Saturday, June 24, 2017

Britain Adrift

A system where the choice of British Prime Minister is Theresa May or Jeremy Corbyn is -self evidently- a system that needs reform.  

Despite the humiliation of a hung parliament, the current Prime Minister, Mrs. May, has nevertheless started the negotiation to leave the European Union. The Conservatives do not intend to stop at any halfway houses, but to leave the jurisdiction of the ECJ, and so withdraw from the customs union, the single market and essentially all the institutions of the EU. Although Brexit will cause major economic damage- not to mention trashing the national brand of the UK- it is not the most immediate problem the country faces right now. Britain is sailing into the mother of economic storms with the engine stopped and a huge argument on the bridge.

The "sombre national mood" identified by the venerable Queen Elizabeth II is rightly named.

The sense that the Brexit vote has cast Britain adrift in uncertain international waters has grown over the past year since the result became clear. yet the fact is that the vote itself was the result of clear national unease. The fact is that for decades the UK has been facing a leadership crisis.  Theresa May is hardly unique in being essentially unqualified for the job of Prime Minister. She has chosen to deal with her party's problems rather than the national interest, and so did David Cameron when he called the referendum in the first place. Both are guilty of a betrayal of the national interest, even when they proclaimed their supposed devotion to that interest. Gordon Brown, suspicious and belligerent, was equally not up to the task. Tony Blair, whatever the hope and determination he brought into power, left office reviled. There are few Prime Ministers who can be said to be truly successful, and this is not always due to their own characters. The fact is that the system of British government is not able to deliver what the politicians and the voters expect. Without wholesale reform the political system will grow ever weaker and more discredited than it is now.

The need for political reform is already obvious, but the fact is that it is already too late to avoid the economic crash. The level of household debt at around 87.6% of GDP  is still close to all-time highs, yet the ability to support this level of debt is being squeezed by surging inflation, as Sterling continues to be marked down on the basis of Brexit. The problem is that Britain now faces a triple whammy: a collapse in confidence, a rapid acceleration in inflation and a squeeze in real incomes. 

In order to stabilize Sterling, it is pretty clear that interest rates ought to rise. Yet if the Bank of England takes that decision, then house prices and consumer spending will face drastic and painful adjustments at a time when confidence is already weak. The past few months have seen a significant fiscal contraction as the impact of various tax changes has hit the market, and some consumer sectors are already reporting sharp falls in activity. Anecdotal evidence suggests that pub spending, for example, has fallen 25-30% year-on-year since the beginning of the summer. The government is taken more tax out of the economy than before, and this at  time when confidence in the UK has taken a sharp turn for the worse. If monetary policy were to turn too, then a sharp and deep recession would be unavoidable.  It may already be happening.

The problem is now that the UK economy is on a knife edge. Stagflation- that curse of the 1970s- is back, and again, as in the 1970s, the political will to tackle the crisis has been lost. All of the activity of the Conservative government, when it has any to spare from fighting itself, is focused on the 18 month timetable until Brexit. Yet the economic crisis is even more immediate. 

There is a sense of drift, that all of the comforting and familiar scene we have known since the 1980s is about to be wrecked. Some changes, the passing of the Royal generations, for example, are inevitable, but nonetheless unsettling for that. Some- our membership of the EU- are being willfully destroyed. The indifference shown by the Conservatives to the fate of the residents of Grenfell Tower until it was too late is not merely the callousness of a particular political brand, but the incompetence of an entire system. Austerity is not merely a failed policy, it is a dangerous failure. Andrea Leadsom has the gall to demand "patriotism" -the last refuge of a scoundrel- from the BBC. Yet now one year on from the Brexit fiasco it is clear that people are voting with their feet. A crash dive in the number of people wanting to come to the UK is now being coupled with large numbers of well qualified Brits choosing to leave. On top of everything else, the UK will now have to deal with labour shortages in critical sectors- truly back to the 1970s once more.

It is clear that Britain stands leaderless and bereft on the brink of a future it does not wish for and does not understand. She stands adrift on the brink of storms that will transform her  -or destroy her. 

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