Budget and COP26 about to test the Boris and Rishi relationship
One major event which has huge economic implications and creates widespread uncertainty is usually enough to test the government machine’s breaking strain. Today, we have four: a budget, a pandemic, a climate-change conference and global geopolitical insecurity. (Even though the final one rarely makes the headlines, it could be the most important – and dangerous – of them all.)
The others have one point in common: uncertainty. The politicians have to make crucial decisions while the experts are quarrelling. Let us start with the Budget. Chancellor Rishi Sunak has a simple task – to reconcile two apparently incompatible objectives: high growth and low inflation. The economy has to grow its way back to health and in order to assist this process, the government and the Bank have relaxed monetary policy to an extent that would have horrified old-fashioned Thatcherites. For a time, it seemed to be working. There was a rapid recovery. Unemployment stayed low and the threat of inflation appeared to be containable. Although a spike was expected, there was a lot of hope that it would prove temporary.
Recently, however, there has been a change in sentiment and a loss of confidence. The supply-chain disruption brought inflation to the top of the agenda, and when people start worrying about inflation, it is much more likely to happen, with a touch of stagflation as well. The Bank of England has been sending out mixed messages on inflation, yet it cannot be blamed for this. There is no simple mathematical ratio by which the Bank could work out the trade-offs between inflation, interest-rates and growth. Instead, there is an irreducible element of suck it and see.
The Chancellor has also been mixing his messages. Although cynics have attributed this to political calculation, there is a simpler explanation. Sunak has to sound tough enough to reassure the markets, without deterring investors. That latter explains his position on Covid. He is clearly desperate to avoid another lockdown, which could have catastrophic economic consequences, as well as political ones. Up to now, much of the public has been astonishingly docile: alarmingly willing to be bossed around. But if the government had to cobble together a plan B, I suspect that there would be a haemorrhage of faith in Boris and a widespread conclusion that he was not up to the job. The PM is said to be suspicious of the Chancellor. In reality, he ought to be grateful.
Sunak is also sending mixed messages on fiscal policy. On that, he cannot be blamed for he has to appease an unrealistic public mood, especially among Conservative supporters, and MPs. Everyone wants tax cuts and spending increases, not to mention continued low interest rates. Rishi Sunak is clearly concentrating on public sector “investment”. The inverted commas were always necessary when Gordon Brown talked about investment, a term he used to cover almost the whole of public expenditure. Let us assume that the current Chancellor is using the word correctly.
Even without Gordon Brown’s sleight-of-hand, public sector investment is always problematic. How can the donors ensure value for money, especially when large sums are splashing around? In an ideal world, any aspirants for funds would be required to produce a business plan. If possible, new money could be drip-fed in while performance was scrutinised.
Oddly enough, and even under Tory ministers, government departments often prefer a different approach. The Treasury calls it “bloody stumps”. Leaks pour out, often the colour of blood. Half the Today programme is devoted to them. It is asserted that service x or y is on the point of collapse unless it receives additional billions immediately. When it comes to Health, the BMA – a Scargillite trade union masquerading as a learned body – is especially effective. It always has the same three demands; more restrictions on personal freedom, more pay and less care for patients.
Sajid Javid must feel that he has become the minister for the bottomless pit. He has wisely chosen to emphasise reforms such as digitalisation and to encourage the efficient use of resources. It will be a mighty political battle. He will need perseverance and luck, especially when it comes to winter flu. Equally, he ought to push for more momentum on Covid boosters.
Efficient use of resources leads on inexorably to a city where there is no prospect of that happening: Glasgow. Everything is set up for a shambles. There is no evidence that the government has thought through its position. Last week, Boris assured us that when it came to energy, we can have our cake and eat it. There will be lots of new jobs, an infinite supply of renewables and all at no extra cost. It is known that Carrie Johnson concerns herself with these matters. Carrie Antoinette, as she is known – have your brioche and eat it, perhaps – has strong views. It may be that her husband defers to her in order to avoid domestic warming.
If you are remotely tempted to believe that Boris is a realist, read Matt Ridley’s blog. Lord Ridley has spent years deploying a formidable intellect to think about energy and his solutions are always practical. There are no fantasies about solar and wind. In an ideal world, he would be put in charge of energy policy. But it is unlikely that Carrie would agree.
Boris has always believed that he can use charm to extricate himself from any mess and he has often succeeded. This may not work in Glasgow. No previous COPD has had any effect on carbon reduction and it would be astonishing if that changed at this one. Boris will find himself trapped between the realists and the eco-maniacs and even he will not be able to satisfy both groups. Greta Thunberg is likely to excel in nuisance value and she will not be alone.