Heroes: There is a light

 

“I never, never want to go home

Because I haven’t got one”

 
Put simply the local elections only endorsed what has been obvious for a while; The Tories are history. Even Ben Houchen retaining his mayoralty was tainted by the fact that he practically campaigned as an independent.

Whilst there is a consensus that Sunak should lead the party into the next election, this is disingenuous, as none of his main challengers fancy taking the blame for the inevitable defeat.

However, there is the expected, and ongoing split as to the direction the party should take, much of which is predicated by the fear of Reform splitting the right-wing vote. As with their predecessor, UKIP, the fear Reform strike into the hearts of Tories is disproportionate to their appeal at the ballot box.

On the sensible, moderate wing of the party we have Andy Street the former West Midlands mayor, who said: “The thing everyone should take from Birmingham and the West Midlands tonight is this brand of moderative, inclusive, tolerant conservatism, that gets on and delivered, has come within an ace of beating the Labour party in what they considered to be their backyard – that’s the message from here tonight.”

Whereas Suella Braverman, representing the nasty loony, said Tory voters were “on strike” as Sunak is not Conservative enough, with his ban on smoking and legislation against pedicabs, and instead called for action on the European court of human rights, a cap on legal migration and more tax cuts.

Braverman, who was being interviewed on BBC One’s Sunday with Laura Kuenssberg then totally lost the plot, saying it was a “disgrace we are trailing up against Labour led by Keir Starmer who has the charisma of a peanut, who is overseeing a party which is a rabble of hard-left maniacs, who would undo Brexit, who would open our borders, and who would indoctrinate our institutions and our schools with politically correct madness”.

Braverman’s rant sums up the current incarnation of the Tories; tired, out-of-touch, and so besotted with Brexit that their very existence is in question.
 

‘tired, out-of-touch, and so besotted with Brexit that their very existence is in question’

 
The right’s infatuation with being the Reform-lite shows how out-of-tune they are. Sunak’s problem is that he has dance to their tune for too long. It is his, and their flawed political judgments that has caused support for the party to plummet throughout the country, and across generations of voters; the Tories now only lead in the over-70s voter age group.

Sunak has continually pivoted to the right’s uniquely unpopular political agenda. There was his conference speech attacking the 30 year failed status quo, raging against the apparently omnipresent “woke” agenda, stoking divisive but headline-grabbing culture wars, and now threatening to leave the ECHR.

The culture wars are a right-wing con, serving only to distract people from the injustice all around, leading them blame their fellow citizens for it, rather than the governments that created it.

Whilst the Tories shift the battleground to Rwanda, trans issues or any “wokery” the electorate have other priorities; a YouGov survey has found that 59% think the government is taking too little action on climate change.
 

‘59% think the government is taking too little action on climate change’

 
The success of Sadiq Khan in London owed much to the hate-filled rhetoric opponent, who is member of several Facebook group’s that trade in anti-Muslim tirades. The latest is “Bexley say no to Ulez expansion”, part of a network of Facebook groups focused on ultra-low emission zones that are operated by Conservative party staff and activists. Some of the groups included celebrations of vandalism and comments expressing disbelief that Khan had not been “taken out”.

They appear to specialise in Islamophobic comments; one commenter calledg Khan a “terrorist sympathiser”, another said that the London mayor “will see a big upsurge in public feelings and possibly major riots, mosques burnt down and innocent Muslims unable to walk the streets”.

Khan told the Guardian these revelations “could have a direct impact on not just my safety but the safety of my family and staff”.

Given that only weeks ago, on the steps on No.10, the PM stood there telling us he wanted to outlaw extremism, her stance shows how this post-Brexit incarnation of the Tory party is home to all manner of extremists.

The further to the right Sunak has gone, the more voters have turned away from the party. All Thursday’s election results show is that voters will embrace the moderate Toryism as suggested by the Tees mayor.
 

‘The further to the right Sunak has gone, the more voters have turned away from the party’

 
The promise of levelling up that voters across the country bought into in 2019, has been arrogantly ditched by the right and Sunak. Instead they continue to blame “elites”, and to drive up inequality. As with Labour under Corbyn, the hard-right are enthral to ideological political arguments, theorising about deep-state plots. All this demonstrating is how far detached from reality that have become, as they ignore the issues that continue to hold the country back and make the majority poorer.

This will be the first parliament where real disposable incomes are going to be lower at the end of it than they were at the beginning. Despite households cutting back reducing spending, even on basics, they are still spending 16% more on groceries and buying 8% less in volume.

Average wages will not return to 2008 levels until 2026, says the Resolution Foundation.

Whilst Sunak may trumpet the economy returning to growth, the numbers are minimal. Had the economy grown at the average OECD rate over the past decade, it would be £140bn larger today.

This why voters are turning away from the Tories. Even the re-election of Ben Houchen as Tees Valley mayor is fool’s gold; if the swing to Labour was replicated in Tees Valley parliamentary constituencies at a general election, they would win them all.
 

‘This will be the first parliament where real disposable incomes are going to be lower at the end of it than they were at the beginning’

 
Even Brexit isn’t moving the dial, as shown by Labour winning control of leave-voting councils, such as Hartlepool, Thurrock, Rushmoor and Redditch.

In the Tory south, Labour triumphed in Milton Keynes, and there is also the success of the Lib Dems, whose votes will be essential to challenge the Tories in true blue seats.

If there is an area of concern for Starmer it is the Gaza crisis, where he has been slow to take positions critical of Israel’s actions in Gaza since October.

As a result, Labour lost control of Oldham council, with independent candidates elected to represent areas with big Muslim communities. The effect may be permanent, as Labour also seems to have lost support to the Greens in wards with large Muslim populations. Labour’s vote share in those areas fell by 16% compared with 2021, whereas it made 5% gains nationwide. However, the impact wasn’t sufficient to stop them winning the West Midlands mayoralty.

Much of the hard-rights tough process originates from Institute of Economic Affairs (IEA). The thinktank was a major supporter of Liz Truss, who’s mini-budget debacle was based on their thinking.

Now, the IEA in a paper entitled the “Imperial Measurement”, is claiming that the net economic impact of this vast empire on Britain was negligible, even negative. (1)

The report claims “The transatlantic slave trade was no more important for the British economy than brewing or sheep farming, but we do not usually hear the claim that ‘brewing financed the Industrial Revolution’ or ‘sheep farming financed the Industrial Revolution’.”
 

‘The transatlantic slave trade was no more important for the British economy than brewing or sheep farming’

 
The self-serving report concludes that it was free-market economics that unleashed British economic growth.

The IEA research has been seized upon by the business and trade secretary and aspiring Tory leader, Kemi Badenoch, who, in a speech to financial services bosses at a conference in London, said: “It worries me when I hear people talk about wealth and success in the UK as being down to colonialism or imperialism or white privilege or whatever.” If you believe any of this story about oppression and exploitation as the cause of British wealth, then the solutions to “our growth and productivity problem” will be even worse. It was “free markets and liberal institutions” that drove the Industrial Revolution and economic growth thereafter.”

Whilst it may have been down to innovation such as James Hargreaves’ spinning jenny of 1764/5, that made it possible to harness the delicate but tough Barbadense cotton and manufacture it at scale, that enabled Lancashire to become Europe’s pre-eminent manufacturing centre of high-quality cotton, it was no accident that this all began a few miles from Europe’s largest slave port, Liverpool. Or that fine Barbadense cotton flourished in Britain’s slave plantations in Barbados and elsewhere in the West Indies. Or that much of the finance for investing in these expensive, but highly profitable, innovative machines came from Liverpool merchants whose own fortunes originated in transatlantic trade.

By the last decades of the 18th century, the West Indies was co-equal with Europe as Britain’s biggest trading partner. Cotton’s importance was preceded by slave-grown sugar, which became a national staple. All this spawned a vast boom in British shipping, from 1m tons and 50,000 seamen in the 1780s to 2.5m tons and 130,000 seamen in the 1830s, with the growth propelled by the Atlantic plantation trade.

The trade needed protecting and policing. A strong navy was an imperative – the West Indies became the second most important theatre for the navy outside British home waters.

The Empire was a continuing source of high, easy profits and rents which have become a benchmark that most British companies target even today, the knock-on effect of this is that it continues to limit the projects in which they invest. British industry was still sheltering behind preferential imperial tariffs in 1970.
 

‘The Empire was a continuing source of high, easy profits and rents which have become a benchmark that most British companies target even today’

 
The benefits of Empire has to continued to plague us, and we have never had a cogent strategy as to how we developed our national economy. This limited though process has become integral to our economic decline, and is central to IEA thinking, and that of its leading advocates, such as Liz Truss.

Truss was correct in her diagnosis of our problem being a lack of economic growth, it was the treatment she recommended that was the problem.

Put simply, Truss was a classic example of neoliberalism, believing that a small state, and tax cuts would create prosperity via the so-called “trickle down effect”. Quite why, after 50-yrs of failed attempts of this theory, she though it would be different this time is a mystery.

The tax cuts required to deliver her strategy were unfunded, and markets took one look and said, “No”. Ironically, it was her beloved free-markets who didn’t believe the numbers.

On the other side we have Keynesian theory which seeks to create prosperity via government spending. The vital difference is how the money is “spent”. Rather than using it to fund tax cuts it is used for investment, for infrastructure which creates jobs for everyone and overall prosperity.
 

‘Quite why, after 50-yrs of failed attempts of this theory, she though it would be different this time is a mystery’

 
I considered this an “Armageddon Time”.

We need to move away from self-imposed arbitrary spending caps which limit our budget deficits, with no distinction between public spending on consumption and spending on investment.

Instead we should look to Modern Monetary Theory, as proposed by Stephanie Kelton. This is based on the belief that there is no financial constraint on government spending; money can be created and invested so long as there is capacity in the economy to absorb the cash. If not, inflation will follow. This is little different to what John Maynard Keynes wrote in his 1940 book, “How to Pay for the War”.

An example of this thinking is Biden’s Inflation Reduction Act, which will raise $738 billion from tax reform and prescription drug reform to lower prices, and authorize $891 billion in total spending – including $783 billion on energy and climate change, and three years of Affordable Care Act subsidies. (2)
 
As to who has got it right…..
 

 

How might we pay for this?

 
There are C.3,000 billionaires in the world and in recent years they have been getting richer and richer.

As President Biden has pointed out, US billionaires make their money in ways that are often taxed at lower rates than the ordinary wages of American workers. Overwhelmingly, their wealth comes from the rising value of their assets, and they use tax loopholes and legal accounting moves to minimise the tax they pay. Wealthy Americans pay an average tax rate on their incomes of just 8%. Biden thinks they should be paying a minimum of 25%

The Brazilian government has an even more ambitious proposal; an annual global tax levied at 2% on the wealth of the world’s billionaires. The French economist Gabriel Zucman has been asked to draw up a detailed plan for how a billionaire wealth tax would work ready for a meeting of G20 finance ministers in July.

It is estimated that a 2% billionaire wealth tax would raise $250bn a year.
 
Simples!
 

“But now I see with my own two eyes

The problem was all right down to you”

 
Notes: 1. https://iea.org.uk/publications/imperial-measurement-a-cost-benefit-analysis-of-western-colonialism/ 2. https://en.wikipedia.org/wiki/Inflation_Reduction_Act#:~:text=According%20to%20the%20nonpartisan%20Congressional,change%2C%20and%20three%20years%20of
 

‘This week we consider the impact, and reasons for the Tory’s poor showing in last week’s local elections.

Basically, the electorate has caught them out. They are seeing through all the bile, hate and rabble-rousing, and the lack of care and policies to tackle the real issues.

The IEA’s rather sad attempt to dismiss the value of the empire is embarrassing. It glosses over the slave trade and the prosperity it created in favour of.

At the heart our problem is inequality, and free-market economics has only exacerbated this problem.

The number of billionaires almost tripled in the 2010s and has continued to rise over the past four years, because the value of their assets – mostly shares and property – has been swelled by the policies pursued by central banks post the GFC and during Covid.

Zero-interest rates and QE meant money was cheap and plentiful, and inflated a vast asset bubble. Whilst many people benefitted as the value of their homes and pension plans increased, those with high levels of wealth to begin with were the biggest gainers.

A wealth tax is necessary, but far from becoming a reality. One objection  is that it would stifle innovation and growth. This argument is far from true, there is  little evidence that the massive increase in the wealth of the super-rich over the past decade had financed an investment boom. In fact, investment has been historically weak.

Key to the success of the proposal is defining “wealth”, and creating an agreed mechanism to value assets such as property. Within this, it will be important to avoid having too many exemptions, as this will enable the very rich to shift their wealth into new forms so it can’t be touched.

Countries that have operated wealth taxes in the past have found they raise relatively small amounts of revenue, in part because the very rich can shift their money to tax havens. For the plan to work there would need to be international cooperation to prevent capital flight. Hence the proposal being applied globally.

Politically a tax that impacts only 3,000 families cannot fail to find favour with the majority, and it would do much to overcome the inequality that plagues so many economies.

Lyrically, we are upbeat this week. We start with the Smiths “There is a Light That Never Goes Out”. And, because there is clearly hope we finish with Wah! and “Hope”. 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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