Hard Times Come Again…Once More…For The UK

There is not a lot of love in the room for Chancellor Jeremy Hunt in the wake of his Autumn Statement, and understandably so. His budget was the most dismal, gloomy, and depressing account of the state of the UK’s economy. Real household incomes are set to fall by 7% between now and the next election. Next year will see the fastest fall in living standards since the 1950s, with 2024 seeing the second fastest fall. Five hundred thousand jobs are expected to be lost, the 45p rate of tax will be paid by anyone earning over £125,000 rather than £150,000 and house prices are set to fall by 5% in what has been described as a raid on millions of working people. Inflation will run at 9.1% this year and if the Chancellor has got it right, it will fall to 7.4% next year. For most people, it is difficult to remember a time when the outlook was as negative for the UK economy as it is right now. It is true that many of the factors that contributed to the perfect storm PM Rishi Sunak and his Chancellor face, were not of the UK Conservative government’s doing. The Covid 19 pandemic, Russia’s aggression in Ukraine and the rise in energy prices have all been outside the control of the Conservative party. But the perception is that the internecine fighting in the Conservative party that has dogged the last decade of their rule has meant their focus has been more on the internal struggles than on leading the country, and that is why the country is in the economic mess it is in right now.

Despite the grimness of the Chancellor’s Autumn Statement there is at least the sense that the grown-ups are finally back in charge. Fiscal and monetary policy are once again singing from the same hymn sheet. The government and the Bank of England are in lockstep, and confidence is growing internationally in the ability of the UK to pay its debts. But that confidence is coming at an eye-wateringly high price for the British taxpayer.

It’s possible to point to a myriad of factors that led to the point where the Chancellor was forced  to play what is an unenviable hand. Some are external, but the majority were the consequence of the actions of his own Conservative party, beginning in 2016. That was the year when the then Prime Minister David Cameron took the decision to take on, for once and for all the Eurosceptic right of this party, in the form of the European Research Group, by calling a referendum on the UK’s membership of the European Union. This was a referendum that he expected to win, but we know in hindsight that he had miscalculated the level of public discontent over migration, the populist rage against remote elites, and the rise in popularity of UKIP. This ‘freeing’ of the UK from the yoke of EU imperialism was set to unleash a new, vibrant UK economy according to its advocates, but six years on the opposite is the case. Britain is not only more isolated from its closest neighbours but its economy is underperforming compared to its former EU counterparts.

Since Brexit, the UK has lurched from crisis to crisis, as evidenced by five prime ministers in six years, just two of whom were elected by the British people. Boris Johnson swept home in the election of 2019 with the promise that he would ‘get Brexit done’ to unleash Britain’s potential. What followed was a mess. The clampdown on immigration led to a shortage of truck drivers, supply chain nightmares, fruit rotting in fields for the lack of workers to pick them, and farmers killing their own pigs for the lack of butchers. But it was not any of these that proved fatal to Boris, rather it was death by other cuts; partygate, by election defeats and the draining of confidence by his MPs that eventually led to his downfall.

At this point it would be fair to assume that the Conservative faithful had learned the error of their ways and would vote in a PM who had the appropriate attributes to lead the country, a clear vision, financial literacy, and strong leadership characteristics. And indeed, Rishi Sunak was the first choice of his parliamentary colleagues. However, they weren’t the ones who got to choose the next PM. That honour went to the 140,000 strong conservative party membership who preferred the libertarian, populism of Liz Truss. What followed was a six-week period that rather than steady the ship, left the UK another £50bn worse off when the Bank of England was forced to launch an emergency intervention to restore order in bond markets after PM Truss and her Chancellor Kwasi Kwarteng’s tax-cut plan sent borrowing costs soaring and triggered a meltdown in complex financial instruments held by pension funds. In an attempt to save her own skin, Liz Truss fired her Chancellor but the pressure on her became too great and the lady who was not for turning, turned and walked out the door of Number 10.

From the day he was elected as PM, Rishi Sunak has been open and transparent about the size of the challenge that faces the UK as it seeks to steer a course back to economic solvency. He and his Chancellor chose wisely in using the Autumn Statement to deliver all the bad news in one go. They also used it to try to steal some of the Labour Party’s thunder by re-introducing a public service reform agenda for the first time in over a decade. Spending is being increased in Education, Social Care and the NHS, with Tony Blair’s former Health Secretary Patricia Hewitt being brought in to help deliver NHS reform. However, increases of approx. £3bn in each area, though welcome, will be more than eaten up by inflation. In a politically astute move, the triple lock for pensioners remains in place. Pensioners vote and keeping them somewhat happy means they are likely to turn out in 2024 to vote, and probably vote Conservative. In other Labouresque moves, social rents were capped at 7% and a rise in the living wage to £10.42 from April 2023 will help protect low paid workers’ living standards, to a point.

These attempts to steal Labour’s clothes are unlikely to be remembered when voters next go to the poll in 2024. By then UK voters will have endured two years of dropping standards of living, with the economy contracting to levels not seen since before the pandemic. Even if the plan works and the economy is back on track it is difficult to envision a scenario where the Conservatives are thanked by the British people for essentially sorting out a mess that was largely of their own making. The last time the Conservatives found themselves in this position was in the wake of Black Wednesday in the early 90s, when the pound crashed out of the Exchange Rate Mechanism. The then PM John Major changed economic policy on the back of this and by 1997, his Chancellor Ken Clarke, had the UK economy humming. But in the election that year, Tony Blair’s Labour party swept to victory with a surplus of over 100 seats. Labour has not been in power in the UK since 2010, so the party can campaign on a ticket where it can hand on heart say it has had nothing to do with the mess that Britain is going through now, with a Britain that is viewed as the sick man of Europe. Even if Jeremy Hunt and Rishi Sunak’s recovery goes to plan, by the time the next election happens, voters will be going to the polls being told that the UK is back on track, but they won’t yet be feeling the benefit in their pockets. It’s hard to see a scenario where the Conservatives will not be punished for inflicting unnecessary pain on the British people, or where Keir Starmer will not be prime minister when the dust settles after that election.

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