is exactly the reaction Johnson wants. Distracting voters from the real issues; recession, stagflation, and a cost-of-living crisis.   

Whist the prime cause for this is the war in Ukraine and Covid, blame can also be laid at the door of central banks, and in the UK, years of economic mismanagement and lack of planning. 

To overcome the persistent inflation problems of the 1970s, we turned to the Thatcherite economic model of free-market economics, driven by credit, consumption and property prices, at the expense of investment, productivity, and good, high-performance workplaces 

This links to the GFC of 2008. To overcome that governments and central banks, via ‘zero’ interest rates and QE, pumped liquidity into economies. This had the dual impact of appearing to stave off a recession, and inflated a massive asset bubble. 

We had effectively become complacent, free-market policies effect masked the fact that cheap imports from China were keeping inflation low and ‘zero’ interest rates were fuelling a house-price boom.  

Although we produce more manufactured goods than in the 1970s, industry’s share of the economy has fallen to less than 10%, the smallest in the G7. Most of the goods we buy continue to be imported. We haven’t run a trade surplus in goods since the early 1980s. The deficit as a share of the economy is on course to be the highest this year since the 1970s. 

This relatively small manufacturing base is as a result of industry having the lowest share of investment of any G7 country. Cheap labour has made it easier for firm’s to hire more workers rather than by investing in new kit. This knocks-on to our productivity which lags behind the US, Germany and France. 

For too long we have left everything to market forces hoping that everything will turn out fine, while countries such as South Korea and Taiwan, have become industrial powerhouses by having a plan and sticking to it.  

Today’s inflation is largely the result of Russia’s invasion of Ukraine and, to a lesser extent, China’s difficulties with Covid. The reaction of central banks has been to increase rates which, rather than reassuring everyone has added to the sense of panic. As one analyst said; ‘The Federal Reserve is going to hike interest rates until policymakers break inflation, but the risk is that they also break the economy.’ 

The other fear central banks have is a wage/price spiral;  an academic concept based on a theory of inflation by economists in the 1960s and 1970s. They argued that once households expect inflation to be high, they will demand increased wages, in turn businesses will be forced to pass on the cost of higher wages creating a spiral effect. 

With inflation in the UK expected to peak at 11%,this is not a credible concern, especially as the government proposed limiting public sector pay rises to between 0% and 3%.  

At that time unions were in the ascendency. In 1975 inflation hit 25% and wages for manual workers increased at an annualised 31.7% while average earnings for all employees rose by about 28% a year. Inflation then was driven by spike in oil prices caused by OPEC in 1974. 

However, earnings stabilised and by 1976 increases were below inflation where they remained for the rest of the decade. 

Today unions are considerably weaker than in the 1970s, as a result British workers get some of the worst treatment in western Europe, with, average wages  falling at their fastest rate in two decades. 
 

‘British workers get some of the worst treatment in western Europe, with, average wages  falling at their fastest rate in two decades’

 
The Office for National Statistics says average pay growth without bonuses is 4.2% in April, up from 3% at the beginning of the year, but less than half the 9% inflation rate.  

Even then this number is distorted as workers in certain sectors such as the City, IT professionals, lawyers, etc., are able to keep their pay in-line with inflation. 

Another example is FTSE 350 CEOs who are expected to collect 63x the average median pay of their workforce (1). 

Inflation is also being exacerbated by businesses taking the opportunity to increase profits margins.  This was highlighted in a report shown to the Guardian as part of a strategy put in-place by Sharon Graham who, last year, was elected head of the UK’s second-largest trade union, Unite, which, after study of the accounts of the big FTSE-350 companies, showed profit margins rising by 73%, or 50% excluding energy firms. 

The Bank is aware of this, Huw Pill their chief economist, talked last month of companies pushing up prices to ‘pass on’ costs, and of a ‘further strengthening of margins‘.  

The obvious answer would be for the government to intervene but then the bosses are their priority not the workers, with the chancellor seems prioritising fiscal rectitude above the ‘whatever it takes’ open-ended commitments needed to foster confidence. He is fixated with low business taxes, special visas for foreign entrepreneurs and the old Thatcherite plan of compelling those on benefits to look for work. 

It isn’t only individuals they are feeling the pain caused by the crisis; local councils have been left with a budget hole of C. £2bn.  

‘It’s very bleak,’ said Sir Stephen Houghton, Labour leader of Barnsley council in South Yorkshire and chair of the Sigoma group of urban councils, who estimates that Inflation has added an estimated £9m to Barnsley’s costs this year. 

Houghton continued saying that other councils are in the same position; ‘The vast majority are saying they are going to have to make cuts. A quarter say they could be financially destabilised.’ 

There goes ‘levelling-up’. 

Many of  the workers worst affected are the one who kept the country going through the pandemic, risking their health before Britain had vaccines. The same people we clapped from our doorsteps; as I wrote at the time this was merely a token gesture, sympathy and gratitude doesn’t extend beyond No.10. 

The government clearly see the railway strike as another opportunity to ‘annoy people’, and are doing nothing to settle it, setting his supporters against another ‘enemy’ to revive his sinking popularity. 

Mike Lynch, leader of the RMT, said the source of the dispute was the government’s decision to ‘slash £4bn of funding from national rail and TfL … forcing companies to implement transport austerity … and they have prevented a settlement to this dispute‘. 

The transport secretary is a waste of space, and the PMs proposal to allowing firms to bring in agency staff, has been decried by unions as unworkable, unsafe and potentially breaking international law.  
 

‘The transport secretary is a waste of space’

 
Paul Nowak, the deputy general secretary of the TUC, said: ‘Laws against bringing in agency workers have been in place since this was outlawed in 1973. Even Margaret Thatcher didn’t go near it. But Boris Johnson has pulled out the playbook.’  

Nowak said there were safety concerns with bringing in agency workers, who might have little experience in what they are being asked to do 

He also cited the right to take strike action under the principles of the UN’s International Labour Organisation;  ‘Once again, this government is showing its disregard for international law, which these proposals almost certainly breach.’  

Johnson’s proposal is little different to the one implemented by P&O Ports. At the time the government feigned indignation but did nothing to overturn the move. 

Johnson has accused the RMT of ‘too high demands on pay,‘ saying it was necessary for public-sector employers to show ‘pay discipline and restraint’ to prevent even higher inflation. 

This contradicts previous statements, such as  his speech to the Tory party conference last October: ‘we are not going back to the same old broken model with low wages, low growth, low skills and low productivity, all of it enabled and assisted by uncontrolled immigration‘. 

However, certain groups of people are still entitled to now show ‘pay discipline and restraint’. This week the government has approving an above-inflation increase in the value of the state pension for next year. The spokesperson said the government thought the pension increase would not be inflationary. 

When asked why raising the value of the state pension for 2023-24 by more than the likely rate of inflation for that year was not inflationary, he replied: ‘The chancellor needs to consider it all in the round and the view is that we can meet that commitment without stoking those inflationary pressures. But we did take difficult decisions with regards to the triple lock, a temporary one-year suspension.’ 

Another answer would have been because the majority of pensioners vote Tory, whilst railways workers vote for the other lot. Therefore, they aren’t entitled. 
 

‘the majority of pensioners vote Tory, whilst railways workers vote for the other lot’

 
And, staying with pensioners we turn to Brexit 

One of the things that Brexit highlighted was a generational divide. Most people over 60 are continually angry about the EU and the issues that it raises, E.G., the NI Protocol. Some even fear that Westminster might see sense and reverse the process. By comparison, the under-30’s are either ‘remain’, or indifferent. 

This was a quote I saw reported from an older Brexiter; ‘They want to see this country as it was. All the old values have gone. There doesn’t seem to be much pride in the country.’ 

I wonder where he has been living? Johnson and his mob have trashed the old values. As for pride, Pride in what? Two-world wars and a world cup? 

For the old, Brexit was about immigration and British exceptionalism, which was being denied us by institutions like the EU. They are subsumed by a mixture of nostalgia, belligerence and a zealous belief in ‘sovereignty’. 

The young actually worry about issues; getting somewhere to live, the lack of good local jobs. 

All Johnson has achieved is maintaining the divide, picking fights with ‘liberal left lawyers’ and the European court of human rights over his asylum policy; breaking agreements he created as with the NI protocol. For fear of repeating myself the government sees Brexit as the gift that keeps on giving. 
 

‘All the old values have gone. There doesn’t seem to be much pride in the country’

 
Strangely, Brexiters seem unsure about the projects long-term survival. For example, on the day of the no-confidence vote, Jacob Rees-Mogg warned that Tory opponents of the prime minister were ‘hostile to Brexit‘ and that the ballot would ‘undermine the Brexit referendum‘. Suella Braverman, the attorney general, last week dismissed concerns about Northern Ireland as ‘remainiac make-believe‘.  

Clearly Brexiters realise that ‘leave’ was the product of a unique political moment based demographics that are constantly changing. As a result, hard-core Brexiters will go the way of dinosaurs.  

Statistics support this: 
 

• 73% of 18- to 24-year-olds voted remain,  

 

• 62% of  25-34 year-olds voted remain, 
• 3-years ago, 68% of over-65s supported a no-deal Brexit, whereas only 14% of 18-24 year olds did.  

 
If the Tories see the future as being based on flag-waving belligerence and picking fights with Brussels they will be a long-time in opposition. 

In addition to demographics what is also becoming clear is that we are experiencing no material benefits having left the EU, and that its effects on the economy are now becoming apparent 

The Resolution Foundation and academics from the London School of Economics said the average worker in Britain was now on course to suffer more than £470 in lost pay each year by 2030 after rising living costs are taken into account, compared with a remain vote in 2016. 

Six-years on from the referendum researchers said Brexit was damaging the competitiveness of UK exports on the world stage, saying, ‘A less open Great Britain is expected to be poorer and less productive‘. 

The report also said Brexit would weigh heavily on productivity gains over the coming years up to 2030, while suggesting that higher import costs were adding to pain for household finances. 

The research estimated labour productivity – a key measure of economic output per hour of work – would be reduced by 1.3% by 2030 because of a decline in openness of the British economy after Brexit, equivalent to losing a quarter of efficiency gains achieved over the past decade. 
 

‘the red wall is being rebuilt as voters there realised that Johnson cares only about himself and being PM’

 
Ministers have argued bigger pay rises for UK workers would only be sustainable if backed by productivity gains. However, with the expected decline in the efficiency of the British economy after Brexit, the academics said inflation-adjusted pay was now set for a 1.8% fall by 2030. It said this was equivalent to the loss of £472 a worker, a year. 

The report’s authors included the LSE academic Swati Dhingra, an outspoken Brexit critic picked by the chancellor, Rishi Sunak, to sit on the Bank of England’s interest-rate setting monetary policy committee from August. 

The report appeared to undermine the government’s argument that Brexit and its plans to level up the economy to boost prosperity outside London and the south-east, with researchers finding the north-east of England would be hardest hit by leaving the EU. 

With a bigger industrial sector and higher exposure to the EU market, it said the region would see a 2.7% fall in manufacturing output by 2030 compared with a scenario in which the UK voted to remain in the EU in 2016. 

Exports to the EU are expected to be 38% lower than they would have been inside the EU by 2030, with a further 16% decline due to forgone further integration with the EU over that period. 

Politically, no more how correct the above is, all that matter is what voters think. Last night we found out; starting in Wakefield the red wall is being rebuilt as voters there realised that Johnson cares only about himself and being PM. They were, as this column had said before, cannon fodder being told what they wanted to hear. 

From a seat that had been a traditional Labour stronghold, we turn to Tiverton and Honiton a constituency that is same shape or form has been Tory for over 100-years. That the LibDems won with a 6,000 majority overturning a 24,000 Tory majority speaks volumes about the discontent with both government and PM. 

I will leave you with the word of their newly elected MP, Richard Foord: 

  ‘This should be a wake-up call for all those Conservative MPs propping up Boris Johnson. They cannot afford to ignore this result. The people of Tiverton and Honiton have spoken for the country. The public is sick of Boris Johnson’s lies and law-breaking and it’s time for Conservative MPs to finally do the right thing and sack him.’ 

‘Leadership means acting with decency and integrity’. Your behaviour makes a mockery of leadership. You are unfit to lead. The only decent course of action is to resign.’ 

 

‘It was a kind of so-so love 

And I’m gonna make sure 

It never happens again’ 

Notes: 

1. Source, the High Pay Centre 

 
As the Tories are thumped in two more by-elections, Boris is AWOL again – playing the international statesman. Anna Soubry said that she thinks Boris is ‘toast’ although he seems to be the slice that gets firmly wedged and has to be winkled out with a sharp instrument.

Some familiar themes this week, but has Philip taken it to the extreme by suggesting that Mrs T was actually naked as a jaybird and that Thatcherism not only led to the GFC but is the root cause of many of the crises we currently face; whatever the truth there does seem to be a whiff of decay in the air as we lurch towards a summer of discontent.

One thing’s for sure, Boris sticks like 5hit to a blanket; one cabinet minister suggested that ‘any big national event, such as a twist in the pandemic, or death of the Queen, could instantly change the political landscape ahead of the election’. WTAF.

Meantime, what was Philip thinking?:

‘I held this week’s article back as I wanted to cover the by-election results, which should be another nail, perhaps the final one, in Johnson’s coffin. All that should be left is Carrie stripping the £800 a roll of wallpaper.

That fact that probably won’t be speaks volumes for both the man and the party. He is just belligerent, another Trump, not able to see what is plainly in-front of him.

The party is cowed by him, devoid of front bench talent, and guilty in putting the charlatan in No.10.

We are seeing two-things, the most obvious being the publics discontent with Johnson’s lying, cheating, and above all total incompetence.

Secondly, this is the death knell of Thatcherism, who’s limitations are now apparent. Based on privatisation, right-to-buy, and free market economics it was an orgy of greed. Great fun whilst it lasted, but ultimately a typical Tory policy which put the wealth into the hands of those already wealthy.

There was no economic policy, we only stopped being the “poor man of Europe” because of a credit boom driving a property market that created illusory wealth

The GFC of 2008 was its climax, out of control markets left to have one final orgy. Central banks saved the banks, but at the expense of main street.

Perhaps this time it will really be different next time.

Lyrically, we start with trains. Whilst “Love Train” by the O’Jays might seem a bizarre choice, its message of love is appealing in troubled times. To finish, we have Soft Cell’s “Say Hello Wave Goodbye”. Why? Well, we are waving good bye and good riddance to Johnson, and with lyrics such as “You and I, it had to be, The standing joke of the year”, it’s strangely apt.’

 
@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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