Heroes: Red or Blue? Starmer Clearly Doesn’t Know

 

‘I`ll go walking in circles 

While doubting the very ground beneath me’ 

 
As I wrote in the editorial to ‘All Trussed Up‘, since 1979 the UK’s economic policy has been based on neoliberalism; small state, free-markets, reducing regulations, low taxes to encourage entrepreneurialism which stimulates growth and creates a ‘trickle-down’ effect meaning that we all benefit. 

Neoliberalism delivered all of this except the most important part, the ‘trickle-down effect’. 

As a result we have the most unequal country since Victorian times. To paraphrase the New York Times we are a poor country inhabited by some very rich people. 

In the 1980’s the free-market mantra saw the decline of UK manufacturing and mining, leave swathes of the country depressed, and with structural unemployment. Despite several attempts to overcome this little has changed, primarily because the country has pursued a failed economic policy since 1979, 44-yrs ago. 
 

To paraphrase the New York Times we are a poor country inhabited by some very rich people

 
First-time voters in 1979, are now all 60+, all they have known is small state, low taxes, and an almost total reliance of the housing market to generate any feeling of wealth. 

Proof of this indoctrination was highlighted in the 2019 election; Ipsos Mori found that the Conservatives had a 47-point lead among voters aged 65 and above. Meanwhile, Labour had a 43-point lead among voters aged 18-24 and a 24-point lead among voters aged 25-34. 

YouGov estimated the chance of someone voting Conservative increased by about nine points with every 10 years of age, however, there are signs of that changing as the Tories move further to the right. 

Robert Ford, a professor of ­political science at the University of Manchester, says Labour’s baby boomer problem can be ­overplayed after a shift in attitudes to ­infrastructure spending since 2019. 

‘You can see a crossover point in voting at age 60. So there is still a difference of opinion between the workforce and retirees,’ Ford says. 

‘However, the public responds to conditions, and they can see that conditions – the fabric of the nation – have deteriorated. Surveys show the proportion of people in favour of extra spending is at a 20-year high. 

Ford believes a bigger problem is how Labour continues to suffer from a general perception that it is not good with money. 
 

‘a bigger problem is how Labour continues to suffer from a general perception that it is not good with money’

 
Shadow chancellor Rachel Reeves continually seems to be trying to convince audiences that she has the ability to understand the economy, despite having spent years as an economist at the Bank of England. 

However, such has been the pushback from newspapers representing an older demographic, that Reeves has taken fright, scaling back her spending plans to a level that means they won’t need to be funded by higher personal taxes. 

 

Instead, a tax on oil and gas ­companies will pay for a programme of home insulation, while ‘tens of ­billions of pounds of ­private sector investment in green hydrogen, carbon capture, clean steel, renewable-ready ports and gigafactories will be unlocked through a new national wealth fund that will create half a million good, well-paid jobs‘. 

Even the proposed wealth fund will also come without any call on taxpayers. Instead, the state will retain a share in the renewable assets in which it invests. In this way, the party hopes that the initial capital ­provided by the government for these ­projects will attract further private investment. 

When you consider Biden’s Inflation Reduction Act the differences between them and US become stark; we are just small! 

Biden’ act subsidises industries switching to low-carbon energy and works alongside, and overlaps with, the Bipartisan Infrastructure Law and the Chips and Science Act, which boosts the US semiconductor ­industry, at a total cost over 10 years of about $2tn (£1.57tn). 
 

‘the corporations ready to build giga-battery factories for the car industry and electric-powered steelworks in the UK are all foreign-owned’

 
Firstly, the resources of the US government are far larger and more robust than the UK’s, and how Biden’s subsidies are directed at US firms. Whereas, Thatcherism destroyed most of our industry, meaning that the corporations ready to build giga-battery factories for the car industry and electric-powered steelworks in the UK are all foreign-owned. 

The whole deeply depressing saga is a recurrence of an old and fundamental problem for Labour, and for those who believe that more, desperately needed public spending is required. A proportion of the electorate and the right-wing press believe that left-leaning governments are spendthrifts who run out of money.  

According to the political economist Richard Murphy, between 1946 and 2021, the Tories ‘always borrowed more than Labour, and always repaid less‘ of the national debt(1). Since 2022, the Tories’ financial record has been further damaged by the fantasy economics of Liz Truss.  
 

‘between 1946 and 2021, the Tories ‘always borrowed more than Labour, and always repaid less‘ of the national debt’

 
The impact of her arrogant stupidity will be felt for years to come, as cash-strapped local authorities across the UK took out massive 50-year loans at soaring rates of interest in the aftermath of Liz Truss’s catastrophic mini-budget. 

Figures from the government’s Debt Management Office show that after the budget on 23 September, 2022, announced by Truss’s chancellor Kwasi Kwarteng, 24 50-year loans of between £590,000 and £40m were taken out by councils at interest rates of up to 4.77 %, over the rest of that year. 

During 2023, while rates remained high, a further 29 50-year loans, including one of £80m by Lambeth council at an interest rate of more than 5%, were taken out as local authorities remained under severe financial pressure. 

These weren’t loans taken to balance out profligate spending, but because successive Tory governments forced them to take on more debt and to adopt risky strategies to get by. 

Truss’s successor, the supposedly economic savvy, Rishi Sunak is offering tax cuts funded by future spending reductions that, given the state of public services, are widely regarded as impossible. 
 

‘The impact of her arrogant stupidity will be felt for years to come’

 
This should be a dream time to be in opposition, there’s so much to criticise the hardest part would be deciding where to start. As such the country is in dire need of an opposition, one that offers choices, different opinions and ideas. When the opposition ceases to provide that, then what is the point of them? 

Perhaps the Labour party under Kier Starmer believes that the electorate is so addicted to neoliberalism that they are frightened to offer an alternative for fear of electoral failure. Labour now appear to be better Tories than the Tories. ‘We don’t need better Tories. We need a better UK’.   

Last week’s climb down by Labour on its £28 bn Green Programme isn’t a financially sound, diligent decision to please the City of London, it is just straight-line thinking. Conventional, unimaginative, and lacks awareness of the multiple crises facing the UK 

Starmer and his would-be Chancellor, Rachel Reeves, fear financial markets will lose confidence in Sterling, the gilt market, and government competency, leading to instability. Whilst the radicalism of Truss and Kwarteng did destabilise markets, markets are quite able to accept that in time of crisis the need for politically competent solutions becomes paramount, E.G., Roosevelt’s ‘New Deal’, or Biden’s ‘Inflation Reduction Act’. 

Starmer’s thinking is primarily orthodox, with self-imposed fiscal rule of reducing government debt as a proportion of economic output. As such, his concern is that higher interest rates and a stagnant economy making borrowing more expensive, means that fulfilling their 2021 green prosperity pledge could breach these limits. 

Instead, the party appears to be pinning their hopes on financial services growth permitting the green agenda to become more affordable. This is yet another U-turn, and one that is contra to the lessons highlighted  by the Biden administration that investment in clean energy can be an engine for reducing inflation. 
 

‘pinning their hopes on financial services growth permitting the green agenda to become more affordable’

 
Politically, the Tories will tell voters that Labour is indecisive, and that Starmer doesn’t believe in very much. It is unlikely that this ‘prudence’ will convince doubters that Labour provides a safe pair of hands on the economy. Environmentally conscious voters will be alienated, and fiscal conservatives will remain unconvinced, many traditional Labour voters will simply be left asking what the party is for. In some ways this could be a decision, that effectively defeats a future Labour government before they have even started.   

Populist’s love to decry climate change, it’s almost as if the weather is a communist! Yet, the latest climate numbers, show global temperatures are now 1.5 degrees higher than pre-industrialisation. Labour’s policy switch puts a contentious short-term judgment about UK business and politics above the proven need for decisive action on climate. Changes to pledges like the home-insulation scheme echo Rishi Sunak’s policy of unpicking the big decisions and thus continuing our dependence on fossil fuels. 

Without doubt the UK has reached crisis point. We need to stop playing politics with irrelevant campaigns like ‘Stop the Boats’, and replace them with an innovative new economic policy that allows the nation to recover and thrive once more.  
 

‘this could be a decision, that effectively defeats a future Labour government before they have even started’

 
We are in many respects bankrupt, there is insufficient tax revenue or borrowing headroom for a new government to fix and repair the entirety of the UK’s neglected, broken infrastructure, unfit utilities, national and local services while making health, education and defence fit for purpose. Within this there needs to be a realisation that austerity is not the answer. 

Since 1979 we have demonstrated a total inability to execute plans, from the lack of new housing stock, new infrastructure such as nuclear power and HS2, or reform bloated state institutional thinking such as the NHS, and local government.  

As I have written so often this year, the electorate is disappointed and disillusioned by constantly failed governments and policy. Labour appear to lack the credibility to be effective, which is why we are seeing people seeking an alternative; populism. 

Labour’s £28bn green proposal could have kickstarted so much; decarbonisation and ‘levelling-up’. Instead, it’s ‘samo, samo’, fiscal rules constraining their reconstruction of the UK. 
 

‘Populist’s love to decry climate change, it’s almost as if the weather is a communist!’

 
Young people have a far worse financial outlook then their parents. How many will ever get on the housing ladder? How many are struggling with ever-increasing rents?  Are they struggling with student debt, council tax, and the bills? For many raising a family is a dream due to their housing and financial insecurity. As for saving for their retirement…no chance. 

A country’s future is the sum parts of its young people. However, what chance can they have if schools across England are warning they will soon be unsafe because they are having to cut teachers and support staff to save money, with record numbers now in deficit. 

Date from the Department for Education, shows that one in eight local authority maintained schools were in deficit in 2022-23, the highest number on record since schools took control of their own bank balances in 1999. There has been a steady upward trajectory of schools being pushed into the red since the Conservatives came to power in the coalition government of 2010. In 2011 one state school in 20 was in deficit. 
 

‘Young people have a far worse financial outlook then their parents’

 
Clearly, everything is broken, the time is ripe for government that’s going to sort problems by being imaginative, considered, innovative and competent. We don’t need a light-blue Labour government offering up the same old fiscal rules corset, but one that has the courage to offer a radical rethink. 

What we don’t need is what appears to be obvious after last week’s retreat is to disengage with the millions of voters will have heard a familiar message; politics does not provide them with the hope of a better life. 
 

‘And so castles made of sand
Fall in the sea eventually‘ 

 
Notes: 

1. https://www.taxresearch.org.uk/Blog/2021/06/24/the-tories-have-always-borrowed-more-than-labour-and-always-repaid-less-they-are-the-party-of-big-deficit-spen

 
I’m sure Philip will have served up a gloomier column, but I’m struggling to recall it; maybe it seems all the more beak because it is so totally recognisable and relatable – yet comes without a sniff of hope. Dear me.

Here’s what he was thinking:

‘I think one of the greatest disappointments in life is to miss an opportunity.

Opportunities don’t come along often, when they do they need to be grasped. This is something that people of destiny, people that can be transformative, understand.

Coupled with opportunity is fear, namely the fear of failure. But, the easiest way to fail is not to try.

Labour appear to be so cowed by four consecutive election defeats that they are consumed by fear. Yes, they can see the opportunity, but failing to grasp and do something meaningful with it because of fear will lead only to failure and disappointment.

The latter will probably be the last straw for an electorate that has been let-down for years, and will almost certainly hasten the ascendance of hard-right populists.

In 2021, before the fear of failure consumed the party, Rachel Reeves announced Labour’s £28bn climate plan, telling us; “The greatest cost to our public finances, as well as to our planet, will be if we delay and let the costs mount up for future generations to pay,”

Last week everything had changed: “We want to bring jobs to Britain, to bring energy bills down, to boost our energy security, and also to decarbonise the economy. If you don’t need to spend £28bn in doing that, that’s great.”

Moreover, this marks a shift in Reeves’s entire economic philosophy. No longer is she arguing for public investment for its own sake as a way to stimulate the economy and galvanise private capital. Instead, she says she wants to achieve Labour’s green targets using as little public money as possible.

In an editorial in the Guardian Labour wrote “The plan will be funded through a proper windfall tax on oil and gas giants, and – like responsible governments and successful businesses around the world – through borrowing to invest so we can invest to grow. The plan we are announcing is right for our economy and our environment. It is consistent with our fiscal rules, including to get debt down as a share of GDP, and our mission to deliver clean power by 2030. But in the two years or so since we first announced the green prosperity plan, the circumstances have changed.

I wish them well, we all deserve better than more of the same from either party.

One final comment; Starmer is fortunate to be facing Sunak. However, were the Tories to bring back Boris Johnson in some form or another, he will have a fight on his hands. No matter how discredited the former PM is he has charisma and many will have forgiven him.

Lyrically, we start with “Forbidden Colours”, a 1983 song by David Sylvian and Ryuichi Sakamoto. The song is the vocal version of the theme from the Nagisa Oshima film “Merry Christmas, Mr. Lawrence”.

To play out we have the Jimi Hendrix Experience and “Castles Made of Sand”. 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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