Blain’s Morning Porridge June 25^th 2024: To Recover the UK must Exorcise the Ghost of Liz Truss!

“Aye, thou poor ghost, while memory holds a seat in this distracted globe…”

The UK election is the most important in decades, but the debate on policy and the future is trapped in the minutiae of the financial orthodoxy of costed and funded policy tweaks. The malign ghost of Liz Truss and the Trusterf*ck haunts markets like a bad smell. It must be exorcised!

Weeks ago I promised not to write too much about the UK election. Like any politician I lied. I am fascinated by this election – never has so much been at stake for the UK. Not in terms of who gets elected – the differences between a good Tory and a good Labour MP are so wafer-thin it doesn’t really matter as long as their hearts are in the right place, and they are competent. (Despite the growing public contempt for politicians, most are essentially decent people arguing whether a Zebra’s stripes are white or black.)

What matters for the UK is how this election will set the future path for the economy. Curiously, I find myself fairly positive – if we can grasp the coming opportunity to make change happen and redirect our opportunities.

The UK is at a crossroads in its economic evolution. We are at the end of a 60-year cycle that began after the austerity of wartime recovery. It started in the dreams and hopes of prosperity from the technological revolution of the 1960s, sank into the stagflation and industrial strife through the 1970’s, the industrial retrenchment and rise of the London centric economy in the Thatcherite ‘80s (which leaves the nation so divided today), the undelivered promise of New Labour as the Century ended, the Global financial crisis and financial distortions that effectively flattened growth and productivity, then the dither that has followed the Brexit vote.

Today we find ourselves in a similar position to the post-war 1950s. Despite our tired and decrepit infrastructure, and the imbalances and inequalities across society, the UK remains an island of incredible talent, innovation, invention and resource. At a time when the rest of Europe looks to be turning right which will likely lead to increased EU and Euro tensions, and the US is looking increasingly politically polarised, the UK is set for a period of sustained political stability under a new government.

Stability is a critical national resource. It has massive implications for the UK as an attractive economy for inwards investment, for Sterling, the Gilt market as a safe investment haven, and for growth. It’s an opportunity to invest, increase productivity and raise the wealth of the populace. Political stability gives us a good chance to secure better relationships in terms of trade with Europe and other trading blocks, and for the UK to exercise its considerable soft-power in pursuit of global geopolitical stability.

Yet, none of the political parties have set out any meaningful plans for national renewal. They are trapped in the language of economic orthodoxy, the funded and costed not-really policies but spending tweaks that have dominated the election debate.

We need to seize the opportunity, not bury it in orthodoxy and bureaucracy.

What is far more important than the scale of the coming Labour Majority and Conservative Defeat is what follows – rebuilding Broken Britain, establishing clear policy objectives, and delivering results that benefit the nation. The UK needs National economic and societal renewal. We need consideration and a proper discussion on how to balance growth, prosperity, opportunity, welfare, security, the environment, and critically how to pay for it. That is going to take a degree of political and economic radicalism.

I greatly fear even a large Labour majority led by economically competent and politically rational ministers will fail to deliver because the UK is now trapped in a straight-jacket of entropy-sapping economic orthodoxy.

As I’ve pointed out more than a few times, none of the politicians currently fighting for political control are talking about policies most likely to work, but whether manifesto policies are fully costed and funded. We are asking all the wrong questions in this election – about micro-economic cost analysis, instead of the macro benefits, implications, and consequences of policy choices on growth, social cohesion, security, welfare and the environment.  I fear we have become a small minded, middling-sort of people that have lost sight of mould breaking political aims and economic objectives. When we need to think big, instead the debate is focused on accounting details!

Yesterday the Institute of Fiscal Studies (IFS) pointed out there are critical decisions about “the size and shape of the state” to be taken, but the parties have “hidden and ducked” the hard choices on taxation and spending that must be taken. Hard questions on what fixing Broken Britain will cost need to be asked and decisions taken on how and who will pay – but we need a Proper Plan… not endless debate about the accounting guidelines!

Much as I admire the non-politically aligned independent IFS, it is well to remember it is a bastion of economic orthodoxy and by its own admission favours “accounting balance over social outcome”, according to its analysis of the 2019 party manifestos. The IFS is independent of political parties, companies and pressure groups. It’s reputation for academic rigour and transparency is unquestioned… but this is the real world.

The problem is the Ghost of Liz Truss’s disastrous “less-than-the-shelf-life-of-a-lettuce” administration hangs over this election and the UK economy like a Dementor sucking all the entropy from it. (Apologies for the Harry Potter simile, but JK Rowling’s Dementors rather sum up the terror the Trusterf*ck scarred across the UK’s national finances.)

Officially Truss lost the confidence of the market because her growth budget was unfunded, uncosted and largely comprised of incoherent political posturing, but the real reason was it simply confirmed what the market suspected – that she was a political fool, surrounded by fellow imbeciles. (Kwasi Kwarteng may be an accomplished economic historian, but he will go down in history as the man so fond of his own voice, he made his own ears redundant.) It wasn’t the Budget for Growth that nearly sank the Gilts market – it was the fact her Government had conclusively demonstrated it was politically incompetent. (And lest we forget, remember the Tories chose Liz Truss over Rishi Sunak!)

Where does that leave us?

The IFS is right to question the transparency of both Conservative and Labour plans. They are right that the reality for the UK is we stand on brink of an economic precipice about to take a step forward. To avoid it we need to spend to rebuild, or commit economic seppuku through austerity (doubling up on the potential damage to social cohesion, welfare and inequality issues that will ensure the UK sinks into populism.) We need to plan for growth and prosperity.

The IFS says the UK faces a stark choice: Raise Taxes or Borrow More.

Spot on.

Under the new government, and the boon of political stability, the UK should be able to borrow more from markets to repair the dilapidated economy. It will have the political competency to do so if it can continue to hold markets and commerce onside by explaining clear long-terms plans, the benefits and outcomes. The IFS and OBR can give us costings on what these will cost, but also on what the long-term economic gains will be from repairing Broken Britain.

What we can’t do it use the Gilts markets like a credit card to pay current bills tomorrow. Big decisions on the funding and organisation of the NHS need to be taken. Frankly it needs a complete retrofit to make it fit for the modern age. The burden of government pensions upon the economy also needs a complete rethink. Housing and transport need urgent attention not just to finances but to planning. The UK’s security needs a shake-up of procurement and re-equipment. Welfare and care need a rethink.

All these things and more can be done – with political will and imagination. We also need to get imaginative with the National Ledger and restructure rather than repay the Gilts currently held by the Bank of England – but that’s something I’ve covered before in my Zonk Theory (see: https://morningporridge.com/blog/quick-comment/tax-rises-inevitable-after-bank-of-england-qe-losses/)

The bottom line is we need a mix of orthodoxy reminding the new government they are mortal, but also a degree of radicalism to reset the future. Let us rebuild Jerusalem upon this green and pleasant land.. (Did I just write that? Barf….)

Out of time, and off to do walk the dog before doing my day job….

Bill Blain

Author of the Morning Porridge

Wind Shift Capital