Sarah Ingham is author of The Military Covenant: its impact on civil-military relations in Britain.
In terms of understatement, last week’s “fiscal event” is close to rivalling Vladimir Putin’s “special military operation” in Ukraine.
Both seem to be having a less than optimal impact upon Britain’s economy, with the pound not only tanking against the mighty US dollar but plunging almost ten per cent against the rouble. Balshoye Spasiba, as some would normally say in Moscow, were sanctions not preventing them from snapping up British football teams and super-prime Home Counties property at bargain prices.
“City boys playing fast and loose with the economy”, per the Times, was how one ally of the Chancellor summed up the market reaction. Was that meant to reassure us? The boys are doubtless planning the mother of all parity parties, as sterling hits 1:1 with the greenback sometime soon. (Fingers crossed it’s not during the Liz Truss’s Conference speech.)
And, of course, with their now unlimited bonuses thanks to “Kami Kwasi”, those boys can perhaps afford to push out not just the boat, but the super-yacht.
There was much to welcome in Kwasi Kwarteng’s speech just seven days ago. The promise to simplify the tax code, reform IR35, introduce VAT-free shopping for overseas’ visitors who will now splurge in Bond Street rather than the Boulevard St Germain… Sound measure after sound measure with the overarching theme of unleashing the power of the private sector. As the Chancellor stated: “The only way we can pay for public services is to grow the economy.”
Lifting the bankers’ bonus cap and cutting taxes for the rich eclipsed all the positives, including the £60 billion energy rescue package. The comparatively puny £2billion that the tax cut represents is hardly worth the huge political hit.
Had Kwarteng singled out Typhoid Mary for a fiscal break, he could hardly have done more damage to the Conservative cause. Privileging the already privileged on the eve of the Labour Party conference when the Opposition is looking vaguely credible is far from helpful.
The legacy of the 2008 global financial crisis was a tsunami of political disenchantment and destabilising populism. Over there, Podemos, Syriza, the Five Star Movement, Trump. Over here, Coalition government, a surge in nationalism in Scotland, and Brexit.
This time, the current turmoil in the British financial markets has been inflicted by politicians rather than bankers. Once again, however, it could well be average-rate taxpayers who end up picking up the tab.
Away from the rarefied world of Chequers and Dorneywood, ongoing anxieties over the cost-of-living crisis, energy prices, and runaway inflation are intensified by the prospect that family homes might soon be lost due to a hike in interest rates. With energy denominated in dollars, the plunging pound will further push up prices.
Perhaps the Government’s top team can explain exactly how the uncertainty they have stoked is going to “foster and encourage the millions of British businesses, large and small, that create the wealth of the nation”, an undertaking given in the Conservative’s 2019 General Election manifesto. This, let’s not forget, gave them the mandate to govern the country.
Back in July during the leadership contest, Candidate Truss seemed more preoccupied by the mandate of the Bank of England, charged with keeping inflation at two per cent. Her team’s previous sniping about Andrew Bailey, the Governor, will surely be hushed after the Bank intervened on Wednesday to buy up £65 billion of government debt.
To try and make sense of it all, some would have enjoyed the Financial Times, “The Reason Why the BoE is Buying Long Gilts: an LDI [Liability Driven Investment] Blow Up”, while the rest of us turned gratefully to the Sun: “Kwarmaggedon” detailed how £1 trillion of our pensions were narrowly saved from collapse.
The sole sliver of silver lining during the past week’s turmoil is that Britain’s high street banks might start focusing on the best possible stewardship of their clients’ dwindling funds rather than pushing their own pet political agendas.
When not closing down half the nationwide network of branches and removing 12,000 ATMs since 2015 according to analysis by Which?, banks have recently been mustard-keen to burnish their social justice credentials. Barclays tells us it’s been advising a transwoman on saving (“My name is Luna… and I want big t*ts”), while Halifax recently told customers to go elsewhere if they disagreed with pronouns being displayed on staff badges.
Should banks have to repossess clients’ homes or close their businesses, such marketing department initiatives will be seen as even more ill-advised.
The City of London is Britain’s engine of prosperity and a genuine global leader. There is enough expertise there for Downing Street to call upon. Instead, the Government refused to subject its “fiscal event” to proper scrutiny before it was announced. Sacking Treasury mandarin Sir Tom Scholar, side-lining the Office for Budget Responsibility, and avoiding proper Parliamentary debate is hardly a display of confidence by Nos 10 or 11.
Similarly, the Prime Minister’s vanishing act of recent days gives the impression she is frit. (Thursday’s speed-dating with BBC local radio stations doesn’t cut it.)
If leaders are unprepared to lead, the vacuum is rapidly filled. Uncomfortably for Party members who have just voted in Truss, it was filled earlier in the week by the Chief Economist of Swiss giant UBS, who observed that “modern politics produces parties that are more extreme than either the voter or the investor consensus”. He added: “Investors seem inclined to regard the Conservative Party as a doomsday cult.”
Black Friday usually marks the start of the Christmas shopping season at the end of November. This year it could be moved to 23 September, echoing Black Wednesday of 16 September 1992, when the Conservatives lost their reputation for financial competence and, ultimately, a general election.