Heroes: Bribes are all the PM has left 

 

‘The blind Me-Generation 

Doesn’t care if life’s a lie’ 

 

Before we look at the PMs last desperate roll of the dice, tax cuts, let’s consider the state of play in the real world. Before doing so, remember this; the Tories have been in government continually since 2010, problems are theirs, and theirs alone. 

This week, Citizens Advice reported that > 2m people across the UK will be cut off from their gas and electricity this winter because they cannot afford to top up their prepayment meters. About 800,000 people went more than 24 hours without gas and electricity, unable to make a hot meal or take a warm shower, because they could not afford to top up. 

In addition, more than 5 million people who are billed by their supplier are in debt, putting them at risk of debt collection or being forced to fit a prepay meter. 

Citizens Advice is particularly worried about households with children under four, who are twice as likely to be in debt and be unable to top up their prepay meter than those without children. 
 

‘> 2m people across the UK will be cut off from their gas and electricity this winter because they cannot afford to top up their prepayment meters’

 
The Joseph Rowntree Foundation reports that it has been 20-years and 6-PMsrs since there was last a sustained fall in poverty, saying there had been years of ‘political failure‘ to tackle poverty. 

Analysing broader trends since the 1970s, poverty rates grew rapidly under Margaret Thatcher during the 1980s, until they reached C.25% by the mid-1990s, and had remained high since then. Poverty fell during the first half of Tony Blair’s Labour administration, but started to rise after 2005. 

The 2024 poverty report said 6-million of the poorest people – those living in very deep poverty – would need on average to more than double their incomes to move out of hardship. 

Their analysis showed the average person in poverty had an income 29% below the poverty line on the latest official figures for 2021-22, up from a gap of 23% in the mid-1990s.⁽¹⁾   

For the poorest households the average income was 59% below the poverty line, with this gap increasing by about two-thirds over the past 25 years. ⁽²⁾ 

For a couple with two children, both under 14, the poverty line is defined as £21,900, while income below £14,600 is defined as very deep poverty. 

The number of people in very deep poverty had increased from about 4.5 million in the mid-1990s, when it would require about £7,700 for the average person to reach the poverty line, to about 6 million in 2021-22, when it would take an extra £12,800 to reach the breadline. 

The Tories seem oblivious to all of this, basing their thinking on Thatcherism adherence to free-markets. Only last week, the chancellor, Jeremy Hunt, was decrying protectionism in Davos, whilst in south Wales his trusted free-market principles allowed Tata Steel decided to close their Port Talbot plant with the loss of thousands of jobs, instead of the plant making a planned transition to a greener steel industry. 

As a result, the UK is the only major economy unable to make steel from scratch. We are increasingly reliant on imports, with the requisite jobs moving to places such as India, while Britain adds to global greenhouse gas emissions as the steel we need has to be imported.  

The government has strange priorities; rather than borrowing Labour’s £3bn plan to move more slowly away from older coal-powered plants while transitioning to green steel to support demand for sustainable products, they chose to bung Tata £500m to make 2,800 people redundant,. 

Free trade is great when it is mutually beneficial, I.E., when countries are at similar levels of industrial development, but that is very far from the case with China.  

Financial services is one the of few sectors where we are relevant, which is why Hunt is pinning his hopes on attracting significant capital flows and many new jobs to London, with commensurate higher tax revenues. The flipside will be a stronger pound and a larger trade deficit, further eroding the UK’s share of global manufacturing which in turn reduces employment and tax receipts. 
 

‘Given the decreasing global importance of the LSE, I would question Hunts’ hoped strategy’

 
Given the decreasing global importance of the LSE, I would question Hunts’ hoped strategy. Considering the results of prioritising the finance sector over manufacturing, it has produced little other than wage stagnation and widening inequality. Since 2010, the Tories have tried, with varying degrees of failure to address this; from George Osborne’s ‘march of the makers‘ to Boris Johnson’s levelling up, and, if anything, it has gotten worse. 

Today, we have Hunt suggesting tax cuts which show how things never change with Tories; tax cuts for richer Britons who traditionally vote Tory is an electoral bribe, not a serious policy for equitable growth. 

Supporting these bribes tax cuts is the belief that they can create a second ‘Lawson Boom’. 

As chancellor, Lawson was in the fortunate position to be the beneficiary of North Sea oil. By the mid-1980s, that generated 10% of annual government revenue, £18bn a year. 

In addition, the oil boom played a vital role in delivering the Big Bang in the City of London, for which Lawson usually gets both credit and blame. Money flooded in to invest in Britain’s new hydrocarbon glut. This, supported by his radical deregulations also played a role. Unfortunately, it enabled banks to create the investment products that led to the GFC. But without the oil, it’s unlikely that the money would have been flowing in in the first place. 

As The US Department for Energy said in 1989, ‘the growth of North Sea oil revenues is the most important fiscal development in the British economy in the 1980s‘. 

As a result Lawson, in his 1988 budget, felt able to cut standard rate income tax from 29p to 25p and cut the top rate to 40p. He did so in the belief that the economy was slowing down to a more sustainable rate, and ‘projected a huge surplus that justified his income tax cuts’.  

In reality, the economy was accelerating out of control, inflation spiralled, and previous interest rate cuts caused a 20% increase in house prices. Just a few months later he had to double interest rates, the UK was running its largest ever balance-of-payments deficit, and inflation began shooting up. The resultant recession saw unemployment reach 3m, and millions of homeowners hit by collapsing prices were left with negative equity condemning tens of thousands to repossession. 
 

‘recession saw unemployment reach 3m, and millions of homeowners hit by collapsing prices were left with negative equity condemning tens of thousands to repossession’

 
This left his successor, Norman Lamont, facing a series of budget deficits and tax increases that did much to undermine the credibility of Conservative economic policy. 

Unlike our North Sea partner, Norway, who created one of the worlds’ biggest wealth funds with their proceeds, ours were squandered on under-priced privatisations and tax cuts for the rich, buying Tory election victories rather than investing in long-term prosperity. 

Short-term gain, and long-term pain and rising inequality was all the Lawson boom delivered. 

Rather than repeating Lawsons’ mistakes we would be better served considering the recommendations of Lord Stern, a former chief economist of the World Bank, and colleagues from the London School of Economics. 

Their report recommends investing £26bn a year in a low-carbon economy to revive prosperity instead of planning tax giveaways that will only lead to further stagnation. 

Investing in energy infrastructure, transport, innovation in new technologies such as AI, and the natural environment would boost the UK’s economy rapidly. Public investment at that level would be likely to generate about twice as much accompanying investment from the private sector, and would quickly pay off in higher productivity, efficiency savings, economic growth and carbon reductions,  

Current government plans to stifle investment, by contrast, would lead to a ‘continuation of stagnant productivity and weak economic growth’. 

The findings are similar to the commitments made repeatedly by Keir Starmer, the Labour leader, to invest £28bn a year in a ‘green prosperity plan’. Those commitments have come under sustained attack from the Tories, and are now to be reviewed by Starmer this week, as some within the party are understood to favour dropping the pledge. 
 

‘report recommends investing £26bn a year in a low-carbon economy to revive prosperity instead of planning tax giveaways that will only lead to further stagnation’

 
Dimitri Zenghelis, lead author of the paper, noted that the investments required – equivalent to an increase in public investment of roughly 1% of GDP – were also similar to those espoused by the former PM Boris Johnson, when he held the presidency of the G7 group of advanced industrialised nations. 

It is reported that the chancellor could have C. £20bn of fiscal headroom within the public finances, owing to better than expected economic performance.  Zenghelis said, ‘The evidence suggests that [such an uplift in public investment], after more than a decade of underinvestment, gives the UK the best chance of staying in, and possibly ahead of, the global innovation, efficiency and productivity game.’ 

‘High taxes do constrain private activity, but the evidence shows that in the UK the far bigger constraint is deficient core infrastructure and underinvestment in produced, human, intangible and natural capital.’ 

Shaun Spiers, executive director of the Green Alliance thinktank, who was not involved in the LSE report, said: ‘The UK has been underinvesting for the last 45 years. The consequences are evident all around us, in failing infrastructure, costly energy and a depleted natural world. 

‘Lord Stern and his colleagues are absolutely right. Public investment must be stepped up if we are to achieve net zero, restore nature and compete with countries around the world who are investing in the green industries of the future. It is what the private sector is looking for to give it the confidence to invest.’ 

Before we finish let’s consider the so-called ‘fiscal headroom’, which, after researching it, appears to be fool’s gold. 
 

‘The UK has been underinvesting for the last 45 years. The consequences are evident all around us, in failing infrastructure, costly energy and a depleted natural world’

 
In reality, what is called headroom is simply the gap between the government’s tax and spending plans and what would be allowed under the fiscal rules, which the government itself sets and which have been changed almost annually over the past decade. Basically, the chancellor gets to decide how much headroom there is. 

The creation of this headroom began in last Novembers autumn statement. Hunt told us that Britain’s economy had turned a corner, that the difficult decisions of recent years had paid off and now, because of that, he had the space to cut national insurance rates, handing the average worker a tax cut worth about £450 a year. But as the OBR, the government’s independent forecaster, made clear at the time, this was smoke and mirrors. 

‘What actually happened was that the OBR revised up its view of the likely course of inflation over 2024 and 2025. Higher inflation, and the accompanying faster wage growth, boosts expected tax receipts but also reduces the real value of public spending. The chancellor chose to bank the gains from the former while ignoring the impact of the latter. The £18bn of tax cuts announced two months ago were effectively paid for by pencilling in deep real-terms cuts in public spending in the coming parliament rather than through some unexpected fiscal bonanza.’ 

The proposed bribes tax cuts are the government doubling down on this approach in the budget, with yet more tax cuts, in the hope of generating a pre-election feelgood factor.  

Even allowing for the fact that the overall tax burden is the highest level decades and with workers having undergone a deep squeeze in their real incomes after inflation, the argument for cutting taxes is obvious, there are other priorities. 

Aside from funding growth via sustainability, there is the countries threadbare public services. Under current proposal, with the exception of health, education and defence. Others department will suffer  cuts comparable with those of the Cameron/Osborne austerity era. There is little, if any fat to cut, even the in the ‘protected’ areas current spending plans are barely adequate. For example, current NHS waiting list in England stand at 7.6m and more than 40% of incoming patients are waiting more than four hours in accident and emergency departments.  

If Hunt has really created a £20bn surplus this could improve public services immeasurably. To put it in context, that is a third of the annual schools budget. Not only does this make more economic sense, it makes more political sense too. Polling suggests that the public are more concerned with the dire state of public services than with their tax bills. 

The proposed tax cuts won’t even achieve the short-term boom Lawson manufactured, but they will deliver the second-part; long-term pain and rising inequality. 
 

‘I’m standing alone, I’m watching you all 

I’m seeing you sinking’ 

 
Notes: 

1. The poverty line is defined as a household with income below 60% of the median after housing costs. 

1. Deep poverty is defined as living in a household with income of less than 40% of the median after-housing costs. 

 
I think it’s fair to say Philip is not dripping with optimism; an excellent article and an excellent preamble:

‘This week we consider Hunt’s proposed tax cuts and what they might mean.

It’s actually simple, they will benefit rentiers whilst the majority continue to suffer. Inequality, which is already bad, will only get worse.

Public services, on which so much of that majority rely, will be further starved of funds, and will only get worse.

In short, this serves only to show how out-of-date, and out-of-touch successive Tory governments have been and continue to be.

In recent weeks I have focussed on the “left behind”, “disappointed” voters who have little faith in either of the mainstream parties. Other than their choice of right-wing populists as a replacement I can fully understand their feelings. The political classes net a complete reset.

However, turning to hard-right politicians isn’t the solution. In the US, the Lincoln Project, an anti-Trump group, commented: “It’s clear that Trump is political poison to moderates. Sane and moral republicans said their conscience won’t allow them to vote for a chaos-driven maniac who is under 91 criminal counts, a proven sexual predator, and authoritarian wannabe who will shred the constitution and burn this country down.”

Ultimately, this country is run by the few, for the few. The Post Office (“PO”) scandal is typical of this.

Fujitsu, the supplier of the faulty Horizon system, are as culpable as the PO, they supplied, and aided in the lies, misinformation, and disingenuous behaviour designed to hurt defenceless people and hide the truth.

Despite all of this the government has persisted in buying their systems, all of which have one thing in common, they don’t deliver

In 2011, Fujitsu was fired from a £6.2bn project to revamp an NHS IT system after repeatedly failing to achieve its objectives. Fujitsu sued the government. The eventual payout was never disclosed, but it could be as much as £628m.

In 2021, the Foreign Office determined that a communications system provided by Fujitsu had “significant deficiencies resulting in a technical solution that is likely to be unfit for purpose”. It renewed Fujitsu’s contract anyway. In December, the company was awarded a new contract by the Environment Agency for a flood alert system; Fujitsu’s product reportedly failed to alert people until their houses were already flooded.

Between 2010 and 2015, civil servants tried to stop commissioning Fujitsu because of its history of poor performance. They found the UK’s archaic public procurement rules wouldn’t permit it.

Fujitsu provides major IT systems to, among others, the Ministries of Defence and Justice, HMRC, and the Department for Business, Energy and Industrial Strategy. It has been awarded 36 new contracts in the past 12 months.

Since 2019, when the full extent of the Horizon failure was uncovered by the High Court, ministers have given Fujitsu £4.9bn worth of new business (including renewing its Horizon contract).

Why?

Fujitsu donates to both Labour and the Conservatives, paying around £26,000 every year to host “lounges” at each party’s conference. Simon Blagden, Fujitsu UK’s chair until 2019, is a long-term Conservative donor, and was part of the exclusive “Leader’s Group”, where “members are invited to join [the party leader] and other senior figures… at dinners”. Last year, Blagden was appointed to the UK Health Security Agency advisory board. He is paid around £80,000 a year from the public purse. Fujitsu’s senior UK lobbyist, Clark Vasey, founded the Blue Collar Conservatism parliamentary group with (now) “minister for common sense” Esther McVey. Michael Keegan (husband of Gillian Keegan, the education secretary) was CEO and then chair of Fujitsu UK between 2014 and 2018, and is a “Crown representative” of the Cabinet Office, one of the officials who oversee relationships with public sector suppliers.

Wheels within wheels, nothing ever changes….and we wonder why.

Lyrically, we start with “Stars and Stripes of Corruption” by the Dead Kennedys, and play out with the Stone Roses “Fools Gold”. 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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