Feb
2024
Heroes: ‘Death and Taxes’
DIY Investor
20 February 2024
‘She said, ‘Money is like us in time
It lies, but can’t stand up’
Down for you is up’
Benjamin Franklin famously said, ‘in this world nothing can be said to be certain, except death and taxes.’ Given recent history, we can now add, ‘and the Tories losing byelections.’
Despite Labour’s recent problems, most people would rather be in Starmer’s position than Sunak’s. Clearly the electorate has had enough of the Tories and want change.
Should the Tories have yet another new leader? Usually, in election year it would be viewed as electoral suicide, however, given where they are I doubt it would change anything other than, perhaps, the magnitude of the defeat. What, however, is becoming clearer is the near total ideological split in the party.
On the right, the so called ‘Five Families’, now six if we include Loop Liz’s PopCons, see populism as their saviour. Perhaps the only question to ask is do they migrate to Reform or visa versa. Either way, Farage is playing a long-game and watching the Tories implode.
Speaking for the moderate One Nation caucus which represent > 100 MPs, their leader, Damian Green, said it would be ‘politically disastrous‘ to veer further to the right, and called for the party to unite around current policies
Green said, ‘If we attempt to become the Reform party, we will get the Reform party’s level of support It seems politically disastrous to me.
‘Farage is playing a long-game and watching the Tories implode’
Former cabinet minister Justine Greening said concerns that the party could face annihilation should it veer further to the right were valid. ‘Those who warn that the party faces an ‘extinction event’ at the forthcoming election are right. It’s because, time and time again, the party has consistently chosen to play up to the negative, simplistic, culture wars-driven rhetoric of Ukip and latterly, Reform UK.
Another spectre haunting Sunak is Boris Johnson, who is messaging MPs, asking, ‘how are things?’ It’s classic Boris – he’s not actually saying anything apart from ‘what do you think?’
Speaking on Friday morning, the PM signalled more tax cuts would be on the way and downplayed the significance of the Reform vote, saying the ‘actual choice at the general election [is] between me and [Starmer], between the Conservatives and Labour‘.
The proposed tax cuts may not take Sunak as far right as some might want, but, irrespective of this they will need to be funded by billions of pounds of spending cuts.
The FT, citing Treasury insiders, reports that Hunt is looking at ‘further spending restraint’ after 2025 if official economic forecasts suggest he does not have enough headroom to pay for ‘smart tax cuts‘, with reports of reducing the projected rise in public spending from 2025 onwards to about 0.75% a year, which would release £5bn to £6bn for tax cuts in this spring’s budget.
Economists have warned that even the current plan for a 1% real-terms increase in public spending every year until 2029 is a fiction, requiring cuts in stretched public services in unprotected departmental budgets such as adult social care and Ministry of Justice funding for courts and prisons. NHS and schools spending.
Torsten Bell, the chief executive of the Resolution Foundation thinktank, said last year that Hunt’s giveaways relied on ‘implausible austerity‘.
These tired old policies have clearly run out of road with the electorate. According to a YouGov poll for the WPI Strategy consultancy. only one in 10 voters back public spending cuts. Only 17% of those who voted Conservative in 2019 opted for spending cuts. Overall, 41% of voters preferred increasing taxes on business,
‘These tired old policies have clearly run out of road with the electorate’
There is a school of thought within Labour which believes that Hunt is setting these cuts from 2025 onwards as a political trap. During the election campaign the Tories could challenge Labour on whether it would make the cuts or spend more.
If Labour decides on the latter, the Tories could argue Labour is planning to cover that extra spending with tax rises and accuse the party of preparing a secret ‘tax bombshell‘.
In reality, the Tories are where I predicted in the very first article, ‘Brexit; the never ending story‘, split between left and right. The latter, through the European Reform Group, have been the dominant voice post the referendum. The only difference is Reform taking over from where UKIP left off.
In Wellingborough, Reform managed a record 13% share of the vote, which confirmed them as an alternative and therefore a threat to the Conservatives in winning over right-wing voters. As a result, the rebellious right of the party now has ammunition as it calls for ever more extreme moves on immigration, including withdrawal from the European court of human rights. Should he endorse policies of this nature, the PM risks haemorrhaging votes to Labour and the Lib Dems in ‘blue wall’ seats, which should they be lost was deliver an almost historic electoral wipeout. Should Nigel Farage, Reform’s honorary president, decide to enter the election fray as a candidate, the coming election will become a battle over the long-term future of British Conservatism.
Both Rees-Mogg and Farage have identified the fact that the electorate wants change. However, just turning further right and serving up more extreme versions of the same doesn’t address that fact. The same might said of Labours reheated soup, which, with voter turnouts of less than 40% do not suggest a groundswell of enthusiasm for Starmer’s hyper-cautious approach to government. This widespread electoral apathy testifies to a disturbing crisis of faith in the ability of governments to address the challenges of the age – from the climate emergency to prolonged economic stagnation and broken public services.
‘voter turnouts of less than 40% do not suggest a groundswell of enthusiasm for Starmer’s hyper-cautious approach to government’
Perhaps, the start point for change are the ‘fiscal rules’, which are nothing but arbitrary numbers decided by the chancellor and their advisers. Despite this seemingly nebulous appearance they govern what we spend and invest. If you add to this the fact that, since 1979, economic policy has been driven by shrinking the state and cutting tax, no wonder we have run hard to go backwards.
We have ceased to invest, as a result we have stagnating productivity and real wages. It could be argued that since the GFC many of us have experienced an L-shaped recession with little prospect of a robust reversal in the years to come. GDP per head is down for the seventh successive quarter. The Resolution Foundation calculates that this is equivalent to a nearly £1,500 real-terms loss per household since Russia’s invasion of Ukraine. The same loss per household since 2009 now amounts to around £23,000. With interest rates and inflation still high, could get worse.
The size of the commitment required to reverse this is terrifying; to lift investment levels to the average of our major competitors would imply a rise of some £100bn a year and, maintaining this; ultimately a trillion-pound, 10-year challenge. This commitment would match what Japan, South Korea and other Asian tigers have achieved. It would deliver levelling-up, and would be transformative for everyone , not just the usual few.
The last four decades have been wasted. Thatcher’s neoliberalism gave us Big Bang and financial deregulation, which led to the GFC. This was followed by George Osborne’s unnecessary austerity and then Brexit, which, according to Goldman Sachs, has reduced GDP by 5%. Now the right of the Tory party, and Reform UK want to inflict yet another disaster, continuing to shrink the state to cut taxes.
‘The last four decades have been wasted’
Neoliberalism and tax cuts are thoroughly discredited, as the IMF acknowledges, they don’t deliver growth, instead they increase inequality, diminish public services and weaken defence and security.
To drive growth we must look to Asia for our influences, public investment needs to increase; some economist suggest a 50% increase, to more than 3% of GDP, an increase of £25bn a year. Allied to this the private sector, via rethink of our savings and investment system to support an new economy is required. There have been signs that the savings industry is considering direct investments, E.G., Legal & General’s move into modular housebuilding. Although this ultimately failed it shows realisation that direct investments are necessary.
The real question is, do we need fiscal rules? Their purpose is to provide a credible framework for public action, ensuring that day-to-day current public spending should be balanced by day-to-day current tax receipts over the economic cycle, while sustained borrowing should only be permissible for capital investment. The Truss/Kwasi debacle, highlighted what happens when the markets don’t believe the public purse is being used prudently, I.E., with unfunded tax cuts. However, when presented with well thought out investment the markets are likely to embrace additional spending. The key is to create fiscal credibility.
Brexit is another drag on our growth potential, and, if we are serious about resetting and growing the economy, we need to re-engage with Europe. Perhaps, current geopolitical instability that signifies the need for a European collaborative defence and security pact is an easy first step towards this realignment.
‘if we are serious about resetting and growing the economy, we need to re-engage with Europe’
Our taxation system needs to be rethought, whilst our tax rates are below the international average, structurally we need to ensure that the wealthy contribute their fair share.
Winning a majority is the first goal for Labour leadership, followed by governing successfully, which will require brave decisions. To date the latter doesn’t seem to suit them. Rachel Reeves, the shadow chancellor, explained her decision to abandon the £28bn green pledge by claiming that, under Jeremy Hunt, the Treasury is ‘planning on maxing out the credit card’, adding for good effect that the Tories are ‘maxing out the headroom ahead of the next general election’ thus limiting ‘what an incoming Labour government will be able to achieve‘.
By comparing the state’s coffers to an overladen credit card she is actually giving credibility to austerity. Labour will inherit an economy in chaos, based on drastic budget cuts and woeful lack of investment, this won’t be cured by yet more austerity.
The analogy of a maxed-out credit card is misleading. As chancellor, your (tax) income is highly dependent on your (public) spending. Limit your spending and you have limited your income too, which is why Osborne’s spending cuts required them to increase borrowing. Reeves, by using this narrative, is effectively endorsing Osborne’s flawed logic and, indirectly, absolving the Tories for the wanton damage they have inflicted on a generation.
‘Labour will inherit an economy in chaos, based on drastic budget cuts and woeful lack of investment, this won’t be cured by yet more austerity’
De facto, austerity negatively impacts investment, depressing consumer spending, which, in-turn makes businesses reluctant to invest and expand when there is no demand for the current level of output, let alone more. Austerity continues to undermine our investment and, Reeves, in ditching Labour’s green policy appearing to be either hope, or expecting the public sector will pick-up the slack.
Labour’s plans we never going to be transformative in the way President Biden’s Inflation Reduction Act is proving to be in the US. The subsidies on offer were always going to be too small by comparison meaning that we have little realistic hope of attracting battery manufacturers and microchip producers to the UK in numbers required to create a British green industrial revolution.
In conclusion there is little to suggest that Labour, by straightjacketing themselves with their own fiscal rules will deliver any meaningful changes. Everything suggests that they will struggle to fix the mess they will inherit. Listening to their revised plans they seem terrified of the fiscal hawks in their midst and in the Tory press. Perhaps, that’s why they have latched onto Osborne’s analogy, as a way to prove their austerity credentials.
‘We saw ourselves now as we never had seen
Portrayal of the trauma and degeneration
The sorrows we suffered and never were free’
Feeling a bit mis’ in the bleak mid-winter? This is not going to help, I’m afraid. What a dreadfully gloomy, yet entirely recognisable state-of-the-union.
Today we begin by assessing the latest byelection results, which only confirm what has been obvious post-Covid, the electorate want change. Labour, whilst the only option doesn’t appear to offer that, appearing wedded to more fiscal rules, orthodoxy, and hope. A summary might read, “they remain paralysed by the fear of defeat and the Tory media.”
Reform continues to grab the headlines, but, at best, they will be a spoiler, likely taking votes of both the main parties. However, from a Tory perspective they continue to haunt them as their predecessor, UKIP, did previously. For their part, the Tories continue to battle themselves, not knowing whether to turn towards the political centre of further right.
Standing aside from politics, we have had 44-yrs of an economic experiment named neoliberalism. It hasn’t delivered growth or prosperity for the country as a whole, instead we have returned to pre-war inequality.
This week marks the fortieth anniversary of the 1984 miners’ strike, when Thatcher’ government set out a preordained strategy to destroy the National Union of Miners and its leader, Arthur Scargill. This was part of a free-market economic plan that destroyed millions of jobs, and local communities. Forty years on the legacy of this plan is that we are still to level-up many of these communities.
The decisive moment in the government versus the miners was the “Battle of Orgreave”, which effectively marked the beginning of the end for mining and the other great heavy industries on which Britain’s economic power was founded. Orgreave was where the police were let loose to quash a modern industrial dispute(1).
This was the culmination of a concerted political campaign to diminish the strength of trade unions. The Tories prepared in advance to face and defeat a strike by the NUM or another of the mass-membership unions in industries such as steel, the railways or utilities, which were all then state-owned.
This preparation goes back to the “Ridley plan”, which originated during the time in opposition, and was designed to deal with the nationalised industries. The group was chaired by Nicholas Ridley, who, after Thatcher won the election in 1979, became her transport minister, and later oversaw manoeuvres during the miners’ strike. An old copy of Ridley’s 26-page report makes explicit recommendations to aim for profitability by privatising coal, steel, railways, ports and other industries that had become publicly owned after the war, and to “break up the power of monopolicy (sic) public sector unions”. (2. In a confidential annex, entitled “Countering the Political Threat”, the report foresaw “battles” with unions, referred to workers in the nationalised industries as “enemies” and “communist disruptors” who would try to “destroy” the privatisation plan. Pondering how to inflict a landmark defeat on the unions – which, it said, would see privatisation, job losses or wage restraint as a “casus belli” (cause for war) – the report actually suggested that “we might try and provoke a battle in a non-vulnerable industry [one not vital for generating power], where we can win”.
The plan cited mining as a “vulnerable” industry, because coal was used in the production of electricity, but assessed it as most likely for an “attack” by its union. So the report recommended preparing defences: building up coal stocks and recruiting in advance non-union lorry drivers who would be willing to defy picket lines and move supplies around the country.
The annex also recommended strengthening the police, then mobilising them against industrial strikes. “It is also vital … that on a future occasion we defeat violence in breach of the law on picketing,” the Ridley plan stated. “The only way to do this is to have a large, mobile squad of police who are equipped and prepared to uphold the law against the likes of the Saltley Coke-works mob.”
Forty years on we are no closer to righting the wrongs of Thatcherism and its followers. Sadly, Labour no longer appears to represent the working man, instead they appear to be applying the old maxim…”if you can’t beat them, join them”
Notes:
Lyrically, we start with the Velvet Underground and “Pale Blue Eyes”. No, it isn’t relevant to the article, it’s just a great song that is undervalued. We finish with “Decades” by Joy Division. Why? Because it has been four-decades since the government made its policy to abuse the majority of the electorate. and, because it perfectly encapsulates the misery inflicted on them. 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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