Rachel Reeves is going to tell parliament today that the UK's financial situation is far worse than she thought before becoming Chancellor.
I wish her luck in convincing anyone that this is really the case. I certainly do not believe her. Everyone, and Larry the Cat who lives in Downing Street, knew that Jeremy Hunt delivered an utterly implausible budget in March that no one on earth could have delivered in reality. It was widely reported that this was the case. To now claim that she has just realised this simply undermines her own credibility.
It is the consequences of this, and what is happening in Threadneedle Street, at the Bank of England, that really matter though.
Remaining with Reeves for a moment, it is clear that she will be moving into full-on austerity mode, whatever she likes to say. Austerity is a mindset as much as it is actions, and rumour has it she will be:
- Cutting spending wherever she can.
- Cancelling capital projects.
- Selling off surplus assets.
- Preparing for tax rises. Paul Johnson at the Institute for Fiscal Studies thinks they will reverse Hunt's national insurance cuts, which would be politically appalling when wealth is out there waiting to be tapped.
Amongst the consequences of all this are:
- Fewer new hospitals.
- The ending of some admittedly unnecessary road schemes.
- HS2 will now end at Old Oak Common, which is in the wilds of West London and even more remote than Paddington. It might as well end in a field south of Watford.
- Demands for austerity will ring out across the government.
The consequence is obvious. Whilst some of these moves make sense because we probably do not need most major new road schemes now, and HS2 was always a bad idea, what they deliver is cuts leading to an economic downturn.
Meanwhile, in the City of London, rumour has it that the Bank of England is not minded to cut interest rates any time soon because it now thinks that meeting its inflation target is not good enough. They have to meet it in all sectors now, apparently, and wait for the wages lag from past inflation to end before there is any chance of ending totally penal interest rates. The consequence is that they, too, are dedicated to delivering recession in the UK, and are putting all their efforts into making sure that it happens.
Add these actions together, and it is clear that Rachel Reeves will be going for broke. By this, I mean she is deliberately heading the country for a recession if these are the policies she proposes within the environment that the Bank of England is creating. No other outcome is likely, and that matters because Labour has predicated all return to normality in public services on delivering growth, of which there is no hope with Reeves carrying on as it appears she intends to start.
So, we face a mouldering state sector, failed public services, growing public dissatisfaction, disengagement with neoliberal government and the rise of the far-right as a result. Labour surely consigns itself to one term in office by doing this. The far-right must not be able to believe their luck. You could not lay the groundwork better for their progress than what Reeves and the Bank of England are doing.
I despair of their incompetence, lack of foresight and total inability to understand politics and its likely course if they fail. I would love to be wrong in y assessment. My fear is that I am not.
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I couldn’t agree with you more but I also see this as a failure of democracy?
How can it be that these politicians – many of whom lack domain knowledge and have used politics to insert themselves into public life as managers of things they do not understand – will now fail the country in explaining what can be done?
Clearly it is the un-elected neo-liberal think-tanks, political advisors, so-called economists and experts and political party funders who are running the show and who should be run of out of town in my opinion – every last one of them.
Abysmal.
Many folk stoutly declaring themselves to be macroeconomists are appearing on Twitter lately. They’re all of them convinced, immune to suggestion or evidence otherwise, by the household analogy. It’s on now 🙂
Scary
Assuming your above scenario is correct. I do not understand why a labour government would want to deliberately induce a recession. The economic consequences and in particular the socio impact will be horrendous. Is this a strategy to bring in tougher public order legislation when the inevitable push back comes!?
It’s looting. A lamentable number of politicians, many in key positions, seem to be united in this pursuit. Think ‘Last Days of Rome’ and you’ll get the idea.
The difficulty for the Bank of England is that they have a mandate to meet the inflation target on an ongoing basis. Getting inflation to target, and then saying ‘job done’ and putting interest rates back to what they were in 2020 is not going to sustain the target. That’s the BoE view and it’s based on sound evidence and analysis of inflationary pressures coming through, in particular core inflation, minimum wage rises and public sector wage rises.
You can disagree with the analysis, but it seems to me that you are firstly misrepresenting the BoE target as something that doesn’t need to be sustainable and secondly are ignoring core inflation.
Why do we need 2% inflation?
What is wrong with 3%?
Why shouldn’t wages catch up? Why is that inflationary? Prove it.
Core inflation is an arbitrary definition. Why make it a target when it isn’t?
Why is crashed economy with no inflation risk a good thing?
Just answer the questions
We want positive real interest rates to grow the economy.
Higher inflation requires higher interest rates to create the positive real rates that are essential to investment.
You do realise high interest vrates crush the economy, don’t you? How on eaerth do you think otherwise?
Why not control prices? That’s what causes most inflation.
“Sellers inflation” Isabella Weber
Agreed. Controlling supermarket profiteering would arguably be the best place to start. How much of the BoE’s hated inflation is down to that, yet it never gets addressed. Why not?
Thank you, RA.
I often work with the BoE and was even offered a job there.
What’s this “sound evidence and analysis and core inflation” you rave about? Do you know what constitutes their calculations and to whom they listen?
Do you realise that the 2% was nothing better than a finger in the air exercise? I wrote a masters on central bank independence in 1994 -5, opposed it then and oppose it now, and could not find any evidence to justify such a threshold. One might as well use a dart board.
Fun fact for you: I reckon the People’s Bank of China and central bank of the Russian Federation have good ways of monitoring and heading off inflation and at source. These institutions monitor hundreds of items / inputs and around their vast countries.
Having read about China’s management of key resources in ‘How China Escaped Shock Therapy: The Market Reform Debate’ by Isabella Weber (2021) I’m inclined to agree with you Colonel, Sir.
And in Abbey Inne’s ‘Late Soviet Britain: Why Materialist Utopias Fail’ (2023), the book is preface by a communist joke that speaks more than a thousand words:
‘Everything they told us about communism was a lie.
But everything the communists told us about capitalism was the truth’.
UnderMines her own credibility – No?
Thank you. Corrected
Things are going to look quite different for Reeves and Starmer two years down the road when their MPs start looking furtively towards the next election. The question Reeves and Starmer need to answer is when this happens will they be viewed as an asset or a liability?
Thank you, Tom.
I keep meaning to express my disappointment to my new Labour MP, after a hundred years of Tory representation, and highlight her 500 vote majority.
Speaking of Labour MPs, some Labour Friends of Israel MPs are in Paris, escorting Israeli athletes and fans and filming anti-zionist protesters, even provoking them, and hoping to have them arrested, deported and fired. One Welsh MP was at it at a football match on Saturday.
They’ll probably fairly obviously by then be regarded as voluntary stepping stones on the way to fascism. Enablers, in fact. We’ll have to wait and see.
There is indeed a “black hole” in the psyche of the British people to put up with this nonsense it’s called lack of wisdom. Few want to put in the effort to analyse what the rich are telling them through their media outlets and shill politicians. How many more recessions and an increase in poverty will they put up with before they stupidly abandon democracy for the Farage and Trump type opportunists who in reality if they gain power simply help put the needs of the rich on steroids?
If most people lose by this approach, which groups are the beneficiaries?
The wealthy
Bankers
Those they buy into their sphere of influence
Who are the beneficiaries? “Churnalists” too who simply regurgitate nonsense:-
https://www.theguardian.com/business/article/2024/jul/28/fear-of-a-truss-repeat-should-not-deter-reeves-from-rewriting-spending-rules
Let me sketch out some of the “surprises” Reeves may pull out. The blood scandal, the Post Office, HS2, the water-sewage crisis, defence spending, the cladding-Grenfell scandal, the Covid scandal, the care crisis. I have not attempted a comprehensive list.
all are open-ended disasters, where the government has not resolved, in some cases, even the extent of its responsibility or what it is doing.
All are predictable. all coul;d be estimated in advance – in aggregate, to use a fashionable word.
Oh dear, how shocked Reeves is; shocked, I say. Inspector Renault reborn.
One of the big problems Labour after 2010 was that the Tories promoted the narrative that Labour overspent and caused the financial crash. It stuck and hurt Labour for a decade.
When you say that everyone knew Hunt’s budget was implausible I think you overestimate the awareness of most people who only take a passing interest in politics. Labour’s strategy is to “lay it on thick” to embed in everyone’s mind how dreadful Tories were AND how financially incompetent they were…. and they will keep this up for a couple of years! As a political move it makes sense.
The problem comes if she starts to believe her own bull***t. We will find out when she announces public servant pay rises and when she delivers her first budget.
Thank you, Clive.
Clive: “One of the big problems Labour after 2010 was that the Tories promoted the narrative that Labour overspent and caused the financial crash. It stuck and hurt Labour for a decade.”
Let me add that there were enough Labour ministers and MPs who promoted that narrative and intended that Labour, likely to turn a bit left after 2008, be hurt by that. One of these former ministers flounced out of the Brown government and was later considered for a big job in the City. Some of these Blairites are back in government.
Blairites still smart from not challenging Brown in 2007, and perhaps a year or two later, and not coalescing around a single candidate in 2010 and 2015. They are much better organised now and would not mind having Streeting or Jones in before 2029. Should Labour not abandon austerity in September, they see a chance in 2026.
Heaven preserve us from Wes Streeting. Even if you think his aims about reform of the NHS are right (and they are NOT), his style of management/communication is hopeless.
Dear little Wes still thinks that management involves sending memos on receipt of which people will jump. The art of persuasion has yet to be explained to him.
When Blair and Brown stuck to Tory spending plans for two years after the 1997 landslide, they also thought ot made political sense. But Labour would have won that election anyway, just as Labour has this time. It therefore doesn’t really make political sense, when it deprives you of the opportunity to make significant and lasting changes in the first years of the new government.
The same names now crop up defending Reeves’ position, as in 1997. McFadden in particular is to blame, along with Mandelson. These people have been pulling Labour’s strings for far too long, and their agenda is not remotely alogned to what most Labour voters expect.
I too despair.
Thank you and well said, Helen.
It is odd how dinosaurs like McFadden have survived.
The problem with that interpretation is that the election fairly decisively provided the answer; a 158 seat majority. No room for all their MPs on government benches. Suella Braverman has been reduced to complaining she is considered too “mad, bad and dangerous” even to stand for the Conservative leadership. Seems fairly clear.
What happened to this: “t’s time to end the UK’s divisions: Labour is for everyone ………….My determination is for a government that serves, brings people together with a national project for everyone who wants their country to improve and succeed. (Keir Starmer, ‘The Guardian’, 4th May, 2024)”.
What we actually have is the same old Westminster Cartel, playing out the same old politics; a phoney ritual dance to ensure two broken-backed, outmoded and inadequate political parties continue to rule the roost, and go on screwing up Britain with another dose of unapologetic neoliberal imbecility, in the same old mould. As Scotland is surely going to find out, soon enough.
Unfortunately, Reeves aready believes her own bull***t. Her background is BoE and she’s as neoliberal as they come.
And we all remember the Labour muppet who helped create the myth that there was no money on a flippant post-it note no less?!
Liam Byrne of course who is STILL being paid very well by this country and as a Labour MP to talk absolute tosh about everything it seems, as his own constituents for Gods sake suffer austerity!!
The choice for Reeves IMHO is 1) she can pander to ignorance of many politicians and the mass media or 2) take the brave step of explaining to the country how things really work and risk a row and possibly unpopularity in the short term.
But it would have a better long term outcome. Doing the first will repeat the mistakes of the past.
It comes down to character as well as knowledge.
Thank you and well said, Richard.
Your final two paragraphs are particularly noteworthy.
It’s not just the far right. Its City bedfellows, who began courting the far right not long after the coalition took power, will be delighted at the further privatisation of government and the public realm.
Further to Richard’s conclusion, let me repeat: For those of you able to emigrate, please do so.*
*Starmer’s first interview on French tv was yesterday. He was interviewed on LCI, rolling news sister to TF1. Starmer said that, although he voted remain, the UK will not seek a return to the EU, but will work for a better relationship.
Let me remind readers that one of my friends, with whom I dine this evening, was secretary to Corbyn’s constituency party (which I addressed a few times) and advised on EU technical matters. I provided some thoughts. Corbyn was in regular contact with Barnier, as late as the Monday before the December 2019 election, and with May. A Norway plus deal, including my suggestion for City access to and supervision by the EU, was within reach. Starmer*, Swinson, Davey, Change UK (a Tory set-up and trap) and their centrist supporters sabotaged that.
John S Warren was kind enough to reply to one of my EU comments last week, explaining the nature of the UK’s relationship with and misunderstanding of the EU. John is correct. *Let me add: One often hears that Putin was behind Brexit. How about the neo con Atlanticist faction in the establishment? Starmer is their man. In addition to gunning for Corbyn, the neocon Atlanticists undermined May and installed one of their men as chief of staff to Johnson, a former Treasury and Bank of America official and son in law of a well known journalist. The EU and member states know well that Starmer’s an Atlanticist and not interested in the EU AND, even if he was, the skeletons in his cupboard will be publicised by anti-EU media (moguls), so there’s no point wasting political capital on Starmer. The EU will stick to technical tidy ups.
Just to clarify; I do not believe Putin was “behind” Brexit; but he was a principal beneficiary of Brexit, and gained from it, where Britain simply lost. The fact is that Britain has always had a problem with Europe, and membership was always quite likely to end badly. Brexit is also a reminder that Scotland is different, and that is not going to change. Scotland’s problem is a Union that is outmoded, doesn’t work; and is structurally incapable of self-reform. The Union was designed for, and still functions internally as an Empire; which no longer exists.
On the matter of Atlanticism, this is another British predisposition. It goes back to john Locke. The US in Britain’s psyche is its lost future. The dream snatched from its grasp; even more than Empire, its aspiration for itself. It has never been able, quite to reconcile itself to that loss, and move on.
Britain has long fantasised that it plays Greece, to the US Rome. The truth is, in US priorities its ‘special relationship’ (notably post-Brexit, because its use to the US in Europe is much diminished); is a long way down the pecking order, and far, far behind – for example, Israel.
Having heard the response from his majesties’ opposition, the conservatives are not fit for opposition either. All that they can say is that Labour inherited a great economy from their success. Only thing that I take from all this is that the state of UK democracy is really poor. Labour and conservatives are not fit for government and/or opposition.
Thank you to Schofield above.
I can’t believe Paul Waugh is a Labour MP and Nick Boles is advising the government.
The problem is that most people do not understand how the economy and government spending works and neither do most commentators. Its therefore pretty easy to get people to accept the idea of making cuts to keep the books in balance as you would with household finances. But as we know thats the wrong analogy.
Trying to discuss an issue with those who don’t have a basic knowledge of the issue is a fruitless task! And there are of course the free-market lobby groups (wrongly called think tanks), who promote the free market – odd that.
Yes we all knew that Jeremy Hunts budget was based on impossible assumptions. Not only Larry the cat but Buster the local dog and Freddy the feral fox!
Your last paragraph summed up what, after fifty years of watching politicians actions, I’ve finally come to believe – they are indeed thundering incompetents.
Like Custer at Little Big Horn, they refuse to listen when genuine experts tell them what they don’t want to hear, then complain when the natives give them the beating they deserve.
They act is if there is ‘only one course of action’ when they know full well, better, less wealth pleasing options would be better for the nation as a whole. Then of course, when things inevitably go pear shaped, they lie. And lie, and then lie again.
Reeves or Hunt, what’s the difference? Both foot soldiers in the war on common sense.
Agreed
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