Sunday, 16 October 2022

Alas poor Liz


There were all sorts of reasons for the financial crisis in 2008, but Labour rightly got the blame. It got the blame even though Gordon Brown and Alistair Darling performed creditably and even though the crisis was a worldwide phenomenon. The public didn’t follow or indeed understand all the details, but Labour was in charge so Labour got the blame. So too now.

We are still living with the consequences of 2008. The crisis never really finished. Instead, debt increased, the housing market and stock market were pumped full of QE and ultra-low interest rates encouraged all sorts of bubbles as if we still believed in investing in tulips.

The Government got away with telling us all to stay inside for a year and more and paying people 80% of their wages to do nothing. If you couldn’t work you should have been paid unemployment benefit. The individuals who make up what we call the markets accepted lockdown because they too were scared to get Covid and because anyway they could work just as well from home as from the office. But all the while we were approaching the tipping point as if it were an iceberg slowly growing.

UK debt is too high. Inflation is too high, interest rates are too low. While we could in 2020 batten down the hatches only to tend the wheel wearing masks, the Government has decided that we can have another once in a lifetime crisis only a year or so later and we will all be bailed out again instead of paying the market rate for our heating. But there comes a point when you rely on bailing out too much when the water keeps rising and your ship sinks in the storm. This is why the markets are in chaos.

Just as taxes have become too complex, so too have markets. Pension funds searching for a way to make a profit with low interest rates have moved from the safety of gilts to all sorts of complex bets on what the future will bring. This is why the Bank of England had to intervene. It is today’s equivalent of subprime indeed today’s equivalent of tulips.

But people who work for banks or pension funds cannot continue to have a bet where if they make a profit they earn a personal fortune, but if they make a loss the tax payer bails them out. This was the problem in 2008. It is still the problem now.

Banks and pension funds that act recklessly must be allowed to fail. People who do so must be jailed and personally bankrupted. We cannot allow pension funds to risk the whole economy if they lose their bets on the future.

But it doesn’t matter who is at fault. Truss and the Conservative Party will get the blame and rightly so. There is disagreement among economists about the mini-budget. Some are supportive of what Truss was trying to do and the general principle of lowering taxes to stimulate growth is sound. But Britain is not making a profit. We run a deficit. We have an enormous amount of debt and those to whom we owe this debt are naturally worried about inflation.

For this reason, it is necessary that the Government do nothing to upset the bond markets. Whether it was right or wrong in principle the mini budget caused market chaos and therefore with hindsight was a mistake. Arguably Truss was unlucky, but Napoleon rightly pointed out that he needed lucky generals.

It is unimaginable now that the Conservatives will win the next election. It will be difficult indeed for people who believe in lower taxes, free markets and a smaller state to put forward that argument with a chance of winning for many years. Truss by failing has done great damage to her own argument.

Truss has lost all authority and it would be better for her personally and for the country if she went as soon as possible. But it doesn’t matter whether she does or doesn’t. It is already too late for the Conservatives.

Personally, I would rather a General Election now. The Conservative Party desperately needs a clear out. There are too many people who wish to stab each other in the front.  It is simply absurd that the response to Truss being elected was for some MPs to immediately plot to remove her.

The first thing to do is to change the rules about leadership. Find a method of electing a leader that MPs will accept. If that means only MPs vote, fair enough. Then make it much more difficult for a leader to be removed once elected. The continual threat of letters to the 1922 Committee has destroyed both May and Johnson. This is not a sensible way to govern.

The Conservative Party needs to decide what it believes. We have reached the point where many MPs neither want to lower public spending, nor lower taxes, nor do anything to make the country more efficient, nor do anything remotely unpopular. Their only solution is to increase debt. There needs to be a higher quality of MP.

I believe in giving the public a choice between socialism, social democracy and conservatism. When all the parties meet in the middle it is a betrayal of democracy because it doesn’t matter who wins.

The Conservative Party has become so reliant on solving every problem with higher public spending that there will be minimal difference economically if we have a Labour Government.

If we are to have a Labour Government and this is a certainty no matter what Truss does now, then I would far rather it had an absolute majority rather than depending on either the Lib Dems or worse the SNP. Let Labour take full credit or full blame for what happens next.

The task is to rescue both the economy and the country. Someone is going to have to get spending under control, turn deficit into surplus and gradually reduce the size of the debt. It’s hard to imagine Labour doing this, but the markets may give it no choice.

The prospect of a Labour Government may see some revival of its fortunes in Scotland and this would immensely help British democracy. We don’t know how Starmer will respond to Sturgeon, but we do know that it would be harder for her to win an independence referendum while there was a Labour Government.

The SNP argument is far too reliant on getting the “Tory scum out”. If Labour is in power that argument is as neutered as transwoman after surgery.

Conservative supporters are in an odd position especially in Scotland. Damage limitation for English Tories might be to limit the size of defeat at the next election. But Pro UK people here are going to have to reflect on what we can do to ensure an absolute Labour majority, because the alternative is Labour depending on SNP votes.