Is this Black Wednesday for 2022?*
(*Past performance is no guarantee of future returns)
I’m reminded of this spoof NSFW advert by Juice Media.
…and things just got worse. Much worse.
It’s just over 30 years to the day that the £ crashed out of the Exchange Rate Mechanism <<– This take being from a decade ago to this blogpost. In those days, Margaret Thatcher’s Government signed up to an agreement to keep Sterling within certain boundaries vs the German currency, the Deutsche Mark. Treasury Ministers (who controlled interest rates, not a Bank of England Committee). Thus ministers sacrificed the UK’s domestic economy’s needs to those of international currency markets. Speculators bided their time, attacked just after the general election, and rinsed the taxpayer as Norman Lamont tried desperately to shore up Sterling. Interest rates went up into double figures, many businesses went under, ‘negative equity’ became a thing amongst home owners (where the value of their homes became less than the debts secured against them following a house price collapse), and the Tories lost any reputation within their own supporting institutions over economic competency. Tony Blair on the other hand spent much of the mid-1990s trying to convince those same institutions of Labour’s new competency with the public purse – the IMF bailout still being in the minds of many.
In both cases, Labour (in 1976) and the Conservatives (in 1992) took an absolute hammering from their own sides – and their own core political/electoral supporters. In the case of Labour, a 20% cut in public expenditure was strongly opposed by the trade union movement at a time large parts of the economy were in public ownership. To give you a sense of how much, have a browse through this 1987 pamphlet.
Above – from Paying the Price [of privatisation] by LRD (1987)
The level of industrial action and strikes led to the phrase The Winter of Discontent, with images of rubbish left uncollected everywhere as local council workers joined in strike action. This was at a time when inflation was also in double-figures, successive governments being unable to deal with the oil price shock of the early 1970s. Labour lost the general election of 1979 and the rest is history.
Fast forward to 1992 and inflation again was on the minds of ministers, with interest rates being the main tool for controlling it. As pressure on Sterling to stay within the Exchange Rate Mechanism boundaries grew, so did upward pressure on interest rates. A newly-reunified Germany had raised their interest rates to borrow money to pay for the huge infrastructure costs associated with reunification. The UK’s currency then pegged to Germany’s had to do the same – even though higher interest rates were the last thing UK’s economy needed. Hence the Tories tore themselves apart in the 1990s over Europe – just as they had done in the 1960s/70s, and just as they would do over Brexit. Tony Blair rinsed the Tories at the 1997 General Election, and as they say, the rest is history.
And here we are today in late September 2022.
…where the media talking heads have created new terms for meaningless concepts. Whether it’s Corbynism to Trussonomics to KamiKwasi policies, it’s still similar concepts from previous eras (socialism, or free market economics) applied to different ages. In the case of the latter two, all the headlines seem to be are similar policies that the Conservatives under Thatcher brought in. i.e. tax cuts for the wealthy, heavy borrowing, and public service cuts.
The Guardian went in full throttle but in the grand scheme of things, many mainstream institutions were very critical of the proposals from the new Chancellor of the Exchequer, one of Trinity College Cambridge’s finest, Kwasi Kwarteng – who also got a Ph.D from the University of Cambridge in Economic History as well. The problem is it was on the great coinage crisis of the late 1600s, so I’m not sure if that can help him with contemporary domestic economic policies. Either way, here’s one former Chancellor, also with a Ph.D, who has given his opinion on the so-called Mini Budget: Gordon Brown.
‘We are not a poor country, we are an unequal one’
The former Permanent Secretary to the Treasury – the most senior civil servant in the Department, also had this to say:
Basically saying the Financial Markets have absolutely rinsed The Chancellor’s announcement today. And given that the Conservatives are supposed to be ‘the party of business’ and rely on the institutional support of the financial markets, this was one hell of a reaction.
“Mr Kwarteng is not just gambling on a new strategy, he is betting the house.”
“He is willing to shrug off the risks of inflation, and to invite significantly higher interest rates. And he has avoided scrutiny by presenting a Budget in all but name without accompanying forecasts from the Office for Budget Responsibility.”The Institute for Fiscal Studies, 23 Sept 2022
This time around there is no Clown Prince to save them
…and given that this was the first major policy announcement by a senior minister in Liz Truss’s Government (she was sat behind the Chancellor as he made the speech), this was a direction-setting speech. It is very difficult to do a massive political U-turn after such an announcement *and* maintain your political credibility.
Mr Dunt is right on this one. It’s the textbook ‘slash and burn public services while the 1% sweep up the winnings caricature that they have in front of them – one that older generations of activists – and voters – will be familiar with.
With the other recent crises, ministers could always blame someone or something else. With this one, they cannot.
- Brexit – “It’s what the voters voted for – we have to implement their decision”
- Covid – “That was an international crisis started in foreign places!”
- Climate Emergency – “Look at the emissions coming from [insert name of country]”
As a political party, one of the few recognisable principles the Conservatives have in the minds of the public is their belief in ‘the market’. Even when things go really badly wrong – such as with the sewage scandal or poorly-performing rail franchises and bus services, Conservative Ministers struggle to bring themselves to nationalise functions that have been privatised. So when a Conservative government has a major policy announcement flame-grilled by the financial manifestation of one of its core philosophical principles, it matters. And it will hurt politically. It’s the equivalent say of the Liberal Democrats getting torn to bits by a major civil liberties campaign group, or The Green Party getting slammed by Friends of the Earth. Just on much bigger political scales.
That’s not to say the Tories cannot rescue the situation
Recall in late 1990 when Conservative MPs deposed of Margaret Thatcher and replaced her with the relatively unknown John Major. 18 months later John Major won the general election of 1992. It’s the long memory of that which might explain the very cautious approach coming from Sir Keir Starmer and Labour since he became leader. Perhaps he’s taking the perspective of having to condense what Labour had to do between 1983-1997 into a few years (irrespective of whether or not you agree with the approach). At some stage though, Labour will need to publish their own serious alternatives. Not just because the voters will want *something to vote for* (as opposed to ‘anyone but the Tories’), but because people need hope. And without hope there is despondency and despair – mindsets that are very difficult to break out of (trust me, I’ve been there) and get motivated enough to want to go to the ballot box and cast your vote.
This up and coming Labour conference just got a lot more important for Labour.
Food for thought?
I normally blog about things local to Cambridge – clue’s in the name of the blog. But every so often I revert to my previous incarnation of the civil service policy type, hence posts like this one.
If you are interested in the longer term future of Cambridge, and on what happens at the local democracy meetings where decisions are made, feel free to: