Beginning to See the Light: Unknown unknowns 

 

‘I could love you but why begin it 

‘Cause there ain’t any future in it’

 
Well, well, a few Tory MPs finally grew a pair, and Johnson is finally history. As regular readers will know I predicted this in December, however I had expected it to be sooner after May’s local elections. 

Johnson’s resignation speech typified the man, it was both grudging and without grace. There was no contrition for his own misconduct as PM, or any understanding of why a party that had rushed to embrace him 3-years ago has rushed to rid itself of him now. Like Trump, his capacity to do damage to his party and the country has not yet ended. 

As I have written before the party that anointed him are as culpable as he is. Johnson is about charisma, there is no substance. His approach to the Brexit agreement typified him, agree something, anything, then disregard as required. Many say he should have gone months ago, a more accurate statement is that he should never have been appointed. 

As a result he leaves behind him a party that is discredited, and unsure of its own identity. Johnson was not a Conservative he was a populist who based his appeal on appearing to be a strong leader, Brexit nationalism, active government, and high borrowing. 

His rise to the top was driven by Brexit, firstly the 2016 referendum, and then the quasi electoral pact with the Brexit Party which, along with ‘levelling-up’, delivered him a sweeping electoral success in 2019.  
 

‘Like Trump, his capacity to do damage to his party and the country has not yet ended’

 
The question is, how permanent is the electoral transformation his populism created?  He reoriented  the party around older workers and the retired, offering a departure from the EU as a delusionary escape from an uncertain and disorientating world. This escapism hasn’t survived reality, in fact many of the policies he  pursued went against his own voters’ wishes, E.G., immigration went up rather than down, taxes were raised to their highest level since the 1950s. Levelling up remained a slogan rather than a policy. 

In the end all Johnson offered was confrontation; confrontation with the EU, with civil servants, judges and public services all scapegoated in a ‘war on woke’. It is hard to imagine how the Tories maintain the electoral coalition that Johnson created. He achieved this consensus by campaigning  rather than governing, which, as his predecessor Theresa May pointed out, ‘ultimately drives populism and polarisation, not finding compromise and consensus‘. 

Before considering who will succeed Johnson, I was interested to read John Major’s comments when he appeared before the public administration and constitutional affairs select committee (PACAC), which was taking evidence on propriety in governance: 

‘What has been done in the last three years has damaged our country at home and overseas, and I think has damaged the reputation of parliament as well. The blame for these lapses must lie principally, but not only, with the prime minister. But many in his cabinet are culpable too and so are those outside the cabinet who cheered him on.’ 

Of the current hopefuls in his party’s leadership race, he added: ‘They were silent when they should have spoken out and spoke out only when their silence became self-damaging.’ 

All are carrying baggage; Sunak, is a Brexiter who, as chancellor, has seen British household income growth having fallen behind all Europe bar Cyprus and Greece. On his watch Britain is now the most unequal country in all Europe, bar Bulgaria, as he cut back on universal credit and put nothing serious into levelling up. Penny Mordaunt, the trade minister, knows the truth of our forlorn trade prospects, with an 8.3% trade deficit – the worst since 1955. Liz Truss knows her bill tearing up the Northern Ireland protocol is heading for an outright collision with the EU.  

Despite this the ‘hopefuls’, perhaps hopeless might be more accurate, highlight two issues; firstly, if there are party members thinking that Sunak becoming leader is akin to socialism, then the party is moving further to the right. Secondly, the right remain convinced that tax cuts are the only way to grow the economy and make Britain great again. 

They seem fixated with the level of taxes in the UK. International comparisons produced by the Organisation for Economic Cooperation and Development show that last year tax revenues as a share of national income across its rich-country members stood at 32.9%. The figure for the UK was 32.8%. 

The OECD international tax table only serves to prove the obvious; countries that have generous welfare states are high-tax, whilst countries that have rudimentary welfare states can be low-tax. You can’t have Swedish levels of public spending and US levels of tax. 

The result of lower taxes is a smaller state, with people expected to contribute more to their own welfare, whether through payments for healthcare or less generous state pensions. 
 

‘people expected to contribute more to their own welfare, whether through payments for healthcare or less generous state pensions’

 
Real voters are not their target of these would-be PMs, their concern is wooing their own MPs and 200,000 mainly male, white, elderly, southern members. 

Their premise is based on the economic strategy that cutting taxes will pay for themselves because they will lead to faster growth and higher revenues for the Treasury. None have explained why all those countries bettering us have higher taxes and better growth. The Resolution Foundation shows that the typical French household income rose by 34% in the decade to 2018 and Germany’s was up by 23%, while lower-taxed UK households fell back by 2%. 

Much, if not all of their economic doctrine is still based on Thatcherism. Whilst she was possible the best PM since Churchill, there is much myth around what she achieved and, as ever, there is the benefit of timing. Whilst Britain was an economic basket case for much of the 1970s, prior to Thatcher’s 1979 election victory things were starting to improve.    

In 1977 Gavyn Davies (2) , a senior member of the Downing St Policy Unit, sent Callaghan a medium-term assessment which forecast that through a policy of controlled reflation and rising North Sea oil revenues, Labour might be able to reduce income tax to 15% in 1982 (1). 

Furthermore, between 1975-78 the Labour government cut public spending in real terms by 8%, more than Thatcher ever achieved (1). 

Cutting taxes to stimulate growth was one of the base tenets of Thatcherism, however, it wasn’t as simple as that. Cuts in income tax made by the incoming Thatcher government in 1979 were offset by higher VAT. The 1981 budget saw a slackening on monetary control, with increased tax revenues providing the deflationary discipline (1). 

VAT, which had been 8% (with a 12.5% marginal rate) was increased to a single rate of 15% (1). Taxes were raised when the economy was deep in recession in 1981. It was only after several years of growth and a marked improvement in the public finances that income tax rates were cut. Until 1988, the top rate of income tax was 60%. 

Increasing VAT is both inflationary and disproportionately affects those on lower wages for whom the shopping bill consumes a relatively larger share of their income. 

Because of the way the revenue from North Sea oil was used it was a one-off, however it was a one-off of massive value which provided the freedom to cut taxes 

By 1982-3 North Sea oil revenue was C.£8bn, equal to 8.5% of all tax revenue. By 1984-5 this had risen to £12bn equivalent to 8% of all tax revenue. This is twice the amount of revenue that was raised by corporation tax on all other business sectors combined (1).  
 

‘we sat back and hoped the City would keep the budget deficit manageable’

 
Whilst Norway saved these revenues for the future we used them for a short-term binge and balanced budget. Had we followed their lead and invested this revenue in government bonds by 2008 it could have been worth £450bn (1). 

In my opinion much of what we achieved over the past 40-years has been negated by a lack of clear industrial policy, whist we sat back and hoped the City would keep the budget deficit manageable.    

This brings me on to stock market performance. 

In the US the S&P is down C.17% in the last 6-months, however after falling to 1026 in February 2009 it has risen over 3-fold. By comparison the FTSE 100 has fallen by only 6% over 6-months, and fell to 4150 in Jan 2009, but hasn’t even doubled in value since then. 

What does this tell us? Someone suggested the US was just massively over-valued and was due a correction, whilst the FTSE still offers value. 

Rubbish! The US had a’ V’-shaped correction post 2008, whereas ours was’ L’-shaped. In all respect the US possess a more dynamic and robust economy.  
 

‘US had a’ V’-shaped correction post 2008, whereas ours was’ L’-shaped’

 
Amongst the many lessons we can learn from them is the dangers of populism and populist leaders. As Major told the PACAC, democracy ‘is not inevitable‘ and can be undone ‘step by step, action by action, falsehood by falsehood.’ 

‘It needs to be protected at all times and it seems to me that if our law and our accepted conventions are ignored then we are on a very slippery slope that ends with pulling our constitution into shreds,’ said Major, who said democracy was ‘in retreat’ elsewhere in the world and should not be taken for granted in the UK.’ 

As the select committee in Congress is discovering the insurrection in Washington in January 2021 appears to have been incited by Trump 

Congressman Bennie Thompson, said ‘Some people are trying to deny what happened,’ Thompson added. To turn the insurrectionists into martyrs. But the whole world saw the reality of what happened on January 6th. The hangman’s gallows sitting out there on our National Mall. The flag of that first failed and disgraced rebellion against our union, being paraded through the Capitol.’ 

Perhaps the most revealing testimony came from Cassidy Hutchinson, former aide to Trump’s chief of staff, Mark Meadows. 

‘Hutchinson revealed that as of 2 January, Rudy Giuliani was already boasting of plans to go to the Capitol on the 6th, where the president would ‘look powerful‘. On the 6th, Trump and Meadows were both informed that some insurrectionists were armed with military grade automatic weapons, after which Trump demanded that the metal detectors (‘mags’) be removed, partly to make his crowd larger: ‘I don’t fucking care that they have weapons,’ she heard Trump say. ‘They’re not here to hurt me. Take the fucking mags away.’ The White House had seen intelligence revealing the insurrectionists’ plans to ‘occupy federal buildings‘ and for ‘invading the capitol building‘, declaring: ‘Congress itself is the target on the 6th.’ When Trump heard the chants of ‘Hang Mike Pence‘, and urged the crowd to find Pence, he knew that they were armed and dangerous and planning a political coup.’ 

Of course, that could never happen in Britain. And I would agree with that statement, but there are ways of achieving the same thing, a dictatorship, by constitutional means. 

As with many things, the issue with populism isn’t where you start, its where you finish. 
 
_Notes: 

1. _{‘Bang!: A History of Britain in the 1980s by Graham Stewart} 

1. _{Gavyn Davies went on to become Chief Economist and partner at Goldman Sachs}  

 

‘Oh and I’m alive and I’m alone 

Inside a sick sick dream’ 

 
 
 
We welcome Philip back from his hols, and despite his timing being ever so slightly off, there is no question that Philip gets the big calls right; this time the Big Dog has gone.

Or has he? As with the Donald, it does feel as though there could be more to come on both sides of the Pond.

And as the candidates trot out their tax-cutting agendas to butter up those on the right of Genghis Khan (shurely ‘the Party’?…..Ed) Mother Nature should be concerned that not a single one of them attended Patrick Vallance’s update on the climate crisis.

Sir Patrick said that the data he delivered was the very same that convinced BJ of the seriousness on the situation ahead of COP26; before he hopped on a private jet to get on the sauce at the Garrick.

Nibbling a penny from income tax could be swept away by the need to fund the development of green energy and renewables; much easier to just bin Net Zero 2050, or kick the can down the road. That should end well.

So what was Philip thinking?:

Johnson finally meets his maker, and only 8-weeks later than I predicted. As a saga his resignation was full of pathos. It wasn’t his fault, he did his best, achieved so much, and then he was stabbed in the back.

The hard-right love a stab in the back theory, makes them feel better when they fall-off their plateau. I have a nasty feeling we haven’t seen the back of him, and the party is so enthral to the hard right that whoever replaces him will have to pander to them as Johnson found out.

None fill me with confidence, but I look forward to picking holes in whoever wins!

The party is still too rooted in the past, in Thatcherism, to progress. She achieved much as PM, more than most, but, as my article shows, some of it was myth and some owed much to being in the right place at the right time.

John Major’s comments continue to impress me; he’s right in saying that Johnson’s replacement is as guilty as he was.

In addition, his comments about democracy are on the money. As more is revealed it is clear that Trump was at worst complicit in the events of the 6^th January, at worst he was behind them. Unless strong actions are taken he will be back.

We also look at stock markets, the S&P500, and FTSE100; the numbers tell you all you need to know.

Lyrically, we start with the Bay City Rollers and “Bye Bye Baby” justy for Boris. We end on a darker note with the Jesus and Mary Chain and the “The Hardest Walk”. Perhaps it will be Trump walking to the electric chair?

 
Image – @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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