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September 23, 2024 - 2:30pm
As Chancellor Rachel Reeves spoke at the Labour Party conference in Liverpool this afternoon, a heckler interrupted to protest against arms sales to Israel. The incident seems to have captured the attention of the press and allowed Reeves to respond that Labour has changed from a “party of protest” into a “party of working people”. The Chancellor will no doubt be pleased that the media can now focus on internal Corbynite versus Starmerite party politics rather than on the substance of what she said earlier today. That’s because her speech was utterly incoherent.
Reeves stated that there would be “no return to austerity”, referring to the relatively light-touch austerity the Cameron government presided over when it was elected in 2010. This is, to put it charitably, hard to believe. Just before the speech began, it was announced that a debate on the controversial cuts to winter fuel subsidies which are being called for by unions will be pushed back from today to Wednesday. This update was met with boos from an audience which knows full well that Keir Starmer’s government is pursuing the most aggressive austerity programme Britain has seen since the Fifties.
While Reeves was speaking, part of the Labour Party’s own base went into rebellion as the Royal College of Nursing announced that it would reject the Government’s offer of a 5.5% pay rise. Two-thirds of its membership voted against the offer and — with 145,000 members casting a ballot — the union saw its highest turnout for a vote in history. Once again, Reeves can call the policy that her government is pursuing whatever she wants, but voters still know austerity when they see it.
The Chancellor also claimed that she wanted to “make Britain a place to invest” but Labour has been murmuring about increasing capital gains taxes for weeks. Recent reports suggest that the party may even try to impose an “exit tax” on those who want to take their wealth out of the reach of the Government. When investors look to invest in a country, they are always deeply concerned about having their capital gains taxed or locked into that country.
Reeves’s speech today contained a lot of empty rhetoric. There was a great deal of talk about “tough choices” and very little window-dressing. No wonder: the recent report by the Office of Budget Responsibility shows that the austerity which Labour is imposing on the country is no temporary measure. Rather, it is part of a 50-year plan of managed economic decline for Britain. There is no viable way to hide this plan from the public, who will see it hit their pocketbooks. No “messaging” can overcome hard economic reality here.
When the Labour Party in Ireland imposed austerity on the country as part of the Labour-Fine Gael coalition government in 2011, it collapsed at the next election and has never recovered since. It seems highly likely that Reeves and Starmer are leading the British Labour Party — at least in its current form — to the same fate.
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SubscribeCan’t wait.
And that fated (or is that feted) collapse can’t come around quickly enough
Is this something the author has just dreamt up, or something he has actual evidence for; in which case, he should state it.
Of course, the UK has been in economic decline for decades, and no need to go into much detail about how and why – it’s been debated and documented ad nauseam. But an actual plan? By the Labour Party? And wouldn’t that mean being in power for at least the majority of that time period to “manage” it?
Certainly, net zero would be a significant part of that plan but 50 years is quite a long time and there’s nothing inevitable about either achieving it or indeed, continuing to decline. It sounds very much like the kind of statist planning scenario imagined by China or Russia. Perhaps that’s where the Labour party are getting their ideas from.
Managed decline has been the unsaid policy of the UK government since the 1950s. The bit of government we don’t elect. It has been and continues to be the consensus in Whitehall that current UK financial liabilities will exceed future resources unless we manage the shrinking of our balance sheet now. It’s the belief that the UK’s economic heft is a legacy of a long gone empire, and unless we take decisive action to manage the unwinding of assets and liabilities today the shock to come will be much worse.
First our overseas commitments were ended in the 1950s. Then we began dismantling our armed forces capability in the 1960s. By the mid 1970s we began to wind down our industrial and regional commitments. From the mid 80s we freed our private capital markets to become a net seller of assets to fund a bubble in consumption that continues to this day unfunded by our economic output. And our current account and net international investment position (NIIP) are now so negative we must begin unwinding our consumption commitments such as benefits, energy, and even the social compact of what it means to be a citizen. It is an uninterrupted relative decline and each stage – from the perspective of Whitehall – has been carefully managed because it’s all been achieved relatively peacefully.
Perhaps the most telling evidence of the managed liquidation of the nation’s balance sheet is the UK’s net international investment position (NIIP). In 1951 the UK still had a positive net international investment position of well over 50% of GDP. We collectively owned more assets overseas than overseas owned here. That net position dwindled relentlessly through our carefully managed decline. By 2004 it had shrunk to zero. Today it is -35% of GDP and can only get worse because we continue to sell assets to fund the current account deficit, and each sold asset increases the current account deficit in future years.
This isn’t Labour or Tory policy. The amateurs we temporarily elect are no match for the permanent secretaries in Whitehall. This is the policy of the established organs of state. And it is a self-fulfilling policy prophecy.
Very interesting.
Some of that NC is interesting but not your conspiratorial explanation. That was an unnecessary infantile conclusion.
Less than 2% of the £2.5tn of pension fund assets are invested in British companies. And we wonder why UK has an investment problem! We must better to pool risk amongst smaller funds and accelerate consolidation of local government pension funds. That could bring £1tn into productive investment. Additional merging into the highly successful Pension Protection Fund of specific schemes that need additional guarantees and Britain will at last have the investment pools to turn round its decaying stock market and trigger an investment boom.
The UK has only one software company and one electronics company in the respective global top 100s; one medical device maker in the top 50.; no companies at all in the top 25 listed global biotech firms; just one company in the top 24 scientific and instrument list. If you count the chip designer Arm, now quoted in New York, as British (a stretch), it is our only representative in the semiconductor top 100. We do have two pharmaceutical companies, AstraZeneca and GSK, in the top 50 and five firms in the top 100 chemical companies. But any relief should be qualified: Britain has only eight pure technology businesses quoted on the LSE worth more than £1b.
We lost DeepMind to Google, Arm to Japan’s SoftBank and Darktrace to the US private equity. In each case shareholders were offered such a rich premium and the founders had so little control that the result was a foregone conclusion. 2,300 growth companies were sold abroad last 10 years. It’s pillage because we lack investment capital yet sit on one the world’s biggest pension fund reserves.
It’s a function of British capitalism and how it’s evolved and we can change it.
If the U.K. government gave me a cast-iron guarantee to make up any performance shortfall from U.K. investments – compared to the US – then fine. They won’t do that. We will continue to see the U.K. economy being a harder and harder place to do business successfully (likewise the EU) until governments realise the harm they are doing, and reverse direction.
Cast iron guarantees not poss obviously but there is a bit of the ‘chicken & egg’ in your point. Moreover the point about the size of companies I referred to shows they can do v well to a point and then it’s about accessing capital. That should not be the case with an asset like the City. And as we see others buy the assets. Thus I don’t think your point holds. It’s how we’ve structured investment capital and not something else you might be leaning more towards.
Most of the good assets are being bought by foreigners – followed by the IP leaving the country – and then the head offices, They don’t want to stay in the U.K. The net inflow of investment is continuing to drop as we pile on more and more regulation and costs. Differentials in the cost of capital is a minor influence when compared to the overall cost of doing business. Throw in the contempt that the U.K. culture has for the salaries commanded by successful CEOs on top of that, we really are in trouble. In terms of the smaller companies, there are plenty who have stopped taking financial risks (I.e.investing) because the current government seems intent on making sure they won’t benefit much from any positive outcomes they might hope to generate.
You’ve completely misunderstood the meaning of net. If 98% of overseas pension fund assets were re-invested in the UK the net international investment position would be unchanged. The other problem is we have £2.5tn of pension assets – mainly private pensions – and we have unfunded public pension liabilities of £2.6tn. And of course, what asset class in the UK is under-invested? There isn’t a shortage of investment cash, there is a shortage of investment opportunities. The continuity EU regulatory regime of the UK makes the UK’s investment prospects almost as sclerotic as the EU’s.
“No return to austerity” means that if she did it, then it could not be austerity. She thinks that we are daft.
Well targetted and meaningful supply side reforms are urgently required. Yet nothing coming out of Labour makes any sense to me (even the much vaunted housing reforms are built on CPO and govt seizure of full land value which is guaranteed to lead to endless legal recourse). Asinine.
Government should do less, spend less and jabber less. Let business loose to make profits and provide everyone who is prepared to work hard with a chance to have a decent standard of living.
Be careful. That ‘hands-off’ led to the 2008 Crash from which we still haven’t recovered. And than there are market failures like Thames Water.
It’s needs to be guided much more.
Some might say that what led to the 2008 crash was the fact that investors were certain that they would be bailed out. That is also the thing we have not recovered from.
That is probably true, it changed perceptions of risk. But would it ever be possible to actually call their bluff and let them crash? If not, what alternative to regulation is there?
That is the question. To the extent that this is so, ‘too big to fail’ should mean ‘too big to exist’.
An alternative (or complementary) approach is to double-down on the Austrian.
After all, the barriers to more competition in financial markets, which create the ‘too big to fail’ problem, stem mostly from regulatory requirements. Remove the regulatory requirements, allow market entrants to gobbling up market share, and the result is a more stable financial market, with more competitors (even using their own micro-currencies, why not?), who are all so small that we can let any number of them fail without it having a systemic impact.
That’s an interesting take on it. But markets do tend to create a relatively small number of competitors as others are eliminated.
I remember when the internet was going to change that by eliminating scale advantages etc. Yet here we are with Google, Amazon and a few others.
Yeah, you make a very good point. Market tipping points and network effects, particularly in tech markets, represent legit market failures.
The focus should be on correcting those market failures – and there are ways to do this, i.e. by regulating access to infrastructure.
That’s why I hesitate before throwing all weight behind the idea of a currency free-for-all. Not sure the market would avoid tipping and private control of a monopoly currency would be the mother of all market failures.
I sat in meetings with the regulators, insurers and the banks way back in 2001 when I worked for one of the ratings agencies (we only actually rated insurance entities but were worried about their exposure to the CDO and CMO market.)
At the time we warned all parties of the very significant likelihood of a crash in the bond market with it’s domino effect across tge global economy.
The attitude of the banks was ” we’ll get bailed out as too big to fail.”
The regulator refused to ease the capital adequacy rules to allow the insurance companies to allow them to diversify their investment portfolios. In fact they tightened the requirements.
We left the meeting and just bought popcorn whilst continuing trying to get people to listen.
When the regulators said they were blindsided it’s absolutely not the case. They knew years in advance but, with the revolving door recruitment policy allowing them to feather there nests, they were nothing more than a banking and investment sector lobby group.
“Oversight?
the government’s long been in bed
with those Wall Street Execs
and the firms that they bled.”
Watch at 6:19
div > p:nth-of-type(4) > a”>Fight of the Century: Keynes vs. Hayek – Economics Rap Battle Round Two (youtube.com)
Would we also let the unions loose too? After all they are currently hampered by legislation and government interference too. Or do we let business loose but tie the unions hands?
Austerity for the pensioners robbed to shovel cash at the poor train drivers.
She is working towards the borrowing and spending requirements and corresponding ‘fiscal discipline’ required for admission to the Eurozone.
The EU might well require that the UK take on the single European currency for full single market membership.
That picture of Reeves is perfect; the look of slightly puzzled vacuity captures her very essence.
Labour are stupid. Their performance so far after just a very small time in office leaves little doubt of that. However, they also believe that the electorate, and especially its richer members, are stupid too. How else could the rich become rich, goes their thinking, unless they were stupid and undeserving? And because they are such they will simply stand there whilst labour removes their wealth from them.
Well, they are going to be in for a very unpleasant surprise because the rich are not stupid. 1% of tax payers pay 30% of all income tax and NÍ. Those two buckets represent 46% of the total tax take. Paid for by the rich who are now leaving the UK in their droves. 9000 millionaires have already departed and there are thousands more more who are packing their bags. Whilst the housing market may be dead at the moment the market for wealth advisory and accountants specialising in expatriation is running at capacity – you’ll be waiting months for an appointment.
The date for the diary is summer 2026 when the accrued tax receipts for the current period will be published in the HMRC ARA – only then will the full scale of capital flight become apparent for all to see – assuming that the IMF haven’t been called in before then.
I dispute the description above of Pilkington as an “economist”. Cameron did not deliver austerity and neither will Starmer. When government spending rises every year, that’s not austerity. When it’s funded by increased taxes and borrowing, it’s profligacy.
Rachael (“I-used-to-work-at-the-Bank-of-England”) Reeves addressed the conference (and the nation) in a grating, bullish “I’m-tough-and-I’ll-sort-it-out” tone. Frankly, her speech was full of bull and not much else. Another ‘man-woman’ riding the tide of wokery.
She looks an Intelligent woman until she speaks.