I did not get where I am today making forecasts about how the economy will perform in a new year. But I do feel it is my duty to emphasise the tangle into which this benighted government has got itself and us, and the connection between the three macroeconomic policy errors that have made us what we are – namely the “sick man of Europe”, with an economic performance worse than any other member of the G20 economies apart from Russia.
What prompted me to do this was a BBC Today programme last week, guest-edited by Dame Sharon White, chairman – her own preferred term – of the John Lewis Partnership. White took the opportunity to invite other economists to discuss the present UK economic malaise. What struck me was the way they agreed that, after the fiasco of the brief Truss-Kwarteng “fiscal event”, the prime macroeconomic objective of the UK – which in this case means the government and the Bank of England – was to restore “credibility”.
What concerns your correspondent is the means by which they intend to restore credibility, and the potential consequences of going about this the wrong way.
They are responding to the Truss-Kwarteng abandonment of fiscal orthodoxy with a deliberate revival of the sado-monetarism that did so much short- and long-term damage to the economy in the 1980s. They feel that regaining “credibility” necessitates a tough fiscal policy – higher taxes, lower public spending – and a tough monetary policy, leading to the sequence of higher interest rates we are now witnessing, notwithstanding the consensus that this will serve to aggravate the recession now upon us.
Which brings us to the second macroeconomic policy error: the needless austerity which the Cameron/Osborne/Clegg government embarked on from 2010, having shamefully maintained that the 2008 financial crisis was the consequence of Labour overspending and not, as the then Treasury permanent secretary Sir Nicholas (now Lord) Macpherson pointed out, “a banking crisis, pure and simple”. In this, sadly, I fear they were aided and abetted by my old friend Mervyn (now Lord) King, who compared the UK’s economic situation to that of Greece, which really did have serious problems.
Thanks to the superimposition of the Truss-Kwarteng experiment on the impact of more than a decade of austerity, the British economy is now often referred to rather disparagingly. I even meet people who compare the UK now to Argentina in 1900 – then one of the largest economies in the world before its historic decline.
The return of sado-monetarism is going to do precious little for the investment and growth the government desires. On the contrary. Which brings us – I know you have been waiting for this – to that third great macroeconomic policy error of the post-2010 Conservative hegemony: Brexit. It was, and is, bad enough. But this particular error is divided into two parts: Brexit itself, and the crass refusal to recognise the mistake and reverse the entire policy.
Recent opinion polls show not only that a majority of respondents recognise that Brexit is an unmitigated disaster, but that a majority would now actually favour another referendum. Brexiter though he is, our present prime minister, Rishi Sunak, has begun to recognise the error of his previous ways, and would like to foster a closer relationship with the European Union. He is, however, under the rightwing cosh. Yes, we have reached the reductio ad absurdum where the lunatic fringe of the anti-immigrant Brexit right goes after Sunak if he listens to the cries from business about the shortages of staff resulting from – yes – Brexit.
In my last column, I compared the state of the Conservatives to the ancient Rome of AD68-69, the year of the four emperors, with Sunak risking being a modern Vitellius, all too vulnerable to Vespasian’s troops. I was not joking, and note from the current issue of the New Statesman that David Gauke, one of the few sensible members of Boris Johnson’s cabinet – and therefore fired from it – is asking whether Sunak can last the year. This in the first week of January, with a rightwing faction aiming to reinstate Johnson.
Last week, I wrote elsewhere in the Observer about the Cambridge spies, several of whom went to Trinity College, Cambridge, also my alma mater. I note that the present master of Trinity, Dame Sally Davies, says in the college’s annual record: “Brexit is another storm that returns time and time again. Whether the issue is visas, fees for foreign students or other issues, including a lower tax take by government – this is going to be a big problem for years, if not decades, to come. And the solutions are going to be tough.”
What Davies could have added is that the economic damage wreaked on this country by Brexit outweighs anything done by the Cambridge spies.
