Start listening

Two years ago Boris Johnson won a thumping majority at a general election which produced the Conservatives’ best result since 1987. It has since been anything but plain sailing. Whilst Covid has changed both the political and economic landscape, the government has made a series of unforced errors which has called its authority into question. Effective leadership in the UK has been conspicuous by its absence of late and the issues are now beginning to cut through with the electorate. The Conservatives’ heavy defeat at the North Shropshire by-election, which until this week had returned a Tory MP to Westminster at every plebiscite since 1832, is an indication that all is not well.

It is ironic that the by-election did not need to happen at all – it was only triggered by the resignation of Owen Paterson who, if he had accepted the 30-day suspension imposed by the parliamentary Standards Committee, would still be an MP. The fact that the government tried to bend the rules to keep Paterson in place has opened up a whole can of worms, with last month’s corruption stories being supplanted by a media furore over parties in Downing Street last Christmas in breach of the social distancing regulations in place at the time. This comes on the back of the Dominic Cummings affair, when one of the PM’s senior advisers was able to flout lockdown rules. It is not just the actions of politicians which are causing the public to be restive. The police refusal to investigate the issues are straining the electorate’s credulity and patience, especially when people faced criminal charges for holding gatherings at the same time as the Downing Street event took place (this video sums up the popular view).

A government in trouble but let's not get carried away

Although the double-digit vaccine-driven Tory lead in the opinion polls at mid-year had narrowed somewhat, even in early-October they enjoyed a comfortable six point lead. This has evaporated very quickly with Labour now enjoying a six point lead. Although we should be wary of reading too much into mid-term opinion polls – all governments experience a sharp drop in support at some point – the speed of the collapse has set alarm bells ringing in government. So long as Johnson was perceived to be a political asset, his party was willing to turn a blind eye to his shortcomings. But Johnson’s public approval ratings are flagging. If press reports are to be believed, dissatisfaction with Johnson’s style of leadership is mounting in Westminster and challengers are jockeying for position in the event that a leadership contest is called in 2022. But don’t hold your breath.

For all the excitable commentary suggesting that the prime minister is in big trouble we should not allow ourselves to get too carried away. For one thing, experience suggests that prime ministers can hang on for quite some time after MPs begin to question their leadership. This was true for Theresa May and perhaps even more so for Margaret Thatcher, whose authority leached away over a prolonged period. This is perhaps even more relevant to today’s situation since she, like Johnson, was the personification of the government. My guess is that Johnson is unlikely is to be going anywhere anytime soon. A second problem is that the Tories do not have anyone with the star quality to fill Johnson’s shoes, despite the claims being made for the Chancellor Rishi Sunak. In addition, there is also a risk that the electorate may start to weary of a party that has developed an unfortunate habit of ditching its leaders – both of his predecessors either jumped or were pushed – particularly one with Johnson’s brand recognition.

Is Johnson a cause or a symptom?

In any case, there is an argument that Johnson is merely a symptom, rather than the cause, of the political malaise. Perhaps it is his party rather than just the prime minister which is increasingly out of tune with the electorate. As former Conservative minister Chris Patten recently suggested in a radio interview, “I’m not sure that this is a Conservative government. I think this is a sort of all over the place, rather chaotic English nationalist government.”

Having recently reread John Major’s autobiography I was struck by many of the parallels between the situation facing the current Conservative government and the travails of Major’s government between 1992 and 1997. Back in the 1990s, Major was undermined at almost every turn by a determined coterie of Eurosceptics which gave rise to a situation in which, to use the words of former Chancellor Norman Lamont, “we give the impression of being in office but not in power.” Although dissident Conservative MPs believed they were tapping into the well of public opinion, in reality their  obsession with anti-EU ideology was out of proportion to its importance to the general public and they paid the price at the ballot box in 1997.

The situation today is not quite the same. After all, in the last five years the Eurosceptics appear to have won their “war” with the EU but only at great cost to the institutional fabric. But they seem unable to accept the economic consequences of their actions and continue to lash out at the EU rather than coming to an accommodation as the public appears to want. The government often seems helpless in the face of Covid. Large numbers of MPs increasingly have a problem with lockdown measures to try and halt the spread of the disease, citing the primacy of personal freedom over the strictures of what one MP called the “public health socialist state.” Indeed, in a parliamentary vote earlier this week, 99 Conservative MPs voted against legislation making it a requirement to wear masks in indoor venues and it was only passed thanks to the support of the opposition. This flies in the face of evidence suggesting that the public is in favour of measures to combat the spread of the Omicron variant.

At a time when most people are trying to get on with their lives in the face of Covid, they do not have time to care about political machinations. But when they are regularly assailed with stories of failure to apply the rules consistently, they start to become restive. One of the principles of a modern democracy is that no one is above the law. Everyone has to abide by the same rules and the sheer volume of evidence to the contrary was one of the reasons for the North Shropshire result.

It may be that this is merely a short-term issue that will eventually blow over. Perhaps if the pandemic recedes in 2022 much of the anger felt today will dissipate. This makes it even more important that the government properly handles the latest wave of the pandemic. Tory MPs may object to a lockdown but public opinion suggests that there is not the same degree of opposition. As it is, large parts of the hospitality sector are already complaining that pre-Christmas trade has collapsed. The government may be forced to resurrect the furlough scheme in some form in order to provide a backstop for those whose incomes are being hit. Without some form of financial support, the Red Wall seats which the Conservatives won in 2019 may revert back to Labour. Either way, it is time for the government to start listening to those in whose name they govern, for the public do not like what they are currently seeing and hearing.

A shadowy cabinet

Thanks to my good friend Vladimir who is big in the security industry, I was able to obtain a verbatim transcript of this week’s Cabinet meeting. And they say fact is stranger than fiction.

Boris Johnson: Well good morning colleagues. It has certainly been, um, an eventful week but there is light at the end of the tunnel. Or maybe it’s an oncoming train, who knows? But nil desperandum, we are putting new restrictions in place to combat Covid-19. Brexit is going terribly well and I think it’s safe to say that people have forgotten all about last month’s difficulties with the exam results. I would like to take this opportunity to thank you all for your hard work. To give us a flavour of what each of you are up to, I want to go round the table and ask you to give us a brief synopsis of the things which currently concern your department. So, Dishy, sorry I … I mean, Rishi, maybe you could kick us off with a view from the Treasury.

Rishi Sunak: Thank you Prime Minister. Well as you know we are committed to phasing out the furlough scheme at the end of next month and I presented my new measures to parliament on Thursday. Unfortunately it won’t be as generous as the existing Job Retention Scheme. What we plan now is a scheme where we pay up to one-third of wages for any shortfall in hours worked, subject to employees working one-third of their normal hours.

BJ: That sounds very generous, Dishy. Sorry, I mean Rishi. Do you think I could take a sabbatical by working one-third of my usual hours and the taxpayer would fund the rest? And then I could get on with making some real money by going back to write for the Telegraph. After all I do have a wife, an ex-wife and six children to support. Or is it seven?

RS: Err, no. Sorry, that’s not how it works. Whilst we pay a third, the employer also has to pay a third.

BJ: But the taxpayer is my employer. So I could do one-third of my hours as usual funded by the taxpayer. Then the taxpayer could pay for half of the shortfall in hours whilst my employer, the taxpayer, funds the rest.

RS: Well Prime Minister, the taxpayer will only fork out a maximum of £697.92 per month.

BJ: Ah, not so good then. That’s not going to address my financial woes. I took a big enough pay cut to do this job in the first place. Honestly, how do people manage on £155,000 per year?

Dominic Cummings: Pity! If you worked a third of the hours, Boris, maybe you would do only one-third of the damage to my grandiose plans to restructure the economy.

BJ: Oh, ha-ha, Dom! I didn’t hear you come in. Wasn’t this meeting only for cabinet ministers?

DC: Don’t flatter yourself Johnson. I appointed half the cabinet!

BJ: Touché. One last question, Dishy. Sorry, er … Rishi. Doesn’t this all sound a bit expensive? I mean the plebs aren’t going to be happy if we have to put their taxes up to pay for it.

RS: Well the good news Prime Minister is that I have cancelled the Budget scheduled for November. So we won’t be announcing any tax rises this side of Christmas, though we will clearly have a bit of a deficit problem.

DC: Why don’t we just whack up the fines for people not complying with the new lockdown restrictions. That way we would enforce compliance with the new rules and claw back some money. Obviously there would have to be some exemptions. For instance, I’m not going to be paying any fines.

BJ: Obviously. Good idea, though. Let’s look into that. Now, Michael, let’s have an update on those Brexit preparations.

Michael Gove: Well Prime Minister, as you know we are three months away from finally being free of the EU which will allow us to do all those things that sovereign nations do. Like controlling our own borders.

BJ: Ah, yes, on that point. I’m hearing whispers about problems in Kent.

MG: Yes, well you see, it turns out that the road haulage industry has not been listening to a word we say and they have failed to make preparations for a no-deal Brexit.

BJ: The one we said wouldn’t happen? What seems to be the problem?

MG: Quite. Well it turns out that in the event of a no-deal Brexit this will mean customs checks on both sides of the Channel and it might lead to some big queues on the motorways towards Dover.

BJ: Worse than it is already? I was driven down there the other day and the traffic was horrendous. We were held up by an hour due to road works.

MG: It could get a tad worse. We are potentially looking at queues of up to 7000 lorries, meaning it would take a couple of days to clear the ports. Of course, it won’t always be that bad. Eventually, hauliers would realise the situation is so bad that they will stop delivering goods into and out of the UK, so the queues would diminish of their own accord. The slight downside with that is it might impact on food imports. Moderate avocado shortages and all that. The good news is we have a better solution.

BJ: Which is?

MG: We’ll put the customs border in Kent. So any lorries which don’t have the requisite paperwork can’t enter the county. All those Tory voters in Kent won’t see any horrendous queues. The genius of it is that with city centres deserted thanks to Covid, we can back up the lorries into urban centres such as London which is stuffed full of Labour voters, thus minimising the electoral damage.

BJ: Well it has its charms but I get enough grief from backbenchers about putting a border in the Irish Sea. We are trying to pass an Internal Market Bill in which taxes and tariffs are the same across the country. Now you tell me you want a border in Kent?

DC: You do realise that if we put the border in Kent, illegal migrants landing on the beaches will be able to claim that they are still in French customs territory and therefore cannot be sent back to where they came from because they’re still there?

MG: Don’t worry, Prime Minister. I have it on good authority that the French will cave. After all, they need us more than we need them.

BJ: Jolly good. I’ll leave it in your capable hands then. We’re running a bit short of time but I just wanted a quick update from Matt Hancock on the health situation. Everyone has dealt so well with the big issues that I’m sure you won’t want to let the side down.

Matt Hancock: Thank you Prime Minister. As you know, because you announced it, we implemented new restrictions which will force pubs and restaurants to close at 10pm. And I am confident that the world beating test, track and trace system will be in place soon.

DC: Good, because I believe we cannot process enough tests due to extremely high demand. And is it true that such high demand has meant we are running out of the chemicals to process the Covid tests?

MH: Look, if we make the tests free then obviously demand is going to be high. As for running out of chemicals, that’s fake news. You shouldn’t believe anything you read in a newspaper unless we leaked it in the first place. In fact the Test and Trace app is now ready to download as we speak.

DC: Except that the tests aren’t free. They are paid for by the taxpayer. As for the app, it doesn’t work on anything older than an iPhone6. And that’s a pity, Matt, because I want to collect all the information to build a huge database that I can let my team of data scientists loose on.

MH: Dom, this is irrelevant. What matters is we halt the spread of the disease. The latest plan is to lock students into their universities for the next six months and prevent them from going out and enjoying themselves. In this way we should be able to curb the rate of infection by next year, but also ensure that students do what they are supposed to do at university which is to study.

BJ: I’m not sure about that. When I was at university I partied hard for three years. Did I ever tell about that time at the Bullingdon Club when we had a Rolling Stones themed evening? It involved a lot of Goats Head Soup and Sticky Fingers as I recall, though I don’t think it had much to do with the albums of the same name. Anyway, I digress. Afraid I will have to call a halt to proceedings here. I have to dash off to listen to the Attorney General explain why our Internal Market Bill can break the law without actually breaking the law. So keep up the good work, and remember the old motto, Lex enim homines parum. Cheerio!

Johnson's jamboree

Wow! That was the election result the pollsters did not see coming. It was seismic for a number of reasons and it is hard to refute the view that Boris Johnson emerged as the most attractive candidate in a contest of the ugly. Even Johnson’s victory speech acknowledged that many voters who have not voted for them before may simply have loaned their votes to the Tories because: (a) they had no interest in backing Corbyn and (b) they really do want to “get Brexit done.” A big majority of 80 seats – the largest by any government since 2001 and the largest Tory majority since 1987 – gives Johnson a mandate to do more than deliver Brexit. If he plays it right, he could potentially cement the Tories in power for another decade, such is the catastrophic state of the opposition.

Labour lost it in more ways than one

Indeed, this was a result which requires Labour to reflect on where it wants to go next. This was its worst showing since 1935 in terms of seats (chart above), although its share of the vote was higher than in 1983, 1987, 2010 and 2015, But it nonetheless underscored the extent to which Labour has lost touch with its core voters and Thursday’s result was a damning indictment of the direction the party has taken under Jeremy Corbyn. I pointed out in 2016  that Corbyn was the wrong man at the wrong time and I was not taken in by the 2017 election result, attributing this to a  backlash against Brexit, particularly amongst younger voters who looked for Labour to oppose it. However, I was astonished by the extent to which his unpopularity amongst voters was even cited by his own MPs. Labour’s problems with anti-Semitism and the perception that Corbyn is a terrorist sympathiser do him no favours amongst ordinary voters. His inability to take a position on Brexit lost him the youth vote and he was roundly criticised for signing off on Labour’s tax-and-spend policy.

But Corbyn is merely one manifestation of Labour’s drift to the left. To hear some of his fellow travellers deny the reality of the party’s position in the wake of this resounding defeat is to realise that it will be a long way back for Labour before it can be considered electable. The party has traditionally performed well when it tacks towards the centre, as it did under Tony Blair. But when it drifts to the left as it did in the 1930s, 1980s and under Corbyn this tends to be a recipe for electoral disaster. Blair was a proven winner who tapped into the national Zeitgeist and it is a measure of how far Labour has moved that party activists would rather criticise Blair for his involvement in the Iraq War than recognise his election-winning genius. When Labour loses long-held seats in my native north-east England, you know the game is up.

Lib Dems demonstrate the ineptitude of the centrists

Whilst on the subject of opposition parties, the Liberal Democrats’ failure to capitalise on its centrist credentials was a spectacular indictment of its own failings. Slightly less than half of voters supported Remain but the Lib Dems managed to capture only 11.5% of votes and won just 11 seats – one less than in 2017, with leader Jo Swinson losing her seat. Let us not forget that the Lib Dems were the enablers of this election. However, their promise to revoke the Article 50 notification was a serious policy mistake as it reinforced the perception of a party that was prepared to ignore the wishes of those voters who favoured Brexit. Many people have asked me why they would do something so dumb. I think the answer is that they assumed Labour would back a referendum and they simply wanted to differentiate themselves. 

But by ruling out any cooperation with Corbyn, the Lib Dems are directly responsible for scuppering any chance of a Remain coalition that might have given them a fighting chance of achieving their goal of overturning Brexit. To put it bluntly, both the main opposition parties made too many strategic and tactical errors that were evident to anyone with more than a passing interest in politics. One does have to wonder who was in charge of the election strategy for both the main opposition parties, for they were spectacularly incompetent. Next time round, folks, I am available for hire - I certainly could not do any worse.

The Tories could not lose against this level of opposition

The Conservatives did not exactly fight a stellar campaign but they kept their message simple and did not tackle Labour head-on on their own ground. Johnson largely avoided making too many gaffes and his promise to move beyond Brexit clearly resonated with a large part of the electorate. My views on Johnson have been well documented on this blog over the years and they have not changed. But I have to admit that the Tories fought a well-disciplined campaign and they were canny enough to pick a fight they could win. The party knew that it had a good chance of beating a Corbyn-led Labour Party. It might have struggled against a more credible leader, although it would almost certainly not have pushed so hard for a winter election if they thought they might lose. As it is, their vote share of 43.6% has not been bettered since Margaret Thatcher’s 1979 victory (chart below).

I will deal with the outlook in future posts. But the key concern right now is whether we will see a party that tacks to the right, as many of its more prominent politicians appear to want, or whether a more centrist version of Johnson will emerge that permits a broader church.  Johnson has a big majority which means he will be far less reliant on a small number of MPs to ensure the passage of legislation. This raises the possibility that he may not need to push for a hard Brexit in order to keep his MPs onside – a luxury that Theresa May did not enjoy. He may also be more emollient on the question of extending the transition period than he sounds today.

 

Holding the union together will be a challenge

But there are some big issues on the horizon. The SNP won 48 of the 59 Scottish seats, implying that neither the Conservatives nor Labour will have much representation north of the border. It is clear that Scottish voters, who voted 62%-38% in favour of remaining in the EU in 2016, do not buy into the policies espoused by the main Westminster parties and the push for a second independence referendum will gather momentum.  Similarly, nationalist politicians now outnumber unionists in Northern Ireland for the first time, indicating a possibly more favourable view towards a united Ireland. Future Conservative governments will thus have to devote more attention to maintaining the union. It can no longer be taken for granted.

Can the Tories demonstrate they are about more than Brexit?

The mould has also been broken in another way. Whereas in the past Labour could rely on the votes of working class voters in the former industrial heartlands, that may no longer be true in future. A generation of Labour voters would not countenance voting for the Tories after their policies were deemed responsible for triggering a wave of deindustrialisation. That changed this week. This is a sign that the old tribal certainties are breaking down as younger voters are no longer influenced by the historical conflicts that shaped their parents’ generation. Maybe Boris Johnson still has the old magic; Heineken Man refreshing the parts that other politicians cannot reach, rather than Marmite Man who is loved and hated in equal measure. Maybe! Johnson has the potential to be the unifying candidate that the country needs. But he carries so much Brexit baggage that he will have to redouble his efforts to prove that the Tories are more than a single issue party. It is going to be an interesting ride.

An ultra-Conservative manifesto

The economics of the manifesto

Last week’s presentation of Labour’s election campaign promises was fizzing with ideas and as Philip Collins wrote of the plans in The Times, “if I were running a radical think tank, with no responsibility for implementing a word of this, I might marvel at my handiwork.” The low-key release of the Conservative manifesto yesterday was the complete opposite. Paul Johnson, Director of the IFS, wrote of the Tory plans, “if a single Budget had contained all these tax and spending proposals we would have been calling it modest. As a blueprint for five years in government the lack of significant policy action is remarkable.”

It really was a content free collection of what I hesitate to call ideas. Of the main economic proposals, the Conservatives promised not to raise the rate of income tax, VAT or National Insurance (NIC). As the Tories learned to their cost in 2017, when plans to raise self-employed NICs caused such an uproar amongst backbench MPs who pointed out that it breached their 2015 election pledge, taking these key levers out of the fiscal equation could severely limit the Chancellor’s room for manoeuvre. It is not good policymaking. The plans also envisage raising NIC thresholds to take lower paid workers out of the tax net. The commitment to raising the threshold to £9500 next year will cost just over £2bn per year and the medium-term aspiration to raise it to £12500 will ultimately cost £8.6bn. Some revenue will be clawed back by Boris Johnson’s pledge not to further cut the rate of corporation tax, which was scheduled to be reduced from 19% to 17% next April, and which will give an additional £4bn of resources in fiscal year 2020-21 compared to the latest OBR revenue projections, rising to £6.2bn by 2022-23. In effect, the government has taken away from corporates to give to low earners which is a nice nod to progression in the tax system.

One thing the Tories have not done is to promise a reduction in the income tax burden for the better off, as Johnson indicated in his leadership bid over the summer. From an economic perspective this is a good move: It is (a) unaffordable and (b) regressive. Against that, it is yet another Johnson pledge that has not been fulfilled. Nor are there any measures to “fix the crisis in social care once and for all” as Johnson promised in his first post-leadership election speech. To do so would be expensive, and the Tory manifesto maintains the fiction of governments over the decades that the UK can continue to deliver high quality public services without raising taxes to pay for them. This is a fiscal fallacy which has dogged the UK for years and could be swept under the carpet so long as the working age population was growing sufficiently rapidly to generate the means to pay for them. But as the population ages, this becomes increasingly difficult and if the UK is serious about restricting immigration in a post-Brexit world, the problem will become even more acute.

An ageing population will obviously mean an increasing amount of resources will have to be devoted to health services and the Conservatives have promised “extra funding for the NHS, with 50,000 more nurses and 50 million more GP surgery appointments a year.” Although these plans were not costed in the manifesto, fullfact.org estimates that an additional 50,000 nurses would result in an additional £2.6bn per year of government outlays.

Of the costs we can estimate more readily, once we add in the £11.7bn of spending announced in the September Spending Round, the manifesto is estimated to add just £2.9bn of additional spending by 2023-24 – a rise of 0.3% – which is a drop in the ocean compared to Labour’s planned increase of almost £83bn. Investment spending amounts to an additional £8bn – again significantly below Labour’s planned boost of £55bn per annum. All told, this is likely to be sufficient to limit the budget deficit below £60bn by FY 2023-24, or around 2.2% of GDP (even an additional £2.6bn of spending to recruit more nurses would not make a material difference to the overall figure).

... and the politics

But as with all manifestos they are more about the politics than the economics. The reason the Tories have no interest in a “once and for all” solution to the social care problem is that the attempt to present a solution in 2017 backfired spectacularly when it became clear that the plans would potentially require households to run down their savings in a way which penalised certain groups at the expense of others. It caused such a furore that the Conservatives have vowed not to repeat the mistake, even if it means saying nothing at all.

The real politics behind the manifesto, however, is that of Brexit. It is, after all, entitled “Get Brexit Done. Unleash Britain’s Potential.” On this point, the wish list is truly mendacious: It repeats the old tropes about “take back control of our laws; take back control of our money” as if the UK had lost these functions as a result of EU membership. The Conservatives also promise that “we will negotiate a trade agreement next year – one that will strengthen our Union – and we will not extend the implementation period beyond December 2020.” Most experts agree that to get the kind of deal that the UK wants in anything less than three years would be a miracle, and a period of five to seven years is more like it.

Recall that if it looks unlikely the trade deal will be signed by end-2020, the UK has to let the EU know by 1 July that it wishes to extend the transition period. By ruling out this option the UK is merely creating another set of unnecessary red lines. Worse still, by refusing to countenance an extension with no guarantee that a deal will be in place (it is nowhere near as “oven ready” as Johnson says it is), the risk of a no-deal Brexit at end-2020 could come back onto the agenda. And if that happens, even the miserably thin set of economic promises in the manifesto will become much harder to deliver.

Labour’s plans are open to criticism for the extent to which they rely on much higher levels of taxation to achieve their goal of redistribution. But the Conservative plans get the same short shrift because they offer no vision of what they want to the UK to be, other than out of the EU, and accordingly offer no economic solutions. If this is, as many commentators claim, the most important election for decades, the main parties are offering the electorate a truly desperate set of choices: More taxes or more austerity, and Brexit to boot. It’s no wonder that many voters find the choice before them unpalatable,