A Strategy for Britain in an Uncertain World

At this time in our history, when the bond market vigilantes are slowly re-taking control of the political narrative, Britain, and the rest of the western world, are slowly turning right along the political spectrum for answers on how to get out of this sovereign debt crisis.

Wednesday July 16th in London saw the latest event from the Bruges Group, a guiding light for right leaning politicians and economists since 1989. From the economics profession we heard from Roger Bootle. From the political sphere the guest speakers were Richard Tice of Reform UK and Andrew Griffiths of the Conservative Party.

Bootle warned that the UK had maxed out its capacity for increased taxation and that the only way to now solve the fiscal crisis was to cut spending. He added that Net Zero spending should be the first spending to face the chop, given its impact on households and manufacturing. He advocated for Reform UK’s position on tiered reserves, ending interest payments to banks on QE funds, but warned that it would amount to an effective tax on the banks and was not without cost. This part of the speech felt like the red meat. The motherhood and apple pie that the vast majority of people would support. He did, however, hold back his politically challenging ideas for the end.

Bootle denounced our national welfare bill as ludicrous and decried politicians who promise to continue the pensions triple lock, given the unsustainability of the policy. He advocated for a healthcare social insurance system, like the system in the Netherlands. It must have occurred to Roger that taking on the NHS and pensions in modern Britain is akin to a political suicide note. Yet that was probably the reason for their inclusion in the speech.  Above all he sounded a note of optimism that these issues could be solved again as they were before in the 1980s under the leadership of Thatcher. She was able to successfully make the case for unpopular policies that were right for the country. Do we have that calibre of leader in Britain today? That remains to be seen.

Whilst Bootle’s policy prescriptions are well grounded, in my view the political reality of implanting such policies in the 2020s are different from the 1980s. Thatcher had a demographic tailwind of baby boomers who reached their peak productivity years in the work place during the 1980s. Whereas today those same baby boomers are entering the later years of retirement, when their spending collapses and their healthcare needs soar. The generations that followed the boomers are less numerous and that puts pressure on taxation. The demographic tail wind has become a head wind.

Thatcher also had the profits from North Sea oil and gas to furnish the coffers with. Today those reserves are severely depleted. So whilst the policies of free enterprise and low regulation are no less valid today than in 1979, the benefits of such policies may take longer to be felt, and therefore the risk is they are not fully continued beyond one term of government, if that government cannot win re-election.

Andrew Griffith, the Shadow Secretary of State for Business and Trade, followed Roger Bootle and carried on in a similar vein. He revealed he was an early opposer of the ERM, and so he feels very at home with the Bruges Group which is traditionally a eurosceptic organisation. His analysis was that life in Britain has been getting worse for 40 years. He feels that Brexit was the pre requisite for the change that is needed, but those changes have yet to be made.

Griffith believes this country can regain its formerly strong position in innovation, but not without real leadership. He believes that individuals and their ideas are what matters, and that we have an abundance of exceptional individuals in this country, but the leadership is sorely lacking. He stressed that many countries have been through such times before, such as Singapore, Ireland and Poland. They all succeeded by becoming more free, reducing regulations and opening their economies to the world for investment and free trade. During the same time period we in the UK have fallen from 9th wealthiest country in the world to 27th on a per capita basis. We are 29th in competitiveness, whilst Ireland is 7th. This is not a coincidence.

Andrew laments the previous Conservative government for adopting the Labour mantra that “more government” is the solution. He tries to sell the message that the Conservatives are now under new leadership, but recognises that they need to re-build trust.

I would say that is the understatement of the decade! Fundamentally Andrew seems to be a smart man and with his business experience he is clearly an asset to his Party. However his speech felt like he was closing the stable door after the horse had bolted. Given his thoughts on big government, why did he accept a position in Boris Johnson’s cabinet as the UK’s Net Zero Business Champion? Net Zero policy is the epitome of government thinking it can solve every problem. Perhaps he genuinely believes Net Zero CO2 in Britain will actually change the climate, he didn’t say. Either way, it simply doesn’t seem credible for a Net Zero Champion from 2019 to now be talking about smaller government. Particulary when that government in 2020 and 2021 went on to lock the country down and pay people tens of billions to stay at home, whilst Sweden, Florida and Texas maintained freedom and ended the pandemic with fair better health outcomes than we did. Griffith in the end suffers from the same fate as his party, tainted by association with the most calamitous economic period of the last 45 years, largely because of big government.

The final speaker was Richard Tice. The deputy leader of Reform UK took to the stage claiming that Roger Bootle has stolen his speech. He therefore pivoted straight onto his favourite topic, “Net Stupid Zero”. Richard talked about the irony of the Green Party who “stand in solidarity” with the workers losing their jobs at the hands of Net Zero Policies. He provided the example of a hospital in Lincolnshire which can’t hit its targets for appointments, but is now spending £30 million replacing a perfectly functional heating system, to reduce their “carbon footprint”.

He talked about our stagnant GDP growth and our catastrophic GDP per capita performance. He lamented the sovereign debt crisis brought about by wasteful spending and alluded to the inevitable financial drama that is coming our way.

Refreshingly, Tice got into the finer details of exactly which regulations he wants to simplify. Expanding permitted development rights, reforming GDPR to enable simple outcomes like GP surgeries being able to communicate with pharmacies, simplifying financial regulations and insolvency laws were just a few.

Lastly Tice talked about the importance of fiscal forward guidance and here he praised the former Chancellor George Osborne not just for cutting corporation tax, but doing so in such a way as to gradually reduce the rate once the markets were convinced of the spending cuts needed to fund it.

He concluded that whilst there was much common ground with the Conservative Party and Reform UK, competition is ultimately a good thing and would lead Reform UK to be fitter, stronger and ready for battle come the next general election.

Watching in the room it felt like Richard Tice isn’t just prepared for governing, he has a plan for execution which takes account of financial markets, which is sensitive to the inflationary fears of the bond market vigilantes and is rooted in small c conservatism. His message was in line with the economists in the room, minus the political suicide notes. His party has a marketing advantage over Griffith due to the baggage from the Torys’ 14 years in power, but Tice held back from pressing that advantage home. Perhaps he is saving those barbs for upcoming election campaigns. It seems obvious today but people have short memories and in a few years time the general public may need reminding of exactly who was in the room when this country was being dismantled.

We came to hear a “strategy for Britain in an uncertain world”, and Richard Tice delivered a comprehensive policy framework with sufficient detail to satisfy the doubters in the room. The question is, can he ensure the detail of his message reaches a sceptical public. Only time will tell, but this was a good start.