The critical area of complexity is not the economy, but culture.

Donald Trump is ahead in the polls in the US, in part due to President Biden’s apparent decrepitude. Marine Le Pen’s National Rally movement is currently the biggest party in the first round of elections to the French Parliament and is echoing the successes of her “allies” in the Netherlands and Italy.  And in the UK, Nigel Farage’s Reform Party may only win a few MPs in Thursday’s election, but they will gain sufficient votes and make enough noise to be a thorn in the side of Sir Keir Starmer’s Labour government.

Economic variations

When it comes to economic policy, the populist Right actually varies, in certain respects, between countries. Trump’s tax policies are more conventionally libertarian and include making his previous tax cuts, which expire in 2025, permanent. He has said he wants to cut back on the renewable subsidies from the Inflation Reduction Act and raise tariffs.

In France, Marine Le Pen advocates what, to Anglo-Saxon eyes, is a form of economic national socialism. This includes reversing President Macron’s welfare reforms and lowering the retirement age back to 62.

In the UK, Nigel Farage’s programme is more closely focused on lowering taxes by, for instance, raising the personal allowance to £20,000. But he has big-state measure of his own, such as raising £35bn from abolishing interest on bank reserves held at the Bank of England, spending more on defence and nationalising a 50 per cent equity stake in all utilities. However, he is at least notionally committed to substantial cuts in state expenditure, notably welfare.

My personal rule of thumb is that populists in power, of whatever hue, risk bond market turmoil and higher interest rates. A re-run of Liz Truss. From a macro-economic and investor standpoint, the modern soft Left may sometimes be preferable.

A Passive Cultural Revolution

What unites the populist Right internationally is a conservative view of culture. By this, I mean reducing immigration substantially and reversing “woke” measures in schools and workplaces. On Sky News yesterday, Nigel Farage said he wants “To stop white kids being taught to hate their own culture and to stop black kids being forced to think of themselves as victims all the time.”

What is not commonly appreciated is the view that culture comes first is actually held on the Left too, but with the opposite intention. Labour’s manifesto promises a new Fair Work regulator, the implementation of socio-economic duties across the private sector, and a new Race Equality Act. If Labour wins a large majority, its more left-wing backbenchers will push this radical agenda very hard. Many of these backbenchers will be unknown to the wider public, and will have little else to do.

The Italian Marxist philosopher Antonio Gramsci argued that the Bolsheviks were wrong to believe economic measures would create a classless society. He advocated that only by controlling the culture, and destroying or undermining the precepts of Western Civilisation, would communists achieve their revolutionary objectives. Gramsci called this “the Passive Revolution”.

To this, both the Left and now the Right say: hold my beer.

Bannon in the Clink

Today, Steve Bannon, the ex-Goldman Sachs partner and chief of staff to Donald Trump, begins a four-month term in prison, having been found guilty of contempt for refusing to testify to Congress over the January 6 insurrection. Over the weekend, he gave an interview in which he said that America is engaged in the third great war. The first was the Revolutionary War against the British; the second was the Civil War; and the third is now, the culture war for America’s identity. There will be no compromise, he said. One side will win, the other annihilated.

Corporate repercussions

As of next week, starting in Britain and then moving across Europe and to America, corporates are going to find themselves right in the firing line. They will be stuck enforcing complex, often nonsensical rules on workplace equality, environmental standards and governance on the one hand and a revolt by the Right on the other.

Most of them have no idea what is coming.

Instead, they examine the false certainties. Will Labour raise taxes? Yes, in certain annoying personal respects. The truth of the matter is that, initially, we should expect broad fiscal stability under Labour and a gathering economic recovery, driven by falling interest rates and renewed investor confidence in the UK.

The controversy is going to come in relation to Passive Revolution measures, pressing yet more equality or climate legislation on companies, accompanied by a furious backlash from the Right. These proposed measures are going to be radical and provocative. If they are not careful, all corporates are going to feel like NatWest, having foolishly cancelled Nigel Farage’s bank account.

It is no use saying that it can be ignored. The populist Right is more animated and has more money and more data than the Left. It is also advantaged because it has a deliberate programme that those in the media, universities or boardrooms largely ignore or don’t understand. Nor do they recognise that it is based on genuine, experienced grievances.

Real life

Standing on the station platform the other day, waiting for a 40-minute delayed train, I fell to talking with some fellow commuters. I was surprised by how many hinted that they might vote Reform. Why? None of them mentioned Brexit. I doubt they themselves share the objectionable views some Reform candidates have given.

Instead, they cited their kids being supposedly discriminated against in education or work applications on grounds of class or race. A long litany of applications, to law firms, medical schools and even the Army were rejected “by the HR bots”. The election is a chance to protest.

Reform is a data machine with information on millions of supporters, and next week it will probably have more MPs, determined on their own long march through the institutions, starting with demands for proportional representation and reform of the House of Lords. Like the Left, it will be ready to deploy the lawyers.

My advice on the culture war is don’t do anything stupid to upset people and keep the ideologues away from the levers of power. Listen to what people are saying. Be reasonable and pre-emptive. An incoming Labour Government; the acquis of EU law; the legacy of the Biden presidency, might create the illusion that a sort of centre-left legal settlement is permanent and growing, but there are some who don’t see it that way and they are fired up, ready for battle, across the West. Common sense is a valuable commodity in boardrooms, as it is anywhere else.

George Trefgarne is CEO and founder of Boscobel & Partners, an independent communications and political consultancy

The next few days will see both the Conservatives and Labour set out how they will fight the election. Judging by the launch speeches, Sir Keir Starmer will have the stronger offering.

The Conservatives will frame the world as a dark and uncertain place, with geopolitical and economic instability lurking. Only they have a plan for the future. Voters should vote to not take a risk, and instead back what they know. The problem for the Conservatives is that, despite Sunak’s own moderation, they have done anything but offer voters stability and certainty.

Labour will want this to be a referendum on 14 years of Tory rule. Insisting they can be the change voters want by ending the chaos of the last few years and putting the country’s interest first. Sir Keir is not a compelling politician, but what he said about service and putting working people first at least made sense.

Although we were proponents of an early election late last year, and we have been proven partly right, we take no satisfaction in that.

The first reason for that sense of shoulder-shrugging is the timing and manner of the announcement. Watching the Prime Minister getting soaked for the TV cameras we cannot help feeling this has not been thought through and it would be better for the country to have an interest rate cut in the bag before subjecting the economy to another bout of uncertainty. He is not an intuitive politician.

After all the travails of the last few years, many people are going to have their economic plans thrown awry, again, by politics. Things tend to stall during an election campaign. There is nothing to stop the Bank of England cutting interest rates, but this seems very unlikely.

The second reason for a feeling of ennui is that the result is apparently a forgone conclusion: a Labour victory. It is true that governments which are far behind in the polls (see below) can usually expect them to close during a campaign, mostly because voters have to take an actual decision rather than simply let off steam about the state of the nation. But a Labour lead of 21 per cent really seems insurmountable, given the relative efficiency of the two machines. Despite the complete lack of decent policies and somewhat boring positioning, there is a discipline and hunger to Sir Keir Starmer’s Labour party entirely lacking from the Conservatives.

The third reason to be unimpressed is the suspicion that we are not being told the truth. Rishi Sunak was hitherto adamant there would be no election until the Autumn. This latest evasion joins a long list, of which the most egregious is that the state of the economy is such that we can afford to abolish National Insurance, increase defence spending or gallop into an election. Sir Keir’s own evasiveness on policy is not much better.

About the best which can be said is that the political turmoil of the last eight years will presumably be over by the summer, in time for the Mansion House speech on 11 July. Voters and investors alike may give that a qualified welcome.

George Trefgarne is CEO of Boscobel and Partners, an independent communications and political consultancy.

Write to us with your comments to be considered for publication at letters@reaction.life 

The first blessing is the rapid decline in inflation, partly due to a combination of a warm winter and record production from the US oil & gas industry, notably the shale producers. The US is now producing more oil and gas than any other country, ever. The energy transition is critical, but like the rest of Europe, we are dependent on US imports, notably of Liquefied Natural Gas. The benefit has been the return of domestic heating and pump prices to pre-Ukraine levels. Not only that, OPEC’s decline in market share means it no longer controls the oil market, as it did during previous Middle East conflicts.

 Oil and gas production 

However, when it comes to energy, the UK itself continues to have the highest electricity prices compared to the rest of the world and so Sunak can claim no credit for this. On the contrary, his latest energy secretary, Claire Coutinho, shows a worrying lack of interest in her brief. It is true that she has inherited a plan for more exploration licences for the North Sea, but we should not expect much production due to excessively high tax rates.

Where Sunak and his chancellor Jeremy Hunt can claim much credit is in relation to interest rates. Their prudential management of the public finances has encouraged the decline in market interest rates. In that sense, the market has moved ahead of the Bank of England and the fall in gilt yields means you can raise a mortgage at a rate starting with 3% once more.

We should therefore expect economic growth to recover rapidly this year as the effects of cheaper borrowing and stable prices are felt across the economy.

Reform flunks it

The second unexpected blessing is the strange flunking of the Reform Party. This is the renamed Brexit Party, polling at a high of around 10%. It held a press conference last week at which its star player, Nigel Farage, was absent. He is in two minds whether to stand in the election. His reputation has been transformed both by his show on GB News and by his tussle with NatWest Bank about a closed account, over which he won huge sympathy from millions of people who have similarly had dire service from financial companies.

The longer Reform goes on without Mr Farage, the less impact it will have. But even if he does return, the Party has again adopted a flawed strategy of running candidates in every seat, rather than concentrating on particular localities of strength and has combined this with fantasy policies, such as abolishing income tax for NHS workers while also floating its support for proportional representation. Immigration will be a big issue at the election, but despite the antics of the Right, Mr Sunak and the Home Secretary, James Cleverly, are doing their best to tackle it pragmatically.

Mr Bates vs the Establishment

The third unexpected blessing is from the ITV series Mr Bates vs the Post Office, the brilliant drama based on the wrongful persecution of hundreds of Post Office Submasters. Those living abroad may not realise what a big deal this is in the UK. It revolves around the wrongful pursuit of 900 sub-Postmasters for fraud when actually an IT system was at fault. It was a major miscarriage of justice.

It turns out that Ed Davey, the leader of the Liberal Democrats, was postal services Minister during the coalition Government and refused repeated solicitations to do something or launch an investigation. The volume of popular outrage now being blasted at those who presided over this scandal is astonishing and more than one million people have signed a petition to have the former Post Office CEO, Paula Vennells, stripped of her CBE for her lamentable conduct.

A poor performance by both minority parties might save Sunak a few percentage points in the polls, but that could translate into the saving of dozens of Conservative seats in an election.

Labour stalling

The fourth unexpected blessing Sunak is benefiting from is the weakness of the Labour platform. After 14 years and five Prime Ministers, three of whom were catastrophic, the mood in the country is that it is time for a change of people and ideas in Government. Despite behaving very much like a Prime Minister in waiting, Sir Keir Starmer seems oddly incapable of articulating his vision. Instead, he flip-flops around, either saying very little or announcing policies that make no sense, such as adding VAT to education or spending £28 billion per year on “green energy” and removing 100% of carbon emissions from our energy system within six years. This is just not credible or practical. He seems to change his mind all the time.

What Sir Keir should be doing is promising a New Labour-style mission to renew the health service, including social care, closer alignment with the EU single market, cuts in corporation tax for small businesses and reducing the usurious student loan interest rate. Instead, the perception is that he remains stuck in the slow lane of the left-wing intelligentsia, while also pretending not to be so.

It would be perverse to say that Sunak is somehow looking at the possibility of victory this year, given the unpopularity of the Conservative Party and the mess it has made of everything – even what is left of the Royal Navy doesn’t have enough sailors, we have just learned – but we may be looking at a much smaller Labour majority than the 179 achieved in 1997. There could be a whole lot of difference between a Labour Government with a small majority and a big one; and a Conservative Party with 250-odd seats would be in much ruder health than the one which limped into Opposition, having been smashed by Tony Blair 27 years ago.

George Trefgarne is CEO of Boscobel and Partners

He was also, we forget, the first Republican Party President, elected in 1860 after the Party was founded in 1854. Why was it called the Republican Party? The answer is that it had a stricter view of how the Constitution should be interpreted, according to classical Republican principles, in contrast to the Southern-dominated Democratic Party.

The matter at hand was slavery and the lawlessness which had descended in the territory of Kansas and Nebraska, where the Democrats (at that time, the pro-slavery party) argued that introducing slavery was popular democracy in action, i.e. supported by a majority of local voters there, in this case, frontiersmen. The Republicans countered that slavery was an abomination and this sort of democracy was not what was envisaged by the Founding Fathers, who expressly believed that the Constitution was drafted to ensure the majority view was implemented not directly, but via institutions, upholding certain principles and laws.

In Republican eyes, popular democracy meant chaos, tyranny and, in the end, slavery.

Long story short: the Republicans, and their greatest advocate, Lincoln, won the argument: among the voters in two Presidential elections, on the battlefield, and according to the judgement of history. Imagine if the South had won and somehow the United States or two Disunited States entered the twentieth century with 4 million slaves and Gone With The Wind was, in fact, a documentary about the defeat of the industrial North by the rural South. It is an absurd notion.

Which takes us to Rishi Sunak’s Rwanda plan. I was never a fan of this proposal as it seemed rather complicated. That said, if you accept that reducing both illegal and legal migration, within sensible bounds, is clearly a social and political necessity, I don’t think anyone has any better ideas.

It is also, according to both Lord Sumption, and a letter organised by Sir Geoffrey Cox and three other Kings’ Counsel, legal. By contrast, the obsession of the Tory Right, Suella Braverman, and Robert Jenrick & Co, with removing any recourse to appeal of any kind, on the basis that to do otherwise would weaken the bill and to “face the red hot fury of the voters” is not. That idea can only be made legal by both withdrawing from or unilaterally blocking the operation of the European Convention of Human Rights and also repudiating ancient English legal principles which theoretically protect the rights of us all against an overmighty state. But more than that, it is to advocate a form of popular democracy that overturns or smashes up our constitutional process in the name of “the people”.

The letter from the KCs is instructive. In summary, its states that the Government’s Bill goes as far as it can without running foul of the UN Refugee Convention (part of UK domestic law) and that the Rwandan Government has insisted on this. Second, the threshold for appeals is very high and would depend on provable special circumstances, such as the individual having cancer untreatable in Rwanda.

But it is their third point which is most troubling.

“The assumption that Parliament is entirely sovereign is only that – an assumption, which the courts have long indicated could be revisited in the event that Parliament did the unthinkable. Legislation which mandated the removal of someone, without the right of appeal, despite clear evidence that this would result in them suffering death or serious and irreversible inhumane treatment, would test that assumption. And if the Supreme Court were to quash or disapply an Act of Parliament on domestic constitutional grounds for the first time, it will be impossible to put the constitutional genie back in the bottle.”

The Supreme Court website says it cannot “strike down” acts of Parliament (in apostrophes). Why are those apostrophes there? The answer is that nobody can know for sure, but very ancient pre-modern legal principles, including Habeas Corpus and the right of appeal against extraordinary action by the state, would be in play.

So, this is my fundamental concern about the Tory Right. Progressively, over the last few years, they have shifted from a position of making a reasonable argument – that we are a Parliamentary democracy, with proven institutions, a separation of powers, a limited monarchy, and a tradition of constitutional ordered liberty which can work better than the somewhat alien and bureaucratic acuis of the EU – to one which is nearly the opposite and something with which sensible people should profoundly disagree. They seemingly want to restore Divine Right, derived from the popular will, as opposed to God.

Whether through the triggering of Article 50 without thought or legal process, the Prorogation, and now this, they are more interested in smashing institutions than shoring them up, and they wish to do so on the flawed basis of “popular democracy” in action. In so doing, they have turned the rationale of Brexit on its head. It is this popular democratic concept – ironically a more European notion – which is alien to the British polity and not Mr Sunak, who is trying to tackle a thorny problem.

But I would go further. I like the British Constitution. I concede it needs a refurb and repair, but in general I think a constitutional monarchy, a sovereign Parliament, Magna Carta, the Act of Settlement (which put the independent judiciary in statute), the Acts of Union, are bloody brilliant and in fact much better than say the American or French alternatives. They suit us well and guarantee our liberties. In the end, the Tory Right have argued themselves into a thoroughly alien position which takes you, step by step, to PG Wodehouse’s character Roderick Spode, strutting about in Black Shorts, trampling over the Bill of Rights (1689) while quoting German philosophers.

In some ways, this is a world view which has more in common with Jeremy Corbyn than with conservatism. To his credit, Sir Keir Starmer understands this point and has the scars to prove it.

Do we want to risk, for the first time ever, a confrontation between the Supreme Court and an Act of Parliament, on the basis that a new piece of primary legislation is apparently irreconcilable with previous Acts, the Common Law and our international obligations? And all the while small boats continuing to wash up on the Kent Coast, discharging their desultory cargoes? No we do not. At least, I certainly don’t.

My fear is that those on the Tory Right are no longer Conservatives or really Tory. They are Right Wing nationalists, high on the humourless fumes of popular democracy. However strongly you may feel about immigration or how irritating the “elite” are or how inefficient the Civil Service is, or how out of date human rights and refugee laws have become, there is something even bigger at stake here: our constitutional order, which the Rebels have apparently ceased to respect or understand.

The author is chief executive and founder of Boscobel & Partners, an independent communications and political consultancy. 

Write to us with your comments to be considered for publication at letters@reaction.life 

Mark Bostock, a former Arup consultant who successfully led the construction of HS1 from St Pancras to the Channel Tunnel and a former client of ours, would have had a few things to say about it. Sadly he passed away in August but he has been proven totally right about HS2. In fact, it is the greatest vindication in UK transport policy since promoters of the Stockton & Darlington Railway said it would be better than relying on canals.

Mark led a proposal on behalf of Arup which would have seen HS2 go via a different route. It would link up with HS1 north of St Pancras. The route would have gone via a hub station connecting with Heathrow and the Great Western Railway near Iver. As now, the route would come into Old Oak Common, but never come into Euston which is simply too small. I can hear him saying now “They’ve got the alignment wrong, the most important decision in a railway. It is going to be a disaster.”

More haste, less speed

Mark and his associate Steve Costello also recommended the HS2 alignment follow the M40 corridor to minimise environmental impacts. He warned, correctly, that the target speed of 400kph was far too fast on such a small island and that 300kph (185mph) would do. HS2’s high design speed (since reduced) necessitates an arrow-straight route through the widest part of the Chilterns, excessive tunnelling and such high design-specification that the costs have escalated dramatically. The energy demands at such high speeds are also astronomical.

His other recommendations – born of his experience of HS1 – included that construction should have been started in the North, not the south, as this delivered the most economic benefits in the right sequence. Terminal stations should be avoided and instead hub through-stations connecting with the existing infrastructure preferred, as at Stratford (his idea with HS1, which helped make the 2012 Olympics possible). These stations deliver the most economic benefits. Terminal stations are gradually being phased out in Europe, including at Stuttgart and in Florence, at considerable expense.

Mark also said that HS2 should be delivered by a special purpose public private vehicle, like HS1 (which was built by London & Continental Railways put together by the investment bank SG Warburg) to ensure better value for money and to keep costs off the Treasury balance sheet. That was ignored too.

Initially, his thinking was adopted by both Labour and the Conservatives. But there was then an inexplicable U-Turn around the time Lord Adonis was Transport Minister. The rationale for HS2 became all about speed, based upon the utterly phony calculation that every minute off the journey time created £600m of economic value. But in terms of economic benefits, connectivity trumps speed.

Boris again

As a result, the Arup alignment was dropped and the Department for Transport pursued the current route, which has been an unmitigated disaster. We were never able to get to the bottom of why this was, but this decision occurred somewhere inside the Department for Transport, an incompetent organisation, and seemingly had something to do with David Cameron and Boris Johnson wanting to avoid Heathrow expansion.

Never mind that by linking Birmingham Airport and Heathrow with the Channel Tunnel via Mark’s HS2 route, the need for huge numbers of short haul flights would disappear.

We became involved with the company Mark set up, Heathrow Hub Ltd, subsequent to the HS2 proposal, when it had developed into a combined idea for HS2 and to expand Heathrow by extending the existing Northern Runway, at a fraction of the cost of the Third Runway which, we argued, was too costly, complicated, noisy and environmentally damaging ever to be built. This aspect was the idea of another great man, Jock Lowe, Concorde’s longest-serving pilot. Jock has also been proved right.

The Third Runway is an over-complicated idea which is a speciality of the British political class and its lackeys in consultancies, think-tanks and elsewhere. These “pro-cake and pro-cake” ideas are always promoted vigorously by clever people who essentially have no practical experience and no idea what they are talking about. At Boscobel, we prefer what Edmund Burke called “the wisdom of unlettered men” who get their hands dirty.

The author is chief executive and founder of Boscobel & Partners, an independent communications and political consultancy. 

Write to us with your comments to be considered for publication at letters@reaction.life

Liberal democracy and totalitarian ideologies have more in common than may first appear. A subtle but founding principle of liberal democracies is what Hayek called spontaneous order, which is to say that society develops through human action but not human design. He derived this concept from the Scottish Enlightenment, notably Adam Smith’s description of the hidden hand, which delivers progress through ordinary market and social interactions.

This is not entirely different to the Bolshevik concept of party-mindedness, a phrase coined by Lenin to describe the ability of the Bolsheviks to advance their cause through their mutual adherence to an ideological objective. Culture is what happens when no orders have been issued.

The trouble with party-mindedness, of course, is that unlike the Scottish version, it is insufficiently flexible. Through the enforcement of rigid hierarchies and perverse incentives such as corruption and tyranny, it cannot cope with new realities. Like, for instance, economic change, or a war which has gone wrong. We have our own ideologues here, of course, who suffer a similar inability to accept or adapt to reality. But let us not be diverted.

Corruption and violence

There is a party-mindedness around Vladimir Putin. It is to advance the greatness of Russia by keeping the regime in being. The regime has to stay in being not only to advance its objective, but if it falters, its members may face murder and confiscation from their enemies. An elite class led by the president has grown up which is unbelievably corrupt and violent, as I witnessed myself first-hand in Moscow in the early 2000s. It has plenty of enemies and as nobody questions anything, it cannot stand too much reality.

An alternative party-mindedness

The significance of the short-lived rebellion by Yevgeny Prigozhin over the weekend is therefore best understood as the emergence of an alternative party-mindedness emerging in the political elite of Russia. The existing leadership has been in power too long and simply cannot compute that the war in Ukraine has been a failure, which it does not know how to extricate itself from. It has left Russia isolated, a client state of China, with its border republics in a state of agitation and its near neighbours, from Finland to India, tilting further towards the American sphere.

Above all, it has left the leadership from the president downwards with diminished authority and, ergo, at personal risk, both in terms of his own safety, and his wealth. Prigozhin has not been seen or heard from in the last 24 hours, although he has officially been offered refuge in Belarus.

The army and apathy

The Russian Armed Forces, which declined the opportunity to confront Wagner Group, knows it is bogged down, incapable of advancing further. There is plenty of blame go round, but as defence minister Sergei Shoigu was filmed visiting troops this morning, the situation suggests that he may have his duties reassigned shortly. The army and the regime’s interests are no longer aligned.

Events such as these are best viewed via an intellectual satellite. Like a satellite operator, you can use particular lenses to zoom in on details. But a satellite only passes over twice a day and cannot pick up smell or culture. You must accept the limits of your knowledge, even as you stare at the data.

Financial markets, which have a capacity to self-organise, are delivering their own spontaneous verdict and the ruble is currently trading at its lowest since the war began at 84 rubles to the dollar. Last summer, when it was thought that Western sanctions were easily evaded and self-defeating, the ruble peaked at 52 rubles to the dollar. In a zero-sum game, don’t bet against America.

If asked to guess I would say that political upheavals in Russia tend to happen in the autumn, as people generally cannot face another winter which may be worse than the last one. History changes first slowly, then quickly, like the seasons.

The author is chief executive and founder of Boscobel & Partners, an independent communications and political consultancy. 

Write to us with your comments to be considered for publication at letters@reaction.life

Inflation is at last falling. But on a day-to-day basis we have moved from the crisis of winter to the economy just bumbling along. Instead of being “neither hot nor cold, but just right”, like Goldilocks’s porridge, we are subsisting on a tepid fare. But if you ask people what they think the year as a whole will look like, their expectations vary wildly from disaster to recovery.

The reality is that much depends on the war in Ukraine and the major counter-offensive expected after Orthodox Easter on Sunday 16^th. This is because of the likely impact on food and commodity prices, notably energy.

Natural gas

The failure to invest in sufficient natural gas in recent years has been one of the biggest economic mistakes since the Industrial Revolution. It has left us with higher carbon emissions than would otherwise be the case as dirty coal power stations remain switched on globally. The consumer and industry must contend with high prices. And interest rates and Government borrowing have also been driven higher by the cost of funding support packages. Above all, this policy has left us exposed to the depredations of Vladimir Putin who still sees his energy exports as a critical advantage for him.

Energy prices

As we move into Spring, energy prices have calmed down thanks to abundant liquefied natural gas coming into Europe from the US and from Qatar. But they have not returned to the normal levels of the last decade. At the time of writing, the UK May wholesale gas contract is trading at 100p per British thermal unit. That compares to a peak of 730p in August. But it remains higher than the 40-50p which prevailed before the invasion. In fact, the curve points upwards again – towards 150p – for next winter’s gas contracts, suggesting another spike in prices could come as the cycle of the year turns.

It is not commonly appreciated that Net Zero policies, once put into law, demand the cutting back on investment in oil and gas before renewables are ready. Furthermore, the financial sector has doubled down on this bet. The daftness of this is highlighted by our friends Lambert Energy Advisers in a recent note.

Lower prices and emissions

Lambert calculates that if investment in natural gas production had been kept at the same pace as in 2015, then output would be 10% higher than now, more than sufficient to overwhelm the loss of supply from Russia. Natural gas prices would have averaged half the level they did in 2022. And, critically, because natural gas power stations have half the emissions of coal we have had to rely on in the recent emergency, global emissions would be 3% lower annually.

The UK is one of only six countries to have put its Net Zero commitments into law, thereby forfeiting the opportunity to be flexible retained by the likes of the United States and Germany. High inflation has also hit the cost of building and renewables, such as wind turbines and many installations are now on hold while energy firms and Governments work out what to do.

The truth is that, in the short term, such decisions will make no difference. Ukrainian and Russian forces are both amassing for major Spring offences. The West has poured so much support into Ukraine, it is itself a proxy combatant. Accurate information on relative strengths and deployments are impossible to come by. We cannot know which side is likely to prevail. If the war does go one way or the other, we should expect energy costs to fluctuate wildly as markets discount the likelihood of more Russian supplies becoming available.

On the other side of the world, China is opening up its economy but it is recovering at a weaker pace than expected. Its own energy demands will grow as 2023 unfolds. Beijing is watching what happens in Ukraine very carefully and, in turn, Washington is watching Beijing. If the West and its allies stand firm in the Donbas, it stands to reason that President Xi will think twice about launching a Special Operation of his own across the Taiwan Strait, five thousand miles away.

The Coronation, law and custom

Meanwhile, preparations of a more benign sort are gathering pace for the Coronation of King Charles III on the 6^th May in Westminster Abbey. At the centre of this ancient and unique ceremony will be the Coronation Oath, required by the 1698 Act of that name. This was put in place after the Glorious Revolution in order to ensure the British Monarchy was limited by statute and bound to Parliament and, critically, vice versa. According to the Act the Archbishop of Canterbury will ask:

Will You solemnely Promise and Sweare to Governe the People of this Kingdome of
England and the Dominions thereto belonging according to the Statutes in Parlyament
Agreed on and the Laws and Customs of the same?
The King and Queene shall say,
I solemnly Promise soe to doe.
Arch Bishop or Bishop,
Will You to Your power cause Law and Justice in Mercy to be Executed in all Your
Judgements.
King and Queene,
I will.

While we speculate about what may happen on the battlefield on the other side of the Dnipro River, history suggests we should be confident about the strength of our own laws and institutions. Parliamentary democracies which respect the rule of law have shown themselves time and again to be durable, but also flexible enough to change course and adopt new ideas when things go wrong. Indeed, the Korean War was just coming to a close when Queen Elizabeth II was crowned.

Democracies therefore usually prevail over tyrants like Vladimir Putin both at home and abroad. The Coronation will be a reminder that that if we keep our heads we can do so again, whatever mistakes we make along the way.

George Trefgarne is CEO and founder of Boscobel & Partners, an independent communications and political consultancy; specialising in financial communications, strategic advice and analysis.

In fact, you might argue that despite no manifesto or written political declaration being made in his paintings, there is perhaps no European artist who reveals such a clear world view through his brushwork and draughtsmanship.

For Vermeer is the most perfect painterly narrator of the move from Medievalism into early Modernity, from the High Renaissance to Reform, a move which is Northern Europe’s finest contribution to civilisation and progress. A move which began in the Netherlands but which found its highest expression in the next century across the Channel in Britain.

Unlike a pamphleteer or a political activist, he reveals his philosophy quietly, tolerantly and with moderation, making it all the more attractive. His art is not a polemic but a calming exercise in empathy and persuasion, advocating a particular set of values.

Dutch Golden Age

At the end of the sixteenth century the Dutch rebelled against their overlord, Philip II of Spain. Led by William the Silent (the first head of state to be assassinated by a handgun), they launched a determined effort to shake off the Spanish yoke.

It is an interesting chicken and the egg question. What came first? The beliefs of the Dutch Golden age: Calvinism, religious toleration (of sorts), greater rights for women, international trade, a work ethic, and the founding of the first stock exchange; or rejection of Spanish occupation? They developed side by side.

Either way, as Dutch protestants fled northwards from Spanish domination towards Amsterdam, the Hague, and Delft, the result was a distinctive polity and civic culture. This was Vermeer’s world, which itself spawned new developments in science, optics, clockmaking, manufacture, pottery, horticulture, agriculture, engineering, craftsmanship, architecture and art.

The famous windmills transformed productivity by allowing the invention of wind-powered saw mills, initiating an era of maritime innovation and expansion.

In the terraced canal houses in Amsterdam, run by women but with an area at the front – the Voorhuis – for the husband to conduct business, every professional, middle class family could feel like aristocrats.

Middle Class

Vermeer may be the finest painter of the age, but he is in good company alongside the landscape painters of the time. Yet what is most striking about his work is its domesticity. Its respect for middle class and merchant life, revealed subtly through his use of light and interior scenes. We take one look at his women or gentlemen sitting by a window and we see people we not only recognise, but we might aspire ourselves to be.

This was the period of what the economic historian Deidre McCloskey has called “the great bourgeoisification”. There may have been cruelty, but also a respect for education, for good taste and good manners.

The Treaty of Westphalia brought the 80 years war with Spain to a close. But in 1672 another tyrant, Louis XIV of France, attacked. In the end the Dutch shook him off too, but 16 years later the appearance of a pro-French King on the English throne, James II, was sufficiently worrying to encourage William the Silent’s grandson, William of Orange, to accept an invitation to invade England.

1688

William of Orange brought with him to Britain many Dutch innovations, including Dutch finance, military tactics, wood carving and brickwork. The revolution of 1688 also saw the final legal shift of the British Constitution to one based on Parliamentary sovereignty, limited Monarchy, respect for property rights and the separation of powers. Only the Irish really had real grounds to regret his arrival, but that is another story.

Tickets to the Vermeer exhibition are selling out fast. One reason must be that he strikes a chord with millions of people, by holding up a mirror in which we might see our better selves.

Happy Valentine’s Day.

George Trefgarne is CEO and founder of Boscobel & Partners, an independent communications and political consultancy.

Write to us with your comments to be considered for publication at letters@reaction.life

George Trefgarne is CEO and founder of Boscobel & Partners, an independent communications and political consultancy.

Write to us with your comments to be considered for publication at letters@reaction.life

Labour is averaging a 21% lead in the polls and to cap it all, the Royal family has been subject to another bombardment from the Daughter-In-Law. So the argument goes, and it is hard to disagree with it.

But it’s now worth asking the question. Could Labour blow it?

An odd set of priorities

The question is prompted by the peculiar policy priorities of opposition leader Sir Keir Starmer, and his team, of which the latest is the Commission on the UK’s Future: Renewing our Democracy and Rebuilding our Economy, led by former Prime Minister Gordon Brown and published today.

There are some sensible ideas on local Mayors. But if you are into radical constitutional reform, it is all there. More powers to Scotland, including its own foreign policy and limiting the ability of Westminster to overrule Edinburgh. A written Constitution, in the form of a New Constitutional Statute.

The House of Lords will be replaced with a new Assembly of Nations and Regions. New Councils of Nations and Regions will include local leaders and devolved administrations. Policy from climate change to security should be decided jointly. It will be “A New Britain founded on a new relationship between our government, our communities and the people”. Just like that.

Then there are private schools. Very bad. We are told that education could no longer be a charitable purpose and VAT and business rates could be imposed. How will this work in practice without causing hundreds or thousands of institutions, including Academy Trusts, to be forced into restructuring or closure? Or is it just a modest tax raising foray? We are not told.

These ideas, such as nationalising large parts of the energy sector, elicit the questions: what has this all got to do with the price of fish? Shouldn’t we, as a country, concentrate on more essential day to day priorities, rather than yet more constitutional upheaval, with unexpected consequences? And I thought the Labour plan was to say very little, cosy up to business and make nice noises about competence, levelling up etc.

Back on planet earth

Meanwhile, outside the polished halls of think tanks, there are essential matters which need addressing. And it has to be said that the Government is trying to deal with at least some of them. It may not be perfect, but one thing which is unlikely to appear from Prime Minister Rishi Sunak’s Red Box is “a radical blueprint to reshape our country”. We have had enough of that to be going on with, thanks.

The pound has escaped from being Trussed up and is now well over $1.20. Mortgage rates are creeping lower and a five-year fixed rate starts with a 5 again. Petrol is below 160p per gallon. And call me old fashioned but I doubt most people will be banging pots and pans for the nurses when they walk out on 15th and 20th December, demanding a 19% pay rise.

The B-word

Then there is Brexit. The Tory signature policy. There are a few thousand people in the country who reckon it is going swimmingly. Pretty well everybody else either reckons it is a disaster or our Brexit deal needs to at least smooth and strengthen our relationship with the EU single market, otherwise known as our clients and customers. We want cheaper food, fewer queues at airports, our Amazon parcels to arrive on time, growing exports and more business investment. I doubt more than a few dozen people is remotely interested in the Comprehensive and Progressive Agreement for Trans Pacific Partnership we are supposedly joining alongside China and Taiwan. Our competitive advantage is as gateway into the EU.

The Brexit agreement is due for review in 2024. And what has Labour got to say about it? Nothing official. The truth is they are itching to re-join the single market, which makes some sense despite coming with free movement attached. But you only have to listen to Tony Blair or look at the body language to see that they secretly want to re-join the full EU too, which makes less sense and would signal years of uncertainty.

We don’t want any more upheaval, thank you. And the infamous Red Wall wants to know about the price of fish. And eggs. And gas and petrol. More power for Nicola Sturgeon and a fantasy about re-joining the EU are not obvious priorities for them.

A fresh start

Meanwhile, over in Toryland, there are persistent rumours that some Tories have been having various meetings without coffee with the His Majesty’s constabulary. Even if those are not true, we do know that many prominent MPs are retiring.

A way through the marshes for Rishi Sunak therefore presents itself: a recovering economy, a clearout of the Parliamentary Conservative Party, a fresh start, a reshuffle, getting stuff to work, including Brexit. Labour, by contrast, could be offering a series of left-wing hobby horses which promise yet more political aggravation, economic cost, higher energy prices and cultural and social divisions.

The Reform Party will, one assumes, stumble on the night, just as it did in the City of Chester by-election last week, where it got 772 votes, 2.7% of the total. And that was despite the threat of BRINO (Brexit in Name Only), small boats etc.

If we are honest with ourselves, the Conservatives deserve a drubbing. So, this plan may not work for Rishi Sunak. But it might. If anyone has any better ideas, I am all ears.

George Trefgarne is CEO and founder of Boscobel & Partners.

The media have long-mocked Jeremy Hunt as being a boring accountant type. They have now decided that he is the just the thing we need right now. The new chancellor abandoned the bulk of the mini-budget. Corporation tax will rise substantially after all, income tax cuts have been dropped, so has the reform of off payroll working. Energy subsidies for higher income households will also be phased out next year. This has brought a welcome sense of grip and optimism to proceedings.

The result? Sterling up 2% to $1.14 and gilt yields lower, with the 10-year yield down to 3.9%. Britain may be allowed off the international markets naughty step.

Good news from Ukraine too

Let us also consider the context, especially in Ukraine. A major breakthrough by Ukrainian forces in the town of Kherson may allow them to seize the Eastern ban of the mighty Dnipro river. The Kerch bridge, blown 10 days ago, leaves the Russian army perilously difficult to supply in both the Crimea and southern Ukraine.

Putin now relies on one of his few remaining friends, Iran, for supplies. This has upset the Israelis, hitherto sitting exquisitely on the fence. “There is no longer any doubt where Israel should stand in this bloody conflict. The time has come for Ukraine to receive military aid as well, just as the USA and NATO countries provide,” said Nachman Shai, Israeli diaspora affairs minister.

As Putin blunders around, there are reports that Moscow may close Jewish centres, conduits for migration to Israel. The Israelis do not like the Iranian drone programme and now have the perfect excuse to disrupt it, by one means or another.

The consequence of all this is another weakening of the wholesale gas price, with the November futures contract for UK wholesale gas dropping 10% to 234 per therm. That is below the effective level of 250p at which the Government has guaranteed it to households. So, in other words, for November the energy bail-out package will cost nothing, though there will still be outlays in the colder months. This is much better than expected on 23^rd September, the day of the mini-budget, when the November price was 428p, or late August, when it was 790p.

Put all this together and condition of HM Treasury’s finances are much better than feared only a few days ago.

All over for Liz

That does not mean we do not face substantial challenges. We do. The US Federal Reserve continues to raise interest rates. And the decision by Hunt to raise corporation tax is regrettable. International tax revenues are piling up in Ireland, thanks to the low corporate taxes over there. Much of that money would have been here if we had not made such a mess of things. UK business investment, our export performance and the growth outlook remain poor. Liz Truss was right about that.

So, what happens now? Even her close friends and supporters admit Liz Truss is finished. But, as usual, we must think constitutionally. It is not possible to have a “coronation” as some claim. The King must summon as next Prime Minister the person who can command a majority in the House of Commons, based on the recommendation of the outgoing PM.

Such an important decision cannot simply be based on a ring round by the Marquess of Salisbury, as happened in 1963, which resulted in the appointment of Alec Douglas-Home as PM. There must be some sort of decisive process. And that means an election among MPs.  There is no time to change the rules giving Conservative Party members a vote. Instead, those rules will have to be subtly subverted by ensuring that MPs chose only one candidate, thereby making a subsequent vote among the 160,000 party members unnecessary. This is what happened in 2003, when Michael Howard became leader.

There will be controversy, there usually is, but we should expect such a process to be initiated imminently. Liz Truss does not command the support of Parliamentary sentiment, even if she has not lost any votes yet. And that is the end of the matter. Her likely successors are either Rishi Sunak or Jeremy Hunt.

It is noticeable that Kier Starmer, leader of the Opposition, is not calling for a General Election just yet. We should expect him to do so if there is another change of Prime Minister without the great British public being consulted. The media pressure on the new Prime Minister will be intense. The rest of the country would prefer a period of calm.

We are not finished yet, though it looks like Britain is on course for a Labour Government, with moderately high taxes, greater proximity to the EU Single Market, all enlivened by progressive social policies and an abundance of wind farms. That is how the modern Establishment likes it. But as we have learnt in the last few weeks, things could be much worse.

George Trefgarne is CEO and founder of Boscobel & Partners, an independent communications and political consultancy; specialising in financial communications, strategic advice and analysis.

Write to us with your comments to be considered for publication at letters@reaction.life

1. The appointment of Liz Truss as UK Prime Minister

I do not know Liz Truss at all well, so cannot really comment on her as a person. But her arrival plainly brings to an end months of uncertainty in Britain, made worse by the interminable Conservative leadership contest. It also brings an end to the disastrous Boris Johnson era dominated by a philosophy copyrighted by him, Cakeism (“I am pro cake, and pro eating it”) but actually advocated by every lobby group in town, whether it to be Environmentalists, Brexiteers, Modern Monetary Theorists, the Woke brigade, you name it. Do as we say, they would cry, it won’t cost anything, will have no disadvantages and make us all richer.

It turns out they were all wrong and this change in the Zeitgeist to a more realistic, sober one – not without optimism – is to be welcomed. In that regard, the new Prime Minister’s somewhat clunking speaking style is a relief. Every time Boris cheered you up or made you laugh, as he still can, fiasco soon followed. I look forward to his return to journalism. Her first Prime Minister’s Questions were noticeably more accomplished and reassuring.

2. An energy package is coming to the rescue

The media has spent weeks, rightly, working the country up into a lather about the impact of high energy prices on household budgets, but also inflation. The previous administration essentially did almost nothing about this, an odd example of being against cake and not letting us eat any. Eleven months on the CAKE26, COP26 conference looks more and more like an unreal gathering intent on economically patronising the commonality. The only person missing was Meghan Markle.

Before everybody gets on their high horse, this is not to say climate change caused by human activity is not happening – it evidently is – but that we must be realistic and practical how we deal with it. Adapting to it, while trying to halt it, may be critical. Above, withdrawing and curtailing investment in hydrocarbons, especially natural gas, before reliable and cost-effective alternatives are in place has been a folly with terrible consequences. The pathway to Net Zero has been unrealistic and inflexible.

The new Government’s energy policy (to be announced on 8^th September), in common with other Western nations, is likely to be dramatically different, covering part of the cost of the energy price rises for businesses and households but, more significantly, enhancing investment in natural gas, including fracking, the North Sea and long term Liquid Natural Gas contracts. They are not going to be alone in this as non-Russian gas production in America, the Middle East, Africa and Asia all comes belatedly on stream in coming years. In other words, gas prices are likely to come down dramatically even if there is no ceasefire in the Ukraine (though I expect that too in coming months).

3. Fiscal expansion

It ought to be a heresy at a time of high inflation to advocate an increase in deficit-funded public spending and tax cuts, as we will see in Britain and elsewhere. However, this is to miss the fundamental point that we are effectively at war. Covid was a once-in-a-generation emergency, akin to a war and the Ukraine situation is, well, an actual war, with shooting. It is certainly true that Governments could have been better prepared or had better energy policies or that it would have been preferable if the Conservative leadership contest had concluded weeks ago, enabling time to design a carefully targeted package. But we have to deal with the world as we find it and Liz Truss has no choice but to embark on yet another round of social support. It is just necessary, like having to order more Spitfires or rebuilding the East End.

We are, in fact, very lucky to live in societies with deep and liquid capital markets, functioning public finances, a floating exchange rate, relatively low unemployment, robust banking systems and savings accumulated during the pandemic. It is precisely for crises like the current one that the modern nation state and its institutions were created to manage in the first place. As it happens, the national debt is not very high by historical comparison, being less than half the proportion of GDP it was in the prosperous 1820s or 1950s.

What is more, when all is said and done, the net cost of the energy intervention is not going to be anything like the £150 billion widely reported. This is because economic growth will be higher, tax revenues will be stronger and a social and economic collapse avoided. Furthermore, by reducing the headline rate of inflation it will reduce the financing costs of a quarter of the national debt which pays out to investors on an inflation-linked basis.

4. Sterling and Perfidious Albion

Another cause for optimism is that the fall in sterling, to $1.14 against the dollar and its lowest ever level on a trade-weighted basis according to Bloomberg, may have run its course. If economic growth is going to be strong but the Government issues more of its own debt via the gilts market, it follows that interest rates are going to be higher than expected just a few weeks ago. Indeed, financial markets are already pricing that in.

Just about the last organisation to notice will be the Bank of England which, contrary to speculation, is not at risk of losing its independence. The Governor of the Bank of England, Andrew Bailey, can expect continued criticism in Parliament and, potentially, an independent review by the Court of the Bank into forecasting errors.

All things being equal, closing the interest rate differential with the United States will underpin sterling.

Another risk to sterling will also be lifted when it becomes clear that Liz Truss is not actually going to trigger the Article 16 dispute mechanism with the European Union. Instead, she is going to exercise a policy of perpetual strategic ambiguity, threatening to trigger the dispute but not actually doing so. This is a reversion to a traditional British policy in relation to Europe, otherwise known as Perfidious Albion. The EU will also respond in the traditional form, with indignation, while actually turning a blind eye to minor rule-breaking on the Irish border and in the Irish Sea.

5. Victorian interest rates

It is too early to say that interest rates have peaked or Brexit is resolved or Russia defeated. But we ought to be able to imagine that we are inching towards a more familiar time, a post-Brexit, post-Covid, post-War era which, frankly, might be a bit dull. Some of us have had enough of “Boris gets the big calls right” and would prefer there were no big calls to be made at all. We might even aspire to the Victorian era, when interest rates fluttered around 3% for decades.

A word of caution

Finally, I have to admit that I have a tendency to be over-optimistic whenever a change of Government has occurred (“A new dawn has broken, has it not?”, Tony Blair, 1997). So you might want to add a pinch of salt of your own to this analysis.  For instance, the related energy and Ukraine crises may get worse not better. Another issue which we should consider is the culture wars in the US, but also here, which continue to rage. As far as I can tell, Liz Truss is tone deaf to these sort of issues and is not an especially cultivated person. I confess to being disappointed that Kemi Badenoch is not education secretary.T he heady fumes of freely available drugs and firearms, the thrashings of Donald Trump over the January 6^th hearings, political lawfare and the extremes of wokery and the burblings could yet waft over us all and reduce us – and her – to a more vulnerable state.

George Trefgarne is CEO and founder of Boscobel & Partners, an independent communications and political consultancy; specialising in financial communications, strategic advice and analysis.

Write to us with your comments to be considered for publication at letters@reaction.life

For those of us who consistently warned of the dangers of inflation and that central banks were being too slow to withdraw stimulus, this is no surprise. They are now moving into panic mode and Jerome Powell, chair of the US Federal Reserve, told the IMF meetings in Washington last week that defeating inflation was “absolutely necessary”.

A separate Bank of America chart shows a recession is the biggest source of worry for fund managers. But bizarrely, concern over the impact of the Ukraine conflict has receded dramatically. This makes no sense to me. In reality, they are two sides of the same coin.

In addition to inflation, there is a new thing to worry about: China. A resurgence of Covid cases has run into its supposed Zero Covid policy and weak vaccines, leading to a lockdown in Shanghai and, judging by media reports, Beijing will be next. This could mean yet further disruption to global supply chains.

Markets are social institutions and are subject to the same fads, humours and fashions as others. So it is always good to question when “everybody agrees” something in a poll or survey. In addition, my experience is that with some honourable exceptions, fund managers and bankers are not good at analysing politics, too ready to muddle up their own preferences with likely outcomes. This tendency has in fact got worse in recent years, because they inevitably rely on sources of metropolitan groupthink: market strategists, consultants, think tanks and the media. The rest of us can be just as guilty of this.

Which brings us to Ukraine. Judging by how events have transpired (Mariupol should supposedly have fallen weeks ago, for example) there is empirical reason to question the market’s current view that it is not important any more. Those with actual experience of these matters, including from the front line, take a different view.

The human impact of the conflict has been terrible. From an economic standpoint, the biggest reason to question the consensus is the potential impact on inflation. Put simply: a ceasefire in Ukraine would mean a rapid fall in oil, gas and food prices, bringing inflation down too; ergo fewer interest rate rises and either no recession or a modest one.

It is no coincidence that simultaneous to Powell telling the IMF Spring Conference in Washington that bringing down inflation is “absolutely necessary”, the US Defence Secretary Lloyd Austin articulated America’s war aims after meeting President Zelensky: “We believe that we can win, they can win if they have the right equipment, the right support,” he said. “We want to see Russia weakened to the degree that it can’t do the kinds of things that it has done in invading Ukraine.” (My underlining).

At the same time, we learnt that a major Russian logistics hub and fuel depot at Bryansk, on the Ukrainian border, burst into flames following an apparent missile strike. Funny that.

The reality is, of course, that Powell and Austin are actually singing from the same strategic hymn sheet. The West, led by the US, is seeking, if not exactly the defeat of Russia, then its humiliation and degradation, partly because it is in its economic interest to do so. A rampant Russia = high inflation, and vice versa.

Which leads us to a secondary front in the war, in the Black Sea.

The reason Russia is determined to consolidate its hold over Crimea and to obtain a land corridor to it is that Sevastopol is its only large and reliable ice-free port. For a commodity exporting nation, sea access is absolutely vital. So is it for the customers – the West, Africa and Asia – which rely on the free passage of its shipping to import Russian and Ukrainian commodities.

So when Turkey shuts the Bosphorus to Russian warships (as it did last week) and René Kofod-Olsen, chief executive of V.Group, the world’s largest shipping manager, calls for Nato to escort merchant shipping in the Black Sea, we should take notice.

This is not just about stopping the Russian navy from making amphibious landings, it is about re-opening the Black Sea to merchant shipping and denying control to Vladimir Putin. It is about re-opening or making safe the ports of Ukraine, the Caucasus and the Eastern Mediterranean for the big commodity traders. Energy groups like Exxon, Shell and BP and commodity traders like Vitol, Cargill and Louis Dreyfus.

Kofod-Olsen said: “We should demand that our seafaring and marine traffic is being protected in international waters. I’m sure Nato and others have a role to play in the protection of the commercial fleet.” We should be very surprised if this is not in fact already happening. And just as in the land war, much of it may be imperceptible, this time by submarines, deep water drones, and Ukrainian raiding parties.

So I am sticking to my view: inflation is a threat, Ukraine has made it worse, but the stakes are so high we should hope and expect that Western institutions prevail in the end, whatever mistakes they make along the way.

George Trefgarne is CEO and founder of Boscobel, an independent strategic communications firm providing clients with bespoke financial PR & public affairs advice.

Russia

Russia is not a superpower; it is an aggressive middle-ranking power run by a corrupt despot. Our long term strategic objective is to complete the unfinished business of 1989 and to see Vladimir Putin is removed from power. This would be hugely positive. But in the meantime he can do a huge amount of violence and damage to Russia and its neighbours.

Energy security

We have been reminded of our dependence on hydrocarbons for so much of what is valuable in human life. But in the long term, that is a weakness we must remedy.

In the short term, the Government wants to increase North Sea production of both oil and gas. It is considering amending the new climate change certificates for new fields to consider energy security; increasing exploration in the Atlantic Margin and, to quote the Prime Minister, “give investors the confidence to invest.” This is in collision with various existing regulations in relation to climate change.

Children, beauty and feelings matter

Soft things like children, feelings, identity, emotions, beauty, neighbourliness, patriotism matter and make life worth living, not as a source of division, but togetherness. The same goes for European culture. Sometimes it felt like we had forgotten that.

The decline in the birth rate, the future of schools, the impact of first the pandemic and then the impact of the war on children are huge social issues. What is the point of messing up the present and not investing in the future?

The media matters

One positive aspect to emerge from the crisis is that the media, including social media, has broadly behaved itself and been a force for good. Sure, there is propaganda and disinformation around and the news is terrible. But, on balance, the media has behaved responsibly and endeavoured to report accurately. This is in contrast to some of the previous crises of the last few years.

This is proper journalism and Twitter has even been surprisingly full of expert commentary.

Sanctimony is no use

Sanctimony is not much use, especially in business and financial markets. Realism is back. How self-satisfied many of us could feel as we invested in ESG (Environment, Society and Governance) assets, and talked about it, while failing to support old-fashioned grimy things like defence, agriculture and oil and gas, leaving us all exposed when a dictator appears. In the long term, though, the environmentalists are right: we will have to wean ourselves off oil and gas.

No more culture wars please. Fracking wars instead

Cultural divisions at home made us weaker and need resolving. They have gone quiet. Frack or not to frack is the new culture war, but at least it is a conversation about something material.

Charity

Philanthropy is a vital pillar of society. It is remarkable the global charitable effort which has begun, including £150m collected by the Red Cross Disaster Emergency Committee in the UK in just one week and 100,000 people already signed up to house Ukrainian refugees.

European consciousness

The war has initiated a groundswell of pan-European consciousness, including in Britain, which will have lasting repercussions.

Britain’s relationship with the EU is unresolved. The EU itself is not a natural icon for European affection. But it is notable that two lots of people, extreme Remainers and Brexiteers, have been proven wrong on the same point: Brexit does not mean a fundamental severance with Europe, despite the attempts of some people to make it so. The truth is the relationship with the EU is our second special relationship, and it is ragged and still needs fixing.

China

The Chinese are not our allies. Equally, they are not our enemies, or not yet anyway, and Taiwan excepted, are not really interested in global domination, except insofar it is a commercial exercise. If Russia has its wings clipped, a more bipolar world may be more stable. It is interesting that the economic outlook for China has darkened recently.

An open society and its enemies

It is almost inconceivable that open, market-based societies with strong institutions and high levels of trust and innovation will not in the end overcome Putin. But we have already had a really big nasty lesson in the dangers of taking that for granted. Rhapsody is no substitute for realism. The spirit of 1989 lives on, but chastened. If it is to survive it is going to have to be wiser and more realistic than before.

George Trefgarne is CEO and founder of Boscobel, an independent strategic communications firm providing clients with bespoke financial PR & public affairs advice.

If, one hopes, Vladimir Putin does not invade the Ukraine, there are some critical lessons which we can learn from the crisis, which taken together with what needs to be done as we emerge from the pandemic, means sensible people have their work cut out.

The first is that two decades of botched energy policy, compounded by both the Theresa May and Boris Johnson administrations, have not only left the economy exposed to inflation and pushed millions of people into energy poverty, it has left us in a more strategically weakened position than at any time since the Cold War.

In fact, we might argue there is now a new Cold War, given Beijing and Moscow’s mutual support, including the signing of a gas deal during the crisis.

The day has been saved by American Liquefied Natural Gas. Bloomberg reports that it was “exporting every molecule possible to Europe”, with all seven of its terminals docked and loading last weekend for the first time. A record 13.3 billion cubic feet of LNG flowed through US terminals on Saturday. That is about a day and a half’s worth of consumption for Germany.

Partly, this was ordinary market function, as natural gas prices are six times higher in Europe than the Henry Hub price in the US. But partly it was a strategic choice by the Biden administration to pull out all the stops to assist European allies.

Record prices come down

It was the prospect of a great armada of US LNG vessels which brought the forward month price down from a record €166 per MWH at the Dutch Transfer Facility on December 21^st, to €80 on Monday, and €76 on Tuesday. That is still four times the underlying level before the crisis.

If that had not happened and the price had galloped up further, the European economy, including the British economy, would have been brought to a shuddering halt and we would have sued for any terms possible with Moscow. We are dependent on Russia for natural gas, as the chart from the US Energy Information Administration, shows.

Imports of natural gas by both pipeline and liquefied natural gas (LNG) provided more than 80% of the supply of natural gas to the countries of the European Union (EU-27) and the United Kingdom (UK) in 2020, up from 65% a decade earlier. And Russia is by far the largest supplier.

According to BEIS, some 42% of the UK’s primary energy consumption was derived from natural gas in 2020, up from 24% in 1990. And although wind, for example, is growing fast it only provides 4% of our primary energy supply.

North Sea back in fashion

Interestingly, the crisis has completely changed the conversation around natural gas, which has lower emissions than coal and oil. Sen. John Kerry, the US Climate Envoy, said it was a “bridge fuel”. The EU has categorised it, along with nuclear, as a sustainable fuel in its taxonomy. And the British Government has reiterated its support for the North Sea (while continuing to resist fracking).

None of this is to negate the multi-decade move to more renewables in order to reduce emissions and to tackle man-made climate change. But it does bring into question the policy framework around Net Zero. Britain is one of only 11 countries to put this into law, via secondary legislation without a vote in Parliament, in 2018.

The underlying flaw in the Net Zero policy framework is that it treats all fossil fuels the same. Whereas the best low carbon trade is to withdraw them in sequence: first coal, then oil, then gas, as renewables and low carbon sources like hydrogen and nuclear come on stream.

Faulty framework

This is the flaw in the legal recommendations of the Climate Change Committee and the consequent investment drought in natural gas orchestrated by Mark Carney, Michael Bloomberg and others via the climate stress tests on banks by the Bank of England, the Taskforce on Climate-Related Financial Disclosure and the Glasgow Financial Alliance for Net Zero. Raising capital for investment in natural gas in the City is almost impossible.

The perverse consequences of these measures has been actually to suck coal back into the market, even in the UK, because it is the cheapest fuel. The result will be record carbon emissions and fossil fuel consumption this year. The energy majors are also reporting the highest profits in eight years. So-called “dark capital” from unconventional sources is being made available. And “Environmental, Social and Governance” strategies are suddenly not so fashionable. That is quite a score card for COP26.

The lesson is we need to invest sufficiently in hydrocarbons during the transition to net zero and to defend that is a common sense, responsible thing to do.

Unpicking this mess, while maintaining a commitment to a low carbon economy, will help bring inflation down. But it is going to take some clever footwork by politicians and regulators in the UK and the EU.

Still, at least there is no fighting in the Ukraine.

George Trefgarne is CEO and founder of Boscobel, an independent strategic communications firm providing clients with bespoke financial PR & public affairs advice.

Article 16 of the Northern Irish Protocol, which ostensibly enables either side to take “safeguarding measures” pending a ruling from an independent tribunal, is a legal minefield which could cause political and economic chaos. Even former No.10 adviser Dominic Cummings, who is partly responsible for the UK signing it in the first place, has said triggering it could be a “debacle”.

The decision whether to do so will be taken in coming weeks. We should hope wise counsels prevail and Boris Johnson decides not to trigger it. Following meetings in London last week, more positive noises are coming from both Lord Frost, the UK negotiator, and his EU counterpart, Maroš Šefčovič.

Lord Frost, (who is far more sensible than his detractors in the press realise), is within his rights to threaten it in order to improve the operation of the Northern Irish Protocol. So far, that strategy has paid some dividends, with the EU coming forward with proposed changes to the operation of the agreement last month.

What triggering means in practice

In order to avoid a border on the island of Ireland – the boundary of the EU single market – the Northern Irish Protocol has imposed customs checks between mainland Great Britain and Northern Ireland, which the EU has interpreted strictly, alarming Unionist opinion in the province, which feels it has been artificially hived off from the rest of the United Kingdom.

The UK Government can trigger Article 16 unilaterally in writing if it believes there are “serious economic, societal or environmental difficulties that are liable to persist, or to diversion of trade” arising from the Protocol. The Government said such a threshold had been reached in its Command Paper in July.

Following the trigger letter, there would then be one month’s negotiation between Ministers on the Joint Committee which governs the Agreement, before the safeguarding measures – in this case, presumably London suspending checks between GB and NI – were implemented. An arbitration tribunal, with one member appointed by each side and an independent chair, would then rule over the next nine months.

But hold your horses. Things are not so simple. The EU can introduce “rebalancing measures” of its own which might include, for example, suspending data sharing. And if the UK fails to implement the tribunal ruling, the EU can introduce retaliation measures. The EU can further exit or suspend the entire Trade and Co-operation Treaty with 12 months notice, which is anyway due for review in 2024. In other words, triggering Article 16 could itself lead to a great unravelling of the Brexit treaty. It is fraught with the danger of unexpected consequences.

The tribunal can also force legal disclosures under Article 751 of the Agreement. If it can be proven that the UK signed the Protocol fully intending to “ditch bits which we didn’t like after whacking Corbyn” as Dominic Cummings has claimed, then the UK’s good faith would be called publicly into question.

The tribunal may also refer to the European Court of Justice on matters of EU law. Finally, it might rule against the UK, leaving us at the mercy of further countermeasures.

The House of Lords might block the measure

Then there is the Parliamentary process to consider. Lord Frost has confirmed that implementing a trigger of Article 16 would require a Statutory Instrument to be passed by both houses. The Government has a Commons majority of 76, which fell to low 20s in the Paterson votes. Many Conservative MPs might ask, “Hang on, I thought Brexit was done and we are supposed to be levelling up? Isn’t this going to all go wrong again?”

It is not impossible that the House of Lords – where the Government does not have a majority – would be emboldened by a close vote in the Commons, defy convention and reject the measure. At the very least the Lords could demand an Impact Statement which would lay out the economic consequences on supply chains and for investors.

If, and it is a big if, the Lords rejected the Instrument, there would be a huge controversy unseen since 1968, when it rejected an instrument from the Wilson Government imposing sanctions on Rhodesia for declaring unilateral independence. On that occasion, the Government relaid the instrument and it was passed, partly due to the international outcry from the United Nations and United States.

This time, 50 years later, how would the Americans and the UN react to the allegations that the UK has either acted in bad faith or contrary to the spirit of the Good Friday Agreement? It may not matter whether those allegations are true or not, merely that the accusation can be made and picked up by Democrats in Congress and by President Biden, who has already said as much.
There would be a knock-on impact on investor confidence in the UK, which has been fragile since 2016. The FTSE 100 has already been left trailing as other markets recover from Covid.

Stormont politics

However, let us assume that the legislation did pass in Parliament. There would be a further hurdle: Irish politics, including in the Stormont assembly. A cross-border alliance-of-convenience could be formed by Sinn Fein, whose vice president Michelle O’Neill is deputy first minister in Northern Ireland, with Fine Gael and Fianna Fáil in the Republic. To this may be added the softer edges of Unionism, professionals and business people, who never supported Brexit in the first place, precisely because they feared that a border would have to go somewhere, either in Ireland or in the Irish Sea.

The Stormont assembly could hold that the “safeguard” and “rebalancing” measures of both sides collectively amount to a change to the status of Northern Ireland, which under Section One of the Good Friday Agreement, would require the democratic consent of a majority, i.e., a vote in Stormont. The next election for the Northern Irish Assembly is in May, and in the meantime the Democratic Unionist Party is only the largest party by one seat. It performed badly in the 2019 General Election, and it has been losing support to the Alliance Party and a revived Ulster Unionist Party.

Boris in trouble, again

No wonder it has been reported that the Cabinet Office has sought advice from a second team of lawyers as to the legal ramifications of Article 16.

All of the legal and procedural objections could perhaps be overcome if the British Government was on strong political foundations at home. But following the Owen Paterson affair, Boris Johnson’s administration is plainly weaker than it was and in trouble with its own benches in the Commons. It can be of little comfort that the voices calling for the triggering of Article 16 are the exact same ones who proclaimed that overturning the Standards Committee’s judgement against Mr Paterson would be a good idea and simple to execute.

Next month, on December 2^nd, the Bexley by-election takes place following the death of James Brokenshire. This is the first in a series of three by-elections. There may be more, for example in Leicester East, where the ex-Labour MP Claudia Webbe has been convicted of a criminal offence of harassment, and in Torrington, where Sir Geoffrey Cox is under siege from the media over conducting his legal work in the Caribbean during lockdown. By-elections worry MPs at the best of times.

Don’t do it

Put all this together and the risk is that Article 16 could prove to be a fiasco, an economic and legal torture chamber which fatally hands the initiative to the other side and leaves the UK fundamentally weakened. Boris Johnson would be well advised to think twice about triggering it, which is why I think he will not do so. It therefore follows that he will be seen as having bluffed, won some concessions, and backed down, but that is the least bad option.

George Trefgarne is CEO and founder of Boscobel, an independent strategic communications firm, providing clients with bespoke financial PR & public affairs advice.

Furthermore, this comes after almost two decades of very little growth in take home pay. As the chart below from the Bank of England shows, following the go-go years of the Thatcher and early Blair era, came steadily rising taxes, then the financial crisis, then austerity, then the uncertainty of Brexit and now (wrongly in my view) the highest tax burden since the 1940s, post tax real incomes are falling.

The situation is especially unfair for labour, including younger workers, who are being hit with national insurance rises, frozen allowances and even higher student loan payments, from which retirees are exempt. Though many of the latter have annuities which do not keep pace with inflation.

This, I would suggest is the killer chart, the big simple point which explains so many of our discontents.

After two decades of mishaps, rumpuses and policy failures, Boris Johnson and Rishi Sunak have an opportunity to fundamentally reform the economy and put it on a path to faster growth, prosperity and investment. But they are failing to do so. A combination of excessively loose monetary policy, high spending, Treasury dim-wittedness, general lack of imagination, no pro-business investment case and general laziness in the City, means we are in a position where most people’s income is actually down in real terms.

This is despite the fact that we live in an era of abundance and innovation, with the economy recovering strongly from the pandemic.

Soon to come will be a penal rise in corporation tax from 19% to 25%, which will have the effect of taking a chunk out of the free cash flows – which is to say what is left over from profits when all taxes are paid – of UK companies. Do we think that will result in more investment, more innovation and faster pay rises? Er, no. It will not.

The Government is also contemplating triggering Article 16 of the Brexit treaties, suspending aspects of the Northern Ireland protocol. I cannot help thinking this would have unforeseen consequences and do nothing to encourage foreign investment. I hope they find a way round it.

Declining real incomes connect to the ‘sleaze’ allegations currently obsessing the media and the Opposition. The reason Tony Blair was so able to capitalise so powerfully on similar issues which emerged under John Major in the 1990s is it fed into his wider narrative that it was “time for a change”. He did not say Britain was corrupt, merely that the Conservatives had been in power so long they had become greedy and self-regarding. This had the merit of being true.

Twenty five years later, if people feel that they are being made to pay costs inflicted on them by a spendthrift, privileged class in Parliament and Government, who are themselves shielded by second jobs, generous pensions and inflation-linked pay rises, there really will be political trouble. Unless, of course, it does not come to pass because the Government changes both its conduct and economic policies or Labour develops a programme of its own.

George Trefgarne is CEO and founder of Boscobel is an independent strategic communications firm, providing clients with bespoke financial PR & public affairs advice.

When it comes to economic growth, nothing much happened in the West for 1,000 years after the fall of the Roman Empire, until industrialisation gathered pace in pockets of Europe and Britain suddenly started to overtake other nations in the eighteenth century. The tale of how this damp island was a pioneer in economic progress and then exported it worldwide is a remarkable one naturally attracting the quizzical examination of great and curious minds.

No single explanation is sufficient. But a reasonable summary is that, with limited access to European markets in the aftermath of the Reformation, Tudor merchants commenced exploration and trading with the world, stimulating the growth of London as a major commercial hub, which in turn drew in cheap coal and products from the provinces.

This acceleration in commerce coincided with first an institutional revolution, resulting in 1688 in a constitutional monarchy accountable to Parliament, an independent judiciary and a new central bank. This collectively created stability, reduced friction costs and stimulated further innovation via the ready availability of finance. To this market-oriented political order, blessed by geography, was added a liberal dose of education. A powerful tradition of innovation and bourgeois values completed the mix.

What is interesting is how different economic historians come up with different theories. For Deidre McCloskey, the Industrial Revolution is about the triumph of bourgeois values. For Joel Mokyr, it is about culture and the idea of “useful progress”. For Douglass North, it is about institutions, notably the Glorious Revolution and the independence of the judiciary, which controlled vested interests and which was enshrined in the Act of Settlement. For Robert Allen, it is about cheap energy, especially coal.

Duncan Weldon, a journalist at the Economist, commences his enjoyable narration of the British economy at the end of the eighteenth century and rather than taking sides in these debates, presents a brisk and readable rehearsal of events as they unfolded. Remarkably, he does not mention geography or energy much and instead concentrates on more intellectual developments. According to him, ideas count, but what counts more is the political environment prevailing at the time.

He does, however, give weight to the development of Georgian and Victorian institutions, including the Gold Standard and Gladstone’s belief in balanced budgets, peace and reform. This created a system that was, relatively speaking, “Knave-proof”. The British system was apparently immune from hijack by special interest groups with selfish motives until it broke down under the strain of the Great War, which brought in its wake mass democracy, the welfare state and repeated devaluations of sterling over half a century.

The restraining virtues of a “knave-proof” system, essentially low church in origin, are attractive and were recovered in the last 30 years when Margaret Thatcher took on the Trade Unions and Gordon Brown made the Bank of England independent, thus insulating it from cutting or raising interest rates under political pressure. However, the system is again under strain.

The unions remain tamed, but the older, asset-rich electorate, which underpins both Brexit and Boris Johnson’s Government, has managed to ensure that the economy is run in its interests. Rising taxes on workers, rising house prices and increased friction costs from Brexit, contributing to higher inflation, all leave younger, less wealthy voters disadvantaged. Yet there is not much they can do about it as they are outnumbered at the ballot box.

The independence of the Bank of England has also displayed a disadvantage: what happens if it gets things wrong? The Bank has continued to keep interest rates low and print money, despite evidence that inflation is a growing threat, but the only element of accountability is that the Governor, Andrew Bailey, must write a letter to the chancellor explaining why the Bank has missed the inflation target again.

He cannot be reprimanded or dismissed unless he is declared bankrupt. Rather than benefiting from a “knave-proof” system, it seems as if there is a collection of incompetent rogues running the country. A combination of the pandemic and Brexit has enabled them to bypass ordinary constitutional safeguards.

Weldon is a political economist who is more concerned with narrative than argument, and his approach is too light touch to be dragged too deep into such ideological battles. This is both his strength and weakness.

There is something for everyone in his approach, but not much of an argument. The advantage is that anyone can read it without feeling indignant, which is welcome when you consider how much there is to learn from Britain’s unique and compelling economic history.

For instance, I was delighted to be reminded of Tony Benn’s Alternative Economic Plan in 1975, when he advocated a siege economy based on protectionism, pulling out of the Common Market, higher taxes on the rich and lavish public spending in order to avoid having to borrow from the International Monetary Fund.

At the time, the “AEP” it was judged by his Cabinet colleagues and the country to be too extreme. Let us hope we are not about to implement a version of it fifty years later.

George Trefgarne is an economics writer and founder of Boscobel & Partners, an independent strategic communications firm.

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I have been super-bullish when it comes to the economic recovery from Covid. My thesis was that most economic activity during the pandemic was deferred, not lost, and when reduced restrictions combined with the huge stimulus from central banks, we would experience perhaps the biggest boom for a generation.

In addition, I would take it further; rapid innovation brought forward by the pandemic, a surge in investment and drastically remodelled business plans means that far from “economic scarring”, there will be “economic muscling” from Covid. Productivity and growth will be faster than before the virus struck.

This thesis has been entirely vindicated by the evidence. There is a boom going on.

But now we must change tack. It is time to ring the warning bell.

The Covid economic muscling will go to waste unless the economy is taken off the steroids and put on a sustainable, long term recovery regime soon.

There is a growing risk that Western governments and central banks are charging headlong into a crisis in 2023-24, when a belated rise in interest rates will combine with big tax rises, inflation and sloppy regulation to cause a massive fall in real take home pay and potentially a severe recession.

To see this, you have to understand the institutions and how they operate. I take Britain as the exemplar of these risks partly because I know it best but also because it seems now to be leading the charge into a potential crisis.

The Bank and inflation

First, let us start with the central banks, the great purveyors of monetary protein shakes. The ultra-low interest rates and quantitative easing they have sensibly provided have, unfortunately, been accompanied by an apparent change in ethos and mindset at the behest of outside interest groups. There is even a campaign led by the Democratic Congresswoman, Alexandria Ocasio Cortez to stop Jay Powell, chairman of the US Federal Reserve, being re-appointed in February. She wants him replaced with someone focused on, “eliminating climate risk and advancing racial and economic justice.”

The Bank of England, for example, has abandoned monitoring its own money and credit figures; it has omitted to scrutinise worrying developments in the energy market – such as record natural gas prices – despite having a new duty to support net zero; it has embraced stretching social objectives for its own staff in relation to diversity targets (the intention is admirable but a more flexible approach would be better) and working from home a full five days a week (it should be setting an example of hybrid working at least); and the Governor Andrew Bailey has got himself into a peculiar row with Parliament as to whether “addiction” is an appropriate word to use in relation to quantitative easing.

Simultaneously, and perhaps because of this new mindset, the Bank has repeatedly underestimated inflation. Many independent forecasters reckon it will be over 5 per cent by the end of the year, twice even the Bank’s most recent estimate. This is particularly relevant when it comes to asset prices, with stock markets and house prices galloping away. That is good for the wealthy and the older generation with assets, but not younger or less wealthy people. It is hard to see how inflation, a bubble in asset prices and the risk of a bust advance racial and economic justice.

The Regulator

Next, let us head over to the East End, where the offices of the Financial Conduct Authority are largely empty. This, during a great speculative boom, when all kinds of bezzles are presumably emerging in the system. Its major investigations are prolonged, it recently presided over an astonishing miscarriage of justice in the Forsyth case, and it is reportedly suffering a high turnover of staff and morale issues. In my experience, customer service and efficiency have declined alarmingly across the consumer financial services industry. Presumably this is partly because too many white-collar workers are following the example of the Bank and the regulator and are at home, not in the office and eschewing even hybrid working. If people are going to work at home, many companies have invested insufficiently to do it properly.

The FCA has such extensive powers, regulated companies and individuals are too scared to criticise it publicly and it has insufficient accountability to the Treasury or Parliament.

Downing Street and the Treasury

Finally, let us go back across London to Westminster. The Prime Minister’s appetite for both spending and tax increases is the most gargantuan since the early 1970s. Although, in fairness to Boris Johnson, he has been right to be optimistic about the outlook. His problem is he seems to have insufficient sympathy with entrepreneurs, the private sector, or younger workers. This week’s announcement on National Insurance and the health and social care levy, from which retirees are exempted, is a classic example of the generational inequality he is hard-wiring into the system.

Meanwhile, the Treasury and the chancellor Rishi Sunak may have performed well during the pandemic, but they are now making two errors. The first is to fail to account for pandemic and recovery spending as a one-off item, to be paid off over 100 years, and the second is to be trapped by Treasury orthodoxy (and the gloomy forecasting errors of the Office for Budget Responsibility) into trying to balance spending with tax rises over the next few years. Not only does this make no financial sense, it snuffs out any long term plan for recovery and growth.

The big squeeze coming

These institutions, of which the central bank is the most critical, might be thought by an observer to be pulling in opposite directions. But the reality is they are all pulling in the same direction: a punitive combination of inflation, global interest rate rises and significant tax rises from 2023 onwards. I fear the mistakes may be replicated across advanced economies.

The result could be a huge fall in take home pay and business investment and a deflationary bust in a few years’ time. That would be bad enough, if it was not also accompanied by windfalls for some people: the wealthy and retirees with substantial appreciating assets.

Not much fun in Canada

The powers-that-be need to accept the world as it is – which is observable both in the data and the experience of ordinary people up and down the country – and change direction. Otherwise, they may find themselves suffering the fate of Justin Trudeau in Canada who, having called a snap election about the handling of Covid three weeks ago, instead finds himself behind in the polls as voters say the biggest issue for them is actually the cost of living. As for investors, riding a wave of monetary and fiscal expansion, beware that once they withdraw the shakes and supplements, the economic muscle could turn to flab. 

George Trefgarne is CEO and founder of Boscobel is an independent strategic communications firm, providing clients with bespoke financial PR & public affairs advice.

Does this mean reform is on the cards? Apparently not, I am told.

There are lots of conversations going on, including yet another consultation on reducing university tuition fees from £9,000 to £7,500 (which I personally think is a very bad idea). But that is it. Another example of how Boris Johnson’s government is unwittingly indifferent to young people and children, focusing instead on pleasing older voters.

Last week, Bristol University (my alma mater) announced it is sending debt collectors after the 1,000 or so students who have refused to pay for their accommodation, on the not unreasonable grounds that they either could not access it or, if they could, there was no point because all teaching was online.

Admittedly, students don’t help their case by either not voting or when they do get involved in political activity, resorting to the unwashed, statue toppling school of protest. But even the hardest hearted capitalist can see that they have a point. Donald Trump actually introduced a moratorium on student loan repayments during Covid.

The Student Loan system, and the university system on which it depends, are close to being bust. The size of the outstanding loan book is rising by £17bn a year, with 1.3m additional loans handed out every September. The loan book is currently worth £140 billion and the Treasury forecasts it will hit £560 billion by mid-century.

That number clearly depends on the interest rate being charged. That is calculated as inflation plus 3% – currently 5.6% – but as pretty well everybody is forecasting a rise in inflation, this will most likely jump in coming years. An excellent report by the Economic Affairs Committee of the House of Lords forecast that the outstanding book will be worth over a trillion pounds by mid-century, twice the official forecast.

With interest compounding faster than Greensill Capital’s liabilities, it is not surprising that the vast majority of loans will never be repaid. The government expects that around 25% will be paid off in full, but the current repayment rate is lower than that and that optimistic forecast is totally incredible.

It is not commonly appreciated the extent to which the Student Loan system is based on lies.

The first deception is that the system is progressive. This is untrue. Wealthier students either opt out of it, with the help of “bank of Mum and Dad”, or repay early, with help of large City salaries. Below them is a cohort of people who earn enough to be constantly required to repay while in employment, but never enough to repay the liability. This particularly effects women, who take career breaks for childcare, or those in caring professions like nursing or medicine.

For instance, the average doctor will have to pay £192,000 of loan repayments and the average male nurse, £133,000, more than twice the amount of the average female nurse (who tend to take career breaks).

The second deception is “don’t worry, you won’t have to repay it and it will be wiped out at the end of 30 years.” Anyone getting pay rises during their career risks being swept into a more penal repayment burden. And pretty well everybody, even those who never went to University, will have to foot the bill in higher taxes once the colossal liability mounting up on the public finances comes home to roost.

This leads us to the final deception, an implicit one that the system is sustainable. It plainly is not.

What is to be done? Clearly expanding the system further as Williamson proposes, without reform, will make everything an order of magnitude worse. And a reduction in university fees risks toppling large parts of the system, including landlords, into bankruptcy (if you have tears prepare to shed them now). There will be chaos, which is bound to rebound financially and politically on the government.

So here is what I propose.

First and most importantly, reduce the interest rate from the current usurious levels back to the pre-2012 level of a fixed 1.5%. This will have the instant effect of reducing the magnitude and injustice of the problem.

Second, bring the Student Loan Company under the regulatory umbrella of the Financial Services Authority and the Consumer Credit Act, thereby ensuring proper service levels. protection and honesty in the system. This would also bring to a halt the false claims, made to 17 year olds, about not having to pay the loans back.

Third, copy the American system of allowing a small proportion (it is $2,500 over there) – to be repaid tax free each year. This would allow employers to help repayments, without giving an excessive subsidy to the higher paid.

Fourth, restore tuition grants to certain critical professions, such as nursing, medicine or engineering and encourage employers to offer scholarships and other support.

The Treasury will no doubt counter that all these proposals will have up front costs. This is true, but if ever there is a case of a stitch in time will save nine, this is it.

The entire conservative economic promise has always been based not equality of outcomes, but equality of opportunity. Work hard, get educated, get trained and society will support you because, in the end, we all benefit. As it stands, the student loan system is a racket, which is turning that promise on its head. Williamson is right to want to expand the system so everyone can use it to improve themselves. But if the system isn’t reformed first, his proposals will blow up spectacularly in his face.