The UK’s new Age of Uncertainty (2)
I wrote in June, following Prime Minister Johnson’s narrow survival of a confidence vote by Conservative Members of Parliament (MPs), of the UK’s uncertain political and economic prospects. That uncertainty degenerated into chaos over the summer. Johnson resigned under pressure from party colleagues dismayed by further evidence of his disregard for probity and, more important for most, of his rapidly waning electoral charisma. Liz Truss, who failed to win majority support amongst her fellow Conservative MPs, was nevertheless elected by the party membership to succeed Johnson as leader and therefore Prime Minister.
Two days after appointing Truss the Queen died. Amidst much genuine sadness and a sense amongst some of a society coming loose from its moorings, the monarch’s death provided a respite from political chaos and an opportunity for the country to demonstrate that it could at least still stage state occasions with precision, pomp and solemnity.
The respite would not last. The Prime Minister’s first act following the period of mourning was to have her new Chancellor of the Exchequer Kwasi Kwarteng, whose dismissal of the Treasury’s most senior official had already signaled his contempt for conventional fiscal policy, introduce a disastrous mini-budget of unfunded tax cuts that provoked an immediate rise in the cost of Government borrowing, higher mortgages for most home-owners, and a crisis in private pension funds that required expensive Bank of England intervention.
That self-inflicted economic disaster, and chaotic scenes amongst Conservative MPs as the Government sought to get unpopular legislation on hydrocarbon fracking through Parliament, rapidly led to Truss’s removal. After a failed attempt by Boris Johnson to return as PM, Truss was succeeded by Rishi Sunak (whose resignation as Chancellor of the Exchequer had helped bring Johnson down) through a process that ensured the choice would this time be made by Conservative MPs rather than the Party membership.
What do these events tell us about the UK’s politics and prospects?
First, it is worth noting that the UK now has a Hindu Prime Minister, a Muslim Mayor of London, and a Prince married to an American of mixed race. That would have been inconceivable a generation ago. The Conservative Party has now produced three women prime ministers and one from an ethnic minority (two if you include Benjamin Disraeli, Jewish by origin, in the nineteenth century) – evidence of the shape-shifting adaptability that has ensured the Party’s survival for more than two centuries. The Labour Party has never had, except on an interim basis, a leader other than a white man.
Second, Brexit was a revolution led by an insurgent political movement, the UK Independence Party. Despite only ever winning two parliamentary seats, both by defecting Conservative MPs in byelections, it was able to frighten David Cameron into offering a referendum and pull the Conservative Party to the right. The Brexit campaigns of 2016 led by Boris Johnson and UKIP leader Nigel Farage then injected the poisons of fantasy, dishonesty and populist division into British politics.
It is not entirely fanciful to compare 2016-2022 in the UK to 1789-1795 in France: in both cases moderates in the government were progressively eliminated, leader succeeded leader, and some policies became more symbolic than practical, all against a background of accelerating economic crisis, worsening international tension and deep national division, until some semblance of order and stability was restored. While the UK has clearly not suffered the bloodshed of the French revolution, it is worth remembering that two MPs have in recent years been murdered by individuals with extremist grievances.
Third, the Conservative Party in Parliament is now deeply divided between many cross-cutting factions and three main political tribes: a much-diminished band of fiscally responsible ‘one-nation’ Conservatives, many of whom wanted to remain in the EU; Brexit supporters, often new MPs from northern constituencies, seeking a more interventionist industrial policy (and more government spending) to help restore regional economic balance; and libertarians who saw Brexit as a means of turning a ‘sovereign’ UK into a radically de-regulated, small government ‘Singapore-on-Thames’. Liz Truss marked the final, disastrous, but very temporary victory of the last of these.
Rishi Sunak is more difficult to place. He is a Brexit-supporting, fiscally responsible, technically competent multi-millionaire, an ex-Goldman Sachs banker and hedge fund manager, with small government instincts but also an expressed commitment to protecting the less well-off, and a proven willingness as Chancellor of the Exchequer during the pandemic to spend vast sums of money doing so.
Sunak’s ministerial appointments suggest he is trying to bridge the different Tory factions, but his restoration of the hard right Suella Braverman as Home Secretary after her resignation for serious breaches of security, has already called his judgment into question. He has abandoned most of Ms Truss’s ill-conceived economic plans, but his next test will be the ‘fiscal statement’ now planned for 17 November, which will set out how the Government hopes to repair the £40-£50bn hole in government finances. Chancellor Jeremy Hunt will have to take account of the likely reaction of the Conservative Party, the electorate and above all the financial markets.
Fourth, events of recent weeks have transformed the prospects of all the major political parties. Labour’s poll lead has at times exceeded 30 percentage points (though this has predictably fallen back somewhat since Rishi Sunak’s appointment). If that lead or anything like it were maintained it would mean electoral oblivion for the Conservative Party, a substantial absolute majority for the Labour Party, an increase in seats for the centrist Liberal Democrats, and losses for the Scottish Nationalist Party. The next election must take place before the end of 2024, and further political chaos could yet bring it forward – though Conservative MPs’ terror of an election in present circumstances is likely to help Sunak control all but the Party’s most anarchic elements.
Fifth, the summer’s political and economic turmoil has accelerated inflation and worsened the UK’s economic prospects. Notwithstanding the conspiracy of silence in Parliament (the Labour Party fears further alienating Brexit-voting former supporters in what used to be Labour seats in the North and Midlands) and lack of parliamentary oversight, the dire economic consequences of Brexit are increasingly clear – lower growth and higher inflation than any other major economy, falling investment, worse labour shortages, and a significant decline in exports.
According to Mark Carney, ex-Governor of the Bank of England, the British economy was 90% the size of Germany’s immediately prior to Brexit. It is now less than 70%. Meanwhile the number of smaller British companies with European relationships has declined by a third. Sunak talked in his Downing Street statement immediately after his appointment of building an economy that ‘embraces the opportunities of Brexit’. But the truth is that Brexit has made the UK poorer and will continue to do so.
Brexit and the subsequent pandemic have also exposed and exacerbated the UK’s long-standing problems of underfunded and crumbling public services, stagnant productivity, and poor lower- and mid-level skills. The International Federation of Robotics judges that UK manufacturing industry has less technological automation than almost any similarly developed country – indeed its average robot density is below that of Slovenia and Slovakia. Outside of London and finance, almost every British sector has lower productivity than its West European peers.
Finally, the disastrous consequences of the Truss Government’s attempts to bypass or ignore them have ironically strengthened the position of the Civil Service, Bank of England and Office of Budget Responsibility. But the UK’s broader reputation for institutional stability and political maturity will take a long time to recover from the turmoil of the last six years – and that turmoil may yet be far from over.