No easy answers to Britain’s migrant mess

A political crisis is playing out on the coast of England not far from my Sussex home. Almost daily, flimsy boats carrying migrants attempt to cross the Channel to reach the Kent and Sussex coast; they are often picked up by Border Force or RNLI boats. The numbers are growing rapidly, with not even the autumnal weather putting them off. And these crossings have turned to human tragedy, with 27 migrants dying off the French coast last week when their boat capsized.

The political crisis arises because Conservative Party supporters feel that this situation is intolerable; they had voted for Brexit to keep migrants out, but they seem to be flooding in, with the government apparently helpless. Many of these supporters would rather the travellers drown pour encourager les autres; Conservative politicians, realising that such views are unacceptable in the mainstream, instead rail against the people smugglers profiting from the traffic, and the allegedly unhelpful French. Left and liberal politicians meanwhile suggest that safer alternatives be provided for the migrants, but mainly enjoy the schadenfreude of pointing out that Brexit has made this particular problem harder to deal with. Workable solutions are not offered.

To a large extent the government’s problem is one of success. It has implemented harsh policies to keep out those migrants it deems to be undesirable, meaning most refugees and anybody who is not highly educated, preferably at a British university. They have taken full advantage of Brexit to do this, and the overall flow has been reduced substantially. The country takes in many fewer refugees than comparable other European countries. Earlier efforts to cooperate with the French, predating Brexit, have stemmed the flow of migrants smuggled on lorries. The refugees and their people-smuggling agents have few alternatives to the use of boats. Unfortunately the trade is so lucrative that it has expanded – and it has proved very hard to police. Unlike Poland and Belarus, Britain can’t simply put up a fence patrolled by soldiers to keep them out.

Why are they coming? After all they are passing through countries, not least France, that many Britons feel are desirable places to live. But like in Britain, these refugees, many of who are Muslim, evoke a lot of public hostility, so their governments aren’t exactly welcoming. Many of the migrants want to join family or former neighbours already settled in Britain. There is also a suggestion that Britain has a rather lax attitude to things like identity papers that makes it easier for illegal migrants to get on. Most of the migrants seem to be genuine refugees from the world’s growing number of troublespots – Afghanistan in particular. A suggestion by some that they are mostly “economic migrants” from countries that are simply poor no longer seems to be true, though I don’t entirely trust my sources on this. At the bottom of this, Britain is indeed a highly desirable place to live, and one where migrants with the sort of get up and go needed to make the hazardous journey can do well. Racism and Islamophobia are rife, but I don’t think they are worse than anywhere else in Europe – and indeed attitudes are probably more liberal than in most.

What is to be done? Shrugging and letting it carry on is unattractive. The country could probably absorb the arrivals easily enough, but the trade is lucrative and expanding. Many more will doubtless die – and also the continued acceptance of the migrants makes the state look ineffective. Most of the migrants seem to be scooped up by the authorities (unlike the lorry-smuggling trade) and then have to be processed, rather than simply disappear into their communities, placing a strain on the civic authorities. Pushing the boats back (as apparently the Greeks do to boats from Turkey) looks unworkable. The Channel is too broad and its waters too unsafe, especially in the craft that the migrants use. The traffickers have no incentive to give them more seaworthy boats. Beyond that the authorities’ main idea is to remove them from British shores as fast as they can. This, it is argued, will “break the business model” of the smugglers by reducing the chances of a successful journey. This could be to offshore processing centres – Australia has used such a policy with some success – and then back to their home countries. The legal obstacles to such a policy are in the process of being dismantled by new legislation. But where to process? It is not an attractive prospect for the host nation, and British dependencies are too small and too far away (the Falklands has been suggested). And how to send people back to a war zone?

Or the migrants could simply be sent back to France (or Belgium, also used by the smugglers). That requires their agreement, though, and they have no incentive to cooperate. After Brexit the country has many fewer pathways to achieving a solution along these lines. Some form of quid pro quo would be needed, and that would mean accepting a greater number of refugees one way or another. Meanwhile the idea of beefing up the border patrols on the continental side of the water and arresting the traffickers seems to have little chance of doing much to stop such a lucrative trade.

Another idea from conservative types is to make life harder for refugees and illegal immigrants in the UK. This was tried out a number of years ago with a policy called “hostile environment”. Alas such policies in the hands of bureaucrats and enforcement agencies usually end up by punishing the wrong people – those that came in long ago, when paperwork was laxer, and who are now fully integrated. Such people are easier to find. That was the “Windrush Scandal” that proved to be politically very damaging. Besides the idea of Brexit was to celebrate Britain’s tradition of freedom and lack of bureaucratic interference in daily life – and not t turn us just another Euro-state regulated by busybodies.

So what do liberals suggest? Increase the flow of refugees through safe, legal routes. The idea seems to be that doing so would reduce the incentive for migrants to take such a risky route and pay the smugglers. But, of course, it cannot reduce the overall flow of migrants. Indeed it would surely increase it – reducing the cost of migration would increase the flow. There would also be an incentive for other countries to send their awkward refugees on to the UK. Another liberal idea is to try and head of the trouble that is causing people to flee with more aid. But the failure of Western military interventions, and the concomitant rise of countries starting or provoking wars makes this a pretty hopeless task.

So what to do? There is no good answer, but the best way forward surely requires multiple approaches. It starts with more generous policies for accepting refugees through safe, legal routes. It is ridiculous that the country has not done more to accept more Afghans, for example, as there was clear political cover for this in response to Taliban victory. This would give Britain a stronger bargaining position when trying to hammer out solutions with our European neighbours to get tougher on the smugglers and reduce the number of successful crossings.

And that is probably as good as it gets. The people trade is like the one in illegal drugs – too hard to stop, but one that multiple channels can alleviate.

Focus on Fake

This morning I received this from a loyal subscriber, promoting a programme of seminars that which really does sound quite interesting (link in the text below):

Dear Matthew,
Firstly, thanks for being one of my key “liberal” places of good quality information. It is great to receive your emails that gently remind me to look at the new material.
As Chair of the Defence & Security Circle of the National Liberal Club, my all consuming volunteer thing, I am asking you a huge favour: we have been given at last minute a NATO project to deliver starting 1 December on fake news, disinformation and hostile players.
It is free, balanced and offers podcasts, videocasts and hybrid events.
I need to get the info out to asd many people who are liberal, moderate, policy thinking and concerned about values – to get in person attendees this Wednesday and to garner zoom online participants. It is a cracking program: 3 x 1 hour sessions you can dip into and events in EDinburgh and Manchester later on 6 and 13 December respectively.
Our website with the registration links is Focus on Fake (nlcdefence.org.uk)
I feel crap asking at this late stage – but I’m channeling my inner Aussie can do attitude.
If you feel at all able to do so – your network would be a suitable and most respected addition to politicians, media influencers, students from KCL and everyday people.
Happy to discuss or answer questions. I’m also charged with creating podcasts with bloggers and vloggers … might I entice you to give us 15 minutes in a chat?
Cheers
Noel

If Labour want to capitalise on Tory sleaze they need a political alliance

As many Conservatives feared, the government’s fiasco over the Owen Paterson affair is giving traction to accusations of “Tory sleaze”. You can argue whether Mr Paterson’s conduct actually merits this description, but a fair appreciation of the facts matters little in this kind of rough and tumble – a rough and tumble that Conservatives are only too happy to indulge in when it is to their advantage. And in any case there have been other examples of dubious behaviour. The Conservative opinion poll lead is evaporating. This must give Labour some badly needed hope. But capitalising on this issue will be tricky.

Labour does come at this with some advantages. They are much less sleazy than the Conservatives, having been out of national power for eleven years. Their MPs tend not to have well-paid consultancies. The government won’t let them award peerages to donors, removing the temptation to do so, and so on. Better still, their leader, Sir Keir Starmer, looks the model of personal integrity, even if he is a bit pompous with it. But for all that, Labour has been slow to see much poll benefit. The Conservative poll share is falling, but Labour’s does not seem to be rising, or not by much. The most conspicuous beneficiary in the most recent poll are the Greens. The Greens have very little prospect under the current electoral system, so in any general election their vote will get squeezed away. A lot of that squeeze is likely to go back to the Conservatives, such is the fear so many people have of voting Labour.

What is the problem? The party’s reputation can be tainted by two lines of attack. The first is that they will be no better in if they win power – “they’re all the same” – capitalising on the public’s general cynicism over politicians. Labour’s record when it was last in power wasn’t particularly clean by British standards. They needed big money donors, some of whom ended up with peerages, or, apparently, other favours; many of their MPs indulged in dubious expense claims. Former leader Tony Blair seemed a bit too relaxed about such things – though his successor Gordon Brown had a stronger reputation. The other line of attack is that the party is being taken over by the far left; their politicians are not beholden to big money, but they might have a tendency to think that the ends justify the means, and play fast and loose with the rules in other ways. And, of course, hard left parties are open to other lines of attack that might drive under decided voters away.

Labour has another problem. They are not articulating clear policies that would make British politics cleaner, beyond vague promises of tightening up the existing regime. They have suggested that MPs should not be allowed to take on paid consultancies. But they won’t suggest that second jobs will not be allowed – as at least one of their number is an emergency doctor, and they like to make the claims to sainthood that such a role allows – and doubtless there are other examples of “real world” jobs that enhance an MP’s job. Besides, all this is just tweaking at the edges, and would hardly make it harder for powerful business interests to get undue influence.

What is needed is something much more eye-catching. An obvious policy is the abolition of the House of Lords, perhaps with its replacement by an elected second chamber. The Lords are already over-large and over-used for patronage; the government is in the process of making things much worse by creating even more peers, of which large party donors will undoubtedly feature heavily; that could give the idea public traction. A second idea is to reform the electoral system for the House of Commons. Nothing is more annoying than Conservative claims that it is up to constituents to judge the behaviour of their MPs, when most voters quite rationally think that party label is more important – and most MPs hold safe seats anyway. Behaviour has to be pretty extreme for an MP to lose his seat, and usually the opposition has to be pretty canny too. Actually electoral reform would not necessarily deliver a better system; proportional systems can produce their own safe seats (though not the Single Transferable Vote, which requires multiple-member constituencies). But it’s a real change that would make established politicians uncomfortable – and it can prove a focus for a public wish to make a real change to politics. The is exactly what happened in New Zealand in 1993.

But Labour has a credibility problem when proposing such policies, which go to the root of why people distrust it. When the party has had the opportunity, they have done little to progress either Lords reform or electoral reform. The New Labour government from 1997 to 2010 made some important reforms to both, but none that changed the system radically, to tackle patronage appointments or safe seats, for example. When the Conservative-Liberal Democrat coalition of 2010 to 2015 proposed much more significant reforms (in some cases not far from Labour’s 2010 manifesto), Labour undermined them because they did not want the governing parties (and especially the Lib Dems) to get any of the kudos; party advantage came first. Besides, the Leninists on the party’s left probably quite like the opportunities conferred by the current system to create an elective dictatorship. Big constitutional changes are tricky to push through, so the public would be right to question Labour’s determination to make changes when things got a bit rough.

What would give Labour a much better chance of showing that it really wants to change things is to form a cross-party alliance. This would need to include the Liberal Democrats, who have their own credibility issues after the coalition, but who are locally strong in places, and the Greens, who have the momentum. Bringing Scottish and Welsh nationalists into the picture would add even more credibility, but would be much harder. This would have the added benefit of making things easier after the election if neither the Conservatives nor Labour won a majority – which looks more probable than Labour winning a majority on its own.

Alas Sir Keir shows no sign at all that he has either the courage or the imagination to take such a path. The result of that is that the business of British politics will carry on much as normal for many years to come.

The curious case of Owen Paterson

Last week was acutely embarrassing for the British Conservative government, led by Boris Johnson. After an excoriating report by the Parliamentary Standards Commissioner, the House of Commons was due to censure former Tory cabinet minister Owen Paterson for repeated paid lobbying. Mr Paterson was popular on Conservative benches, and was vociferously maintaining his innocence – so Mr Johnson thought he’d help him out and rewrite the standards system, which he heartily despises, in one fell swoop. Thanks to a three-line whip, and the decisive voting support of a number of MPs who had fallen foul of the system, he narrowly won the vote last Wednesday. This caused such a stink that he promptly reversed course the following day, and now Mr Paterson has resigned as MP. All those Tory MPs who loyally voted for the wrecking motion endured the stink for nothing. I find the whole affair a bit puzzling.

The first curiosity was why Mr Patterson resisted the Standards Committee’s report so vociferously. At the start of the week the BBC interviewed him, and he vehemently maintained his innocence. He claimed that the whole standards process was unfair, saying that 17 witnesses that he had put forward were not heard, and that he had no way of making a proper defence, and not even a right of appeal. He even claimed that the way he was being persecuted over the two years of the investigation led to his wife’s tragic suicide. This was pretty strong stuff, though I had heard this kind of thing before from senior Tories. I will never forget Jonathan Aitken and his claim of “the sword of truth”, before being found guilty. His alternative course would have been contrition, admitting what he had done was wrong, and throwing himself on the mercy of his fellow MPs. Given his popularity, and his personal tragedy, this might well have worked – he could have got away with no suspension or a short one, that would not have had the possibility of triggering a by-election. He may well have believed what he was saying – but, as Matthew Syed points out in The Sunday Times, the human capacity for self-deception is massive, especially when it is in our interests. He would not have got himself in so deep if he had thought what he was doing was dodgy, but he does not appear to have been well-advised.

The next puzzle is why the first initial media response to Mr Paterson’s claims were so muted. On the BBC there was only a formulaic rebuttal, saying that the standards process was independent; none of the specific issues that he raised was responded to; it wasn’t even very clear what he was being accused of; his interviewer certainly didn’t press him. It was not until the debate itself that it emerged just how flimsy Mr Paterson’s defence of was, both in his explanation of his behaviour, and his criticism of a parliamentary process that has been in place for decades. He behaviour was clearly and repeatedly in breach of standards; his 17 witnesses had submitted written statements; the process allowed Mr Paterson to make what amounted to an appeal; and so on. Given the Tory onslaught on the supposed bias of the BBC, I’m not surprised that they wouldn’t take it on, though it says much for the sad state of that institution. But nobody else did either, until that debate. My New Statesmen daily email wittered away about other things. There were no articles in my online Financial Times, nor in the email newsletters from The Times or the Guardian. Where they cowed by the threat of legal action until the parliamentary debate laid things bare? Did they not understand the importance of the story? Where they leaving a trap for the Conservatives to fall into? I’m too far away from the action to have much idea. Once the case against Mr Paterson was properly explained in the debate, though, the papers turned on him.

And then there is the puzzle of why Mr Johnson ordered a three-line whip on the rather bizarre wrecking motion, which basically suspended Mr Paterson’s case until the rules were rewritten by a committee with an inbuilt Conservative majority. This brought the whole thing back onto him and his government. Perhaps the initiailly muted press reaction lulled him into a false sense of security. But if sentiment in his party was strongly for Mr Paterson, and against the standards system, he surely did not need a three-line whip? And if it wasn’t, he was obviously taking a big risk. Mr Johnson certainly wants to dismantle the standards system, which he himself has run foul of, and which may well cause him trouble in future (the rather curious episode of the financing of the refurbishment of his flat is a case in point). Perhaps he was not aware of just how overwhelming the case against Mr Paterson was. It had ben a busy week and he has a distaste for detail. He also seems to have been badly advised by either or both of his Chief Whip and the Leader of the House.

It remains to be seen how much damage the affair will actually do. I suspect that the opposition’s aerated claims of corruption will not cut much ice in themselves, though attacks from fellow Conservatives, such as Sir John Major, might. It is still likely to be another dent in the government’s reputation, which will make support harder to rally in future. Perhaps more serious is that the prime minister will have lost credibility with his MPs; he will find them less willing to go into the lobbies to support any future dodgy business. There is no immediate threat to his leadership, though.

Still, this whole curious business shows that there is a level below which the government is not allowed to sink, much as it might want to. That is something.

New Labour was not about making hard choices

I have now finished watching Blair & Brown – the New Labour Revolution, a 5-part series from the BBC on the Labour government of 1997 to 2010. For politicos like me it was compulsive viewing, for all its flaws. Does it say anything to us about politics now?

One criticism of the series is that it was too long. Five episodes of one hour each is indeed a lot of time, but I was hooked, as were many of the reviewers. We learnt quite a few new things, and the tension between its two principal characters gives the subject a fascinating dynamic. In fact the main problem seemed to be on how much it left out. There was no coherent commentary from the left of the party, for example, and the causes of the Global Financial Crisis were not examined. This left two critical parts of the New Labour narrative (or myth in the word’s broader sense simplified story) unchallenged – that “Old Labour” was unelectable, and that the GFC was something that happened from out of the blue from the USA that the government neither contributed to, nor could do much about. Both warrant challenge, even if emotionally I am bought into the first of those myths, while strongly disagreeing with the second. But neither is a simple question to unpick, and the argument on the GFC is probably asking too much for most political journalists to be able to handle, alas. Instead they took a whole episode to dig into the Iraq War – an editorial decision that it is hard to gainsay. The first episode covered the period before they won power, and there was episode for each of the three terms – so there was a logical structure to the whole series. Quite a bit of time was spent on pregnant pauses within the interviews (which included both main protagonists amongst many other important figures), but the overall pace was not slow.

I am struck by how deeply flawed the partnership was. The two leaders worked as a team before the 1997 election, but after that Gordon Brown jealously guarded the Treasury as his fiefdom and kept Tony Blair at arms length. I have no doubt that it was Mr Brown who was primarily at fault here. One of the most remarkable moments came when it dawned on Mr Blair that the government had to dramatically raise its spending on the NHS, to bring it into line with the average of health spending in Europe. This was a brilliant insight (which I have explained recently on one of my blogs) that very few people in the governing elite seem to understand – instead seeing the NHS as a spending black hole that needs to be contained somehow. But the only way Mr Blair could persuade Mr Brown to follow this line was by announcing it in a television interview. Mr Brown could not see the wood for the trees. It turned out to be one of New Labour’s best, and most popular, policies.

It would be tempting to characterise the partnership as Mr Blair being strong on vision, and Mr Brown being good on the detail. But Mr Blair was wrong about a lot of vision things too. He was wrong to push for joining the European currency (though at the time I was on Mr Blair’s side) – another disagreement resolved through the news media; he was wrong about joining the Americans in the Iraq war; he was wrong about trying to bring a private sector ethos into the public services, such as the NHS and schools. On all of these Mr Brown’s judgement seems to have been better, though he was and remains very unengaged on Iraq. But Mr Brown became complacent, especially with his hands-off approach to the financial sector. He put in place a tripartite system for managing national finance, between his Treasury, the Bank of England, and the Financial Services Authority (FSA). All well and good, but it was clearly his job to ensure that the system as a whole was working. He did not seem to grasp the seriousness of the situation until the collapse of Lehman in late 2008, by which time he was Prime Minister. His response then was magnificent – but more insight in 2007, when the risks were becoming obvious, would have helped. Instead he cut the rate of Income Tax, which left the country very vulnerable when the bubble burst. He was so blinkered by his success in “no more boom and bust” that he would not see the risks building up in the system.

Though it ended badly, New Labour has to be seen as a success overall, with three successive Labour general election victories, two of them landslides. Can it tell us anything about the future? The obvious parallel takes us back to Labour, which once again is back in the doldrums. The New Labour strategy was to win by courting the political middle ground and holding back on the party’s more left wing instincts; their most important insight was that the middle ground was a rather conservative place, and not the liberalism associated with centrist political parties, though it needed that too. The party needed a firm message on law and order, and a conservative stance on taxes and spending – as well as keeping union power at bay. This meant accepting that a lot of the legacy of Margaret Thatcher’s government had to stay. That itself was not enough, because John Major’s Conservatives were firmly anchored in that middle ground, and had used that strength to pull off a victory against the odds in 1992. Mr Blair and Mr Brown also had to exude confidence and competence. This was not too hard, as the Tories were beset by divisions, and their economic prestige suffered a fatal blow with the ERM fiasco in 1992, shortly after the election.

Can Labour follow the same strategy? Its leader, Sir Keir Starmer, clearly thought so after he took over in 2020, with the government floundering with its response to the covid-19 pandemic, and seemingly led by right-wing ideologues. Mr Starmer always appeared on television with the word “leadership” on his backdrop. But the Conservative leader, Boris Johnson, has a clear eye on that middle ground, which remains generally conservative. But he also understands that the middle ground has moved on – largely thanks to New Labour. Now it means a strong commitment to state-funded public services, such as the NHS. Unlike Mr Major (now Sir John), though, he has an iron grip on his party. He has recovered from his wobbles on the pandemic, and the public (or the floating voters anyway) appear to have forgiven him. Mr Johnson’s rhetoric on climate change and the environment also marks out his fight for the middle ground. He is not presenting anything like the target that Messrs Blair and Brown were able to destroy prior to 1997.

But the problem for Mr Johnson, and anybody hoping to win on the middle ground, is that it is a have-your-cake-and- eat-it sort of place. It wants well-funded public services but no more taxes; it wants action on climate change but no addition to heating or motoring costs, and so on. This is creating growing tensions within the Conservative Party. It does not create much of a direct opportunity for Labour – who are no more able to solve the contradictions of this middle ground than the Tories. But division amongst the Tories could allow Sir Keir to appear as a more competent alternative.

But a successful challenge is unlikely to look anything like New Labour. Perhaps Labour can try its own “cake” strategy by allying itself with the Lib Dems and the Greens, each of which can cement its appeal to different segments of the anti-Conservative market while leaving there contradictions unresolved. That alliance would need to be based on the promise of electoral reform. It would be a risky strategy, and it is too early to start playing the cards now. New Labour did create an informal alliance with the Lib Dems in the 1990s, as part of its strategy of leaving nothing to chance. But the Lib Dems are weaker now, while trust between the parties is low. Mr Blair was happy to hint at electoral reform then but in the end was “unpersuaded”. Something stronger would be needed now.

Britain, along with most of the rest of the world, is confronting some difficult choices. This is much more the case than in 1990s, when the opportunities for economic growth were much better. After an initial period of austerity, New Labour did not have to navigate such treacherous waters and was able to present voters with a “both/and” proposition. Alas hard choices do not make good politics – the revolution now would be to make taking those choices electorally appealing. The New Labour experience offers us no clue on how to pull off such a feat.

Now is the time for austerity

Contrary to some of the headlines, yesterday’s British Budget was an austerity budget. Its aim was to bring current spending and taxes into balance in three years, with a capital deficit restricted to 3% of GDP. With the current budget deficit at around 11% of GDP, that is a sharp contraction. The Institute of Fiscal Studies points out that most households will be worse off next year. The ratio of tax to GDP is widely projected to be the highest since the years of postwar austerity. Austerity is what current economic conditions demand. The main risk is that it will not be enough, and that it will precipitate a recession in the run up to the next general election.

That the Budget felt the opposite is down mainly to brazen but effective news management by the Chancellor of the Exchequer, Rishi Sunak, and also to a stroke of good fortune. The main bad news was the substantial rise in National Insurance, alongside the withdrawal of most of the emergency support for Covid, notably an uplift in Universal Credit and the furlough scheme. This news had been broken weeks ago, and presented as in the former case a bold stroke to deal with the growing crisis in social care, and in the latter as the coming to an end of the pandemic nightmare. The stroke of good luck was that the independent Office for Budget Responsibility that produces the economic forecasts on which the Budget is base offered a more optimistic picture of the years ahead than hitherto. It charted a rapid recovery from the pandemic with a reduced level of long-term damage. The country is indeed rapidly recovering from the shutdowns that disrupted the economy, making the furlough scheme in particular redundant, and this does improve the economic statistics – but beyond that this all chaff. The tax rises have little to do with the social care crisis; rising prices mean that the Universal Credit cut is causing hardship; economic forecasts have a paradoxically backward looking methodology which makes them very unreliable. Mr Sunak has navigated these treacherous waters cleverly, but what does this all mean in the cold light of day?

Austerity, by which I mean the squeezing of the government deficit by raising taxes or cutting spending or both together, has a bad name at the moment. In this country it is attached to the policies of the Conservative/Liberal Democrat coalition of 2010 to 2015, after the Great Financial Crisis (GFC), and to the following Conservative-only government. The crisis had shredded government finances, but its aftermath left economic demand weak. Economists pointed out that in these circumstances it was usually wise to loosen government finances, not tighten them. Years of hardship and lacklustre growth bore this analysis out. The defenders of austerity stuck to economically illiterate but intuitively appealing arguments, making an analogy with prudent household budgeting and the idea of protecting future generations from debt. There was a literate defence of government policy to be made, at least up to 2015, but practically nobody made it – I was a lonely voice (Lib Dem Business Secretary Vince Cable also made a valiant attempt). This put the blame on the unbalanced nature of the economy before the crisis and the need to restructure it. But even I (and surely Vince) thought the austerity was overdone, especially with regard to public investment. Meanwhile the literate economic critique gave the left their opening to demonise “Austerity” as vicious crime against humanity. Loose fiscal policy and economic growth came to be seen as two sides of the same coin.

Given that experience, it was natural to respond very differently to the next economic crisis, brought on by Covid-19. Government coffers were immediately opened up with a number of very generous schemes to support individuals and businesses. These were successful in alleviating a lot of hardship – though economists making comparisons between different countries have struggled to draw a connection between fiscal generosity and the scale of economic damage. Britain’s government was one of the most generous, but many others suffered less economic damage. That, though, is more a reflection of poor management of public health than the economic policies. Also Britain was coping with a further disruption: dropping out of the European Single Market and customs union, and the implementation of tighter immigration controls – which collectively I will call “Brexit”. All the same it points towards a greater truth: this crisis is very different from the previous one, and that affects the economic response.

In retrospect the remarkable thing about the GFC is that it affected the demand side of the economy more than supply. Important though it may be to the functioning of the economy, the financial sector at the centre of the crisis did not have such a big impact on the “real” economy – relatively few jobs were directly impacted, and a lot of those were saved by narrow but generous government intervention. What it did was to increase the level of net saving by making it harder for people to borrow, while at the same time the shock stopped businesses from investing. Increased saving paired with reduced investment is the very definition of a Keynesian recession, to which the public policy response should be to loosen fiscal policy.

But the problem this time is very different. Demand is alive and well; the impact of the crisis on jobs has been muted, while the lockdowns have allowed many people to accumulate savings that are now available to spend. Supply, however, and especially in Brexit Britain, has been hit hard. This is particularly evident in trade and logistics, and also in energy. The problems are global, but Brexit has added an extra dimension in Britain, especially as many foreign workers went home as the lockdowns took effect. This was what the economy demanded at the time, but these workers are reluctant to come back, partly, but not only, because of immigration controls. In the last two decades Britain has relied on two safety valves to regulate its economy: imports and immigration. Mismatches in supply and demand have been met through both – and in particular the fact that the supply side of the British economy is relatively weak. Now neither is working properly – or rather they are only working in one direction – to accommodate reduced demand, as in the early stages of the pandemic, but not its increase. The result is visible: inflation.

Government politicians and economic forecasters shrug the problem off. The problems are temporary, they insist. Once more ships are back plying the seas and containers located in the right places, and businesses have adapted to the changed environment, then it will be business as usual. But this is complacent, and especially so in Britain. It reminds me of the early stages of the GFC (and has resonances with what I read of the oil shocks of the early 1970s); the crisis was evident by mid 2007 when the uncertainties arising from complex derivatives linked to the US housing market caused international interbank markets to freeze up. At the time (alas before I had started blogging) this was scary enough for me to sell all shares in my pension plan and invest in index-linked gilts. But most people were in denial, supported by the usual backward-looking economic data, which showed th problems to be limited. The metaphor I used at the time was of a ship holed beneath the waterline desperately sailing for safety. That metaphor works less well this time, but the problems with supply look deeper than most people are allowing. And in Britain the changes following from Brexit are long-term. The Prime Minister, Boris Johnson, cheerfully talks about the economy responding to the difficulties by restructuring to become a high-skill high-wage one; he is even encouraging people to push for wage rises. But such changes take time and investment – and meanwhile all putting wages up does is encourage a wage-price spiral. We have thrown away the stabilisers on our bicycle without having learnt to ride it unaided. These are exactly the conditions where governments should reduce overall demand by applying austerity.

What happens if the austerity is not enough? This was the topic of my last post. Inflation gets stuck at a high level; interest rates go up; hardship spreads across Middle England (and Scotland and Wales) and property prices dive; the costs of government spending go up. Recession follows. Most Government supporters seem to be in denial. The smarter ones (and I suspect that Mr Sunak is among them) hope that with clever footwork they can time the next election in a sweet spot while people are feeling good from inflationary payrises before the devastation strikes, perhaps supported by a (reckless) tax cut. But at least there is some appreciation that austerity needs to be the direction of travel. Alas the left have not caught up with this fact, ever unwilling to acknowledge that economic policy depends on context.

The government’s choice: higher taxes or higher interest rates?

Britain’s Conservative government is approaching two years in office. Depending on how it amends the legislation on fixed-term parliaments, it will seek re-election in as little as a year and half (May 2023), or, more likely, in two to two and half years (later in 2023 or May 2024). The endgame of this parliament’s existence is now in sight. Tory thoughts turn to the question of how to secure a further term in office.

The 2019 election was fought largely on the question of “Getting Brexit done”, as the Conservatives successfully framed it. But they also set out a broader agenda: “levelling up” – tackling inequality by securing a better deal for the less well-off regions and groups rather than by punishing the better-off; improving public services – mainly the NHS and police; curbing immigration – the big dividend from Brexit; and keeping the country on the path to carbon neutrality. This is pretty popular and the government shows no sign of backing down on any of it. But with the possible exception of immigration, these aims aren’t notably different from the opposition’s. The Tories are further distinguished by putting more faith in the enterprise and initiative of private individuals and businesses, rather than a bossy government and government-sponsored mega-projects (even if Boris Johnson, the prime minister, has a weakness for the latter). To many observers this agenda looks impossible to reconcile – a question of “have your cake and eat it”, but it is not entirely vacuous. The left tends to underestimate the importance of setting the zeitgeist so that private initiative sets society on the right path.

Nevertheless the shallowness of most Conservative thinking is breathtaking. One example of this is the idea, popular in the party, of announcing a cut in income tax before the next election. The idea is that this would show the benefits of Tory stewardship of the economy, and drive a wedge between Labour and many of its potential supporters. It would also straighten up the record a bit after the party was forced to raise National Insurance, which it had promised not to do. It is a truly terrible idea. Basic Rate Income Tax, alongside VAT, is the the most broadly based tax the government raises, and it is therefore a valuable economic tool. And yet raising it has become a politically toxic idea, ever since Labour under Tony Blair and Gordon Brown promised not to do so in the mid-1990s. They preferred to raise National Insurance instead, even though this tax is narrower, and the employer-levied version adds friction to job creation. One of Mr Brown’s biggest mistakes was cutting the tax to 20% in 2007. The Great Financial Crisis soon after showed how much the government was relying on volatile capital taxes, and the income tax cut contributed to a dire budget deficit that panicked the subsequent coalition government into drastic spending cuts. Cutting the Basic Rate adds a level of instability to the country’s economic management.

Still, that line of argument is unlikely to appeal to Tory MPs, who seem to have a blind faith in muddling through. The bigger problem for the party is that supply and demand is out of kilter in the UK economy, and cutting taxes will add fuel to the flames. As demand recovers from the shock of the Covid pandemic, it has revealed weaknesses in the supply side of the economy, which can’t keep up. Some of the problem is worldwide, with the global trading system put under stress by problems in container shipping, for example, or the production of microchips. But Brexit, or more precisely the country’s rapid departure from the Single Market and customs union, has made the problem much worse. On top of that there is the government’s hostile attitude to immigration, especially of people on lower rates of pay. Many immigrant workers have left the country, and don’t want to come back, even if the government would let them. These problems have hit the distribution of goods particularly hard, and imports especially. That matters a lot, because the usual way for the British economy to handle excess demand is to import more. With that option closed, unless the public starts to save more, the consequence is inflation. And sure enough, inflation has risen already. The government is even encouraging it by urging businesses to pay people more.

This is bad news for the government. Inflation is a corrosive economic disease that attacks savings, and usually hits the less well-off, and those reliant on pensions the worst. These are critical parts of the Conservative base (i.e. savers and pensioners). Under the widely accepted understanding of economic policy the way to counter inflation is to increase interest rates, preferably so that they exceed the rate of inflation itself. Right now official interest rates, which drive commercial rates, are very low, and less than inflation. This has enabled many people to afford very high levels of borrowing, usually to buy houses. It also means that the high level of government debt is not actually all that expensive to service (this may not impress followers of Modern Monetary Theory very much, but it matters to the government’s political credibility). Any rise to nominal interest rates will cause widespread pain, which will create a sense of economic crisis. One thing that tends to characterise Conservative voters is ownership of property. Rising property values gives them a sense of wellbeing (even if they have paid off the mortgage), and declining values makes them thing the world is going to pot. If mortgages become more expensive, property prices are bound to fall.

To head this off the government needs to reduce demand. The best way of doing this is to increase one of the broadly based taxes: Basic Rate Income Tax, Employee National Insurance or VAT. Taxes that hit the rich, such as Higher Rate Income Tax, are much less efficient for this purpose, as the rich save more – though they would help with the national debt. The government is, in fact, increasing Employee NI (as well as Employer NI), which will help. It also also trying to cut government spending. It has made a start by withdrawing Covid emergency measures, such as the furlough scheme and Universal Credit. But the politics of large additional spending cuts is awful. Maybe this will all be enough – but I doubt it.

Doubtless the Conservatives hope that within a year the inflation scare will have blown over, and that would give them the wriggle-room they need. And yet many of the supply-side problems that drive it will take years to solve, and may only be solved with a permanent cut to consumption levels. Responding to the problems with pay rises, as the government is encouraging, will also lengthen the time it takes for any settling down.

The chances are that there will be no room to cut income tax before the end of this parliament. Tory party managers should be thinking of other ways of trying to securing political advantage.

The ramifications of a political murder

The British political establishment has been profoundly shocked by the murder of the Sir David Amess last Friday, by a member of the public as the Conservative MP undertook a constituency surgery. What can we draw out from this tragic episode?

The statement put out by Sir David’s family is particularly touching in its call for a response of human kindness, amidst this shattering blow, both encouraging the support of charities, and a more tolerant conduct of political debate. Sir David was a practising Catholic, and it is heartening to see that he and is family had such a clear understanding of Christian values. Most people who talk about “Christian values” in public have little idea what they are – defence of them has even been used as a justification for violence. I am also puzzled by the positions taken by many practising Christians, including Catholics, who don’t seemed to have grasped the central Christian message. I have lapsed so I’m not in a position to lecture them – but I do take heart when Christians get it right, at least according to my understanding.

We don’t know the motive of the killer, except that the police have decided that it is a matter of terrorism. The person arrested is of Somali heritage, so the natural assumption is that this was an Islamist attack. If so, it is very worrying, because it means that the jihadi community, which seems to exist principally online, has spotted a weakness in the British system, which is the level of security afforded to ordinary MPs as they go about constituency business. The only sensible response to this is to improve security, as the threat is pretty much impossible to deal with at source – and we now have the possibility of copycat attacks. This, alas, will make MPs less like ordinary members of the public – which isn’t healthy for the political system. It is often said that the availability of British MPs is a strength of our system, and especially single-member constituencies, and that MPs in other countries are more aloof. How true this is I can’t say, and the efforts that MPs make to consort with their constituents varies a lot – especially since most seats aren’t considered particularly competitive.

There has been a lot of talk to the effect that the risk to MPs has increased due to the more toxic political intercourse, especially through social media. MPs often attract death and other threats – it is said that this is much more than used to be the case. We need to beware of looking at the past with rose-tinted spectacles, though. I remember political discourse being pretty toxic when I entered political consciousness in the 1970s. Still I don’t think there were so many public death threats then – and whether or not it is has actually got much worse doesn’t make it more acceptable in a civilised democratic society. But if the attack was indeed Islamist terrorism, it will have little to do with this increased toxicity, unlike the murder of Labour MP Jo Cox in 2016. Still, I can hardly blame MPs for raising the issue now.

Can we make politics here in Britain a kinder, more tolerant place? Alas some MPs seem to draw a distinction between firing up their activists in private, and public discourse. Labour Deputy Leader Angela Rayner would not apologise (or even issue a non-apologising apology) for referring to “Tory scum” in such a meeting. Some of the posts I have seen from antiracism site “Resisting Hate” have raised my eyebrows given the site’s chosen name. Not that the left has any monopoly on not drawing a clear distinction between abusive language and “passionate” beliefs. Hating is what the other side does. Alas there is indeed a strong link between hate and passion, and using hateful language to stir up the base, and create doubts among less committed opposition supporters, is a successful political tactic. Donald Trump’s political career was built on it. Politicians may blame social media, but they need to look at their own practices too.

It need not be thus. Sir David Amess was an example of another way. His views weren’t particularly moderate on some issues, but he always conducted himself in a civilised manner. I wish more politicians would learn from him.

Will climate action be the battleground for the next General Election?

For an instant my blood ran cold. A spokesman for the proposed new coal mine in Cumbria was being interviewed on the radio. Opposition to it is based on its inconsistency with Britain’s plan to reduce greenhouse gases. The interviewee had barely started when he took the line that Britain only contributed 1% of greenhouse gases, and what the country does doesn’t really mattered compared to China, where they were still building coal power stations. It was first time I had heard this line of argument in this country. It felt like a portent.

To their credit I have not heard Conservative party ministers take this line, even as they prevaricate when short-term projects collide with longer term ambitions, as in this coal mine project, and in the case for expanding Heathrow airport. The government has been setting ambitious targets on greenhouse gas reduction – meaning that there is something of a consensus on the issue among the main political parties. With the UK hosting the international COP26 conference on climate change in November, it is under intense international scrutiny, as it tries to persuade other countries to increase their ambitions. It is a welcome difference with the USA, where the Republicans oppose serious action for reasons that range from outright denial to feeling victimised to just general obfuscation. Could Britain change?

The ominous precursor is Britain’s membership of the European Union. There was a similar political consensus that Britain should stay in amongst the party leaderships – but then the Conservatives came under serious pressure. This was from Nigel Farage’s Unitied Kingdom Independence Party (UKIP), which skilfully stirred up trouble, tapping into deep discontent amongst older voters, and many others who were disengaged from the political process. This became a serious electoral threat to the Tories, as a large part of their voter base was defecting, and many of their grassroots activists sympathised with Mr Farage. First the Tories had to head off the threat with a referendum, which the leadership then lost. And as the government floundered with the process of departure, Boris Johnson took on the leadership of the party, and moved it straight into Ukip’s ground, offering a hard Brexit and strict limits on immigration.

Mr Farage was a busted flush. His next move was into lockdown scepticism. But this showed that he did not have his finger on the pulse of Britain’s discontented. Most people, including Leave supporters, felt this was cranky and antisocial, and he never broke out to the level of support needed to create political waves – in the region 20%, say. But scepticism on climate action seems tailor-made for his style of political campaigning. Climate action will soon enough be forcing unwelcome change on ordinary people – through the cars they drive to home heating, to say nothing of unsightly wind farms. A huge array of arguments can be deployed, from throwing doubt on the climate science to whataboutery (like that spokesman’s “what about China?” to “we agree but this is the wrong way to do it”. The arguments need not be consistent, they just need to play on the idea that a privileged elite is trying to pull one over on ordinary people. I haven’t seen any clear polling, but it is one of those issues where the answer depends on exactly what question you ask. Most people are happy to go along with the general concern expressed by Richard Attenborough and others, but less happy when action could cause personal expense or inconvenience. Scepticiam could easily reach the levels that Mr Farage, or somebody like him, need to create serious trouble for the Tories. The Gilet Jaune movement in France is a worrying example.

Mr Johnson’s strategy is his familiar one of “have your cake and eat it”. Boosterism on how much Britain is doing to reduce carbon emissions, using the COP26 summit as evidence, but nothing that has a serious impact on household finances or any other aspect of daily life. This is unsustainable in the long term. People who are seriously worried about climate change – and there are a lot of them – aren’t taken in for a second. To them it is probably a case of “if it isn’t hurting it isn’t working”. But increasingly there will be tensions. That coal mine – and airport expansion – is a case in point. There will be bumps on the road for energy distribution. There has been inadequate investment in storage capacity to manage the peaks and troughs of renewable energy, for example.

If scepticism gains traction, then the Conservatives will inevitably be pulled in that direction in order to hold their base, especially in the newly-won seats in north England, the Midlands and Wales. That will give other parties a chance to bring their climate action credentials to the fore. If these parties are able to form some kind of alliance (Labour, the Lib Dems and the Greens anyway – the position with Scots and Welsh nationalists is harder) then there could be real momentum for change. The election would become a real moment of decision. Something like this happened in Australia’s most recent general election – though there the sceptics pulled off an unexpected victory. But Britain is not Australia – which has a vast coal-mining and natural gas sector.

It is, of course, possible that Mr Johnson will successfully duck and weave for long enough to reach the next election without serious conflict arsing. But climate change is bound to become a hot political issue eventually.

How will Britain’s economic chaos pan out?

Britain is suffering mounting economic chaos as supply chains break down. The government shrugs – these are just teething problems, the Prime Minister, Boris Johnson, suggests, as Britain finds a new normal as a high-wage high-productivity economy. Is this the nonsense it seems to be at first sight?

It doesn’t help that reporting on the emerging problems is very superficial – simply the regurgitation of statements put out by interested parties with no attempt being made get to the bottom of things. The government chooses to dissemble rather than inform. The current petrol crisis, running into its second week here in Sussex, even if it is easing elsewhere, is a case in point.

The government blames it on consumers – or a surge in demand caused by “panic-buying”. After the first few days this was clearly nonsense. People were running out of petrol. Such evidence as we had from the queues outside petrol stations, admittedly anecdotal, was that most people had delayed filling up, and were now desperate. And yet nobody seems interested in trying to understand what was really happening. The government kept on repeating the tangential but irrelevant fact (if it is the case) that there was plenty of petrol at the depots, followed by the non-sequitur that if people simply behaved normally the situation would right itself quickly. This morning the BBC Today programme interviewed a forecourt manager in Kent – and suddenly things started to make a bit more sense. Instead of the normal four fuel deliveries in the last week he had received just two. The current situation had come about because supply problems over the summer meant that forecourt stocks had run low, so that the slightest blip was enough to knock the whole system out of kilter. He didn’t say, but it was easy to infer, that a continuing shortage of deliveries meant that the system couldn’t right itself. This is fundamentally a problem of supply, not demand. The government’s tactic of increasing the number of tanker drivers, including by the use of the army, starts to make sense. It wasn’t simply a confidence-building measure, as ministers seemed to be suggesting, but an attempt to fix a broken system.

And what is happening to motor fuel is being repeated across many other sectors. A lethal combination of a hard Brexit, restrictive immigration rules and the covid-19 pandemic is delivering a series of critical labour shortages. The most notable is that for heavy goods vehicle (HGV) drivers, which is behind the fuel crisis. But it is far from just this – there is an emerging crisis on the slaughtering of pigs, for example. Problems emerged in the summer, or before; businesses did what they could to manage, but at the cost of resilience; as difficulties arise, the system breaks down. A small uptick in motor fuel demand broke the distribution system and it requires an influx of additional resources to fix it; the large, seasonal uptick called Christmas is approaching, covering all manner of goods (though hopefully not motor fuel). Muddling through could easily tip into breakdown in many parts of the economy.

The government’s problems are both in ideology and competence. Ideologically the government wants to move to a different sort of economy, less reliant on cheap, imported labour. Its leaders also believe in the problem-solving capabilities of free markets and private enterprise, and the need for government to step back. They fully expected teething problems following Brexit and the roll back of immigration, but they expected that businesses would adapt and solve these problems without the need for government intervention. So they shrugged off the early warning signs. And for the most part ministers lacked the competence to see how problems could become unmanageable, and what the best interventions might be. It doesn’t help that the public appears unwilling to hold the government to account, and seems happy to accept that “stuff happens” and that it is all somebody else’s fault. So we have strategy but no tactics.

Does this strategy make sense? I always felt that the strongest case for Brexit was what I called “the hair shirt” one – that Britain had it too easy in the EU, and was relying on cheap imports of both goods and labour. Brexit could force the country to raise its game, and move to higher productivity. Living standards would fall in the short-term, but the result would be more sustainable. What other countries have succeeded in reaching this high-wage high-productivity model? Not the US, where high levels of inequality make cheap labour plentiful in many places, and where the currency can be kept at a high level to make imports cheaper. The most obvious examples of the are in Scandinavia, and Denmark and Sweden in particular. These are obviously not such good exemplars for Conservatives, as they have achieved this within the European Union. Switzerland may be a more a congenial example, though it has opted for a higher level of European integration than Britain has. However there are also the examples of Canada, Australia and New Zealand – which are doubtless more acceptable. Japan, perhaps, is another case. But all these countries have built their success on strong exports, in agriculture, manufacturing and mining. Britain no longer has the potential for agriculture or mining exports on the scale needed; its manufacturing has been hollowed out. There may be alternatives, perhaps based on the country’s world-class university sector. Various aspects of health technology seem to me to be the most promising – especially since the centralised structure of the NHS provides opportunities for data mining (if that’s the right word). There could be a path through to the sort of wealthier and more equal society that the government seeks, or says it does.

But it is hard to see how the country can get there without serious investment, led by government. The education system is an obvious case in point. Universities look to be in relatively good health, so long as the supply of foreign students can be maintained, which means allowing successful graduates to stay in the country if they wish. The obvious gap is in technical education, to fulfil the many mid-level jobs that a high-productivity economy needs, as well as making the best use of the country’s Human Resources. Clusters of technical excellence also need to be developed across the country – this is best led regionally by empowering regional and local government. I also think that a better-resourced health service is required, both to supply the quality of service a country of Britain’s income level should expect, and to be the anchor for an expanding private health economy, developing new treatments and technologies that can be applied worldwide. These investments would need to be financed. If a government had the courage of its convictions, it would do a lot of this through borrowing – as the investment should yield a bigger money economy to tax in future. But doubtless more tax income would be needed too.

And yet the government has no such clarity. Rishi Sunack, the Chancellor of the Exchequer, talks of fiscal prudence and even future tax cuts. Unless he means to do the opposite of what he says (a possibility that this government is quite capable of), this is a bad place to start. A period of cuts to areas that need more money is beckoning. Meanwhile the government urges businesses to overcome labour shortages by raising wages. This at a time when one of the government’s key policies is a public sector pay freeze. Wage rises may be a good thing, but they are also liable to lead to price rises for the goods that people buy – a process that could lead to intolerable pressure through the economy. It is all very well to hope for higher productivity, but this is hardly feasible in many of the areas under stress – such as HGV drivers.

Where is this heading? The government has already been forced to “temporarily” relax immigration rules for HGV drivers and some others. Much more of this is likely – the government will try to tackle the shortages of “low-skilled” workers though temporary immigration visas. This is a strategy that many countries have followed, and it rarely goes well. It either fails because the jobs aren’t attractive enough, or more likely, it will simply draw in an underclass of highly exploitable workers from poorer countries, which could form the basis of poorly-integrated immigrant communities of the future, as the idea of “temporary” gets ever more stretched. To its credit, the government is clearly alive to the dangers, but it may find it has little choice. Another safety valve for the economy is increasing imports – though this won’t reduce the dependence on HGVs – as the country proves too small to sustain productive supply chains by itself, it can make use of those from abroad. That can be financed by the sale of ever more assets such as property and businesses to foreigners – perhaps the real meaning of “Global Britain”. This will be no more appealing to patriots.

And meanwhile in one part of the country an interesting economic experiment is taking place. Northern Ireland has one foot in the EU single market, and an open border with the Union. This has created supply chain problems with the mainland and empty supermarket shelves. But they didn’t suffer from petrol shortages (or not to the same critical extent). As the province’s supply chains become more integrated with the Irish Republic, and thence the wider EU, perhaps it will find things easier than its compatriots over the water.

I shouldn’t underestimate the resilience of Britain’s economy. Perhaps the stresses will indeed push the country towards a more modern economy – electric cars certainly look more appealing now. But for once I’m not optimistic.