Blain’s Morning Porridge 17^th April 2024: The UK – An Omnishambles of Unsurpassing Complexity

“If I had an hour to solve a problem I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.”

The UK faces multiple economic problems – all of which may be individually solved with considerable effort, but collectively look a clusterf*ck of monumental proportions. When it takes office, Labour will be given 100 days to solve them all. Who would want to be an MP?

Headlines about the UK economy worry me. Lethargic does not even begin to cover it. Which is why this morning’s quote is from Albert Einstein: to solve a crisis, understand what the problem is.

I’m not sure if anyone (except journalists looking for sharp pointy sticks to poke the government with) worries much about IMF predictions. However, the UK does look to be a distinct global economic laggard when it comes to 0.5% predicted growth this year, and 1.5% in 2025. UK growth lags the rest of the developed world – except Germany, which has problems all of its own.

I’ve written too many times recently about the UK’s broken politics, the potential collapse of the finance sector in London and what that spells for the national economy, the trade-offs between sorting the Vampyre NHS or letting it suck the nation’s finances dry, the widening gap between spending and income across the economy, the inability of young workers to get on the rental ladder (forget about them every buying homes), or how declining real wages vs rising cost of living creating a consumption crisis!

I got seriously angry writing the Porridge this morning when I thought about the abject failure of UK politicians to address the policy failures, especially since the Brexit vote – not just the Tories, but Labour for being such a thoroughly pointless opposition party. I tried to explain it to DinnerJacket, our wonderful dog, but he was more interested in my slice of toast.

The grim reality of the declining UK is these issues are all Political Economy 101 subjects – problems in need of solutions. The problem is Westminster seems acutely unaware of any of it and has let them fester into an Omnishambles of Unsurpassing Complexity.

Growth and particularly productivity growth just don’t figure on the horizon for the UK – and that’s got serious long-term implications for the economy. The new Government – which looks inevitable at some point – is going to face multiple conflict when it takes office:

• It will remain trapped in fiscal orthodoxy – Liz Truss’ lasting gift to the nation after she thought she could magic up unfunded tax cuts from fairy farts.
• There will be no additional tax revenues or potential borrowing headroom to finance reconstruction or repair 14 neglected years of Broken Britain’s infrastructure. (And even if there was, estimates are it will take 6 years of all-out effort by the entire UK road-construction industry just to fix the current pot-hole crisis.)
• Austerity under Labour or Tory governments was never a fix – it is a survival plan.
• An increasingly broke economy – the gap between consumers lack of discretionary income and rising costs continues to widen, and is impacting across the economy.
• It won’t be fixed by a clampdown on tax avoidance by the private sector – which is largely caused by small businesses struggling to pay costs and mistakenly believing the HMRC Tax Office will understand if they are a bit late.. Nope. The Iron Bank of Cumbernauld is not your friend. (Foreign readers – Cumbernauld is the most unfriendly place in the UK. The people are lovely, but its where the Taxman keeps their bank accounts.)
• Zero growth momentum – what possible reasons are there to invest in the UK? There may be solutions to attract and nurture businesses … if the government has the imagination to think laterally. I am not sure the Labour front bench has the required skillsets – they are not lateral thinkers – but they may yet shock us.

A key issue is discretionary spending, the power of consumption to drive the economy. When consumers feel confident, they spend and the economy takes a lift. In the 1980s, the economy was struggling, interest rates were double-digits, yet we all went out and leveraged up on mortgages (home prices were 3 time earnings, they at 8.3 times earnings in England currently). We spent by using our credit cards. That is not happening today. No one has much confidence in the economy or their future.

This is the critical issue Labour will face when they come into power – The Broke Economy. Broke as in no money in the pockets of consumers – they have spent all their money on utility bills, taxes, council tax, transport and food. Inflation is aways a tax on the poor. Workers and unions will see the new government as an opening to demand higher wages – raising the risk of wages contributing towards already sticky inflation. (Would that be a bad thing? One way to solve a debt crisis is to inflate away debt..)

It is not just a crisis of the poor. Broke Britain has become a middle class issue. Over last weekend I spotted the following news-bites:

• One of my favourite celebrity chefs and masterchef judge, Monica Galetti, has closed her restaurant, Mere. Like other hospitality businesses in the UK she’s struggling with rising costs and the lack of discretionary spending by cash strapped consumers.
• Other UK hospitality businesses are hanging on by the skin of their teeth as rents, ingredients and wages conspire to leave them without any financial headroom. Simon Rimmer, another celeb, closed one his restaurants after the Landlord hiked his rent by 1/3^rd. Tom Kerridge, one of the UK’s most popular chefs, told the Rest is Money podcast his energy bill jumped from £60,000 in 2022 to £420,000! He says he’s barely making a profit on £87 steak and chips.
• Slightly further down the income ladder, The Slug and Lettuce pub chain is on the verge of default on its £2.2 bln of debt. It’s part of the Stonegate group which owns over 4,400 pubs, which incurred the debt buying Enterprise Inns for £3bln in 2019. Its adopted dynamic pricing to charge more at busy times in its pubs. Its failing because it’s overlevered.
• As if to confirm how bad things are, Jeremy Clarkson is rumoured to be buying a pub close to his Diddly Squat Cotswold Farm. The erstwhile motoring journalist has made himself a massive success by being a hopeless farmer and showing how impossible it is to make money against rapacious local councils and govt. bureaucracy. I’m wondering if being a “bad” publican will be next on his list of achievements – with Netflix on his shoulder narrating just how impossible it is for pubs to survive in the current economic climate.

The new Government will be expected to solve and turn around all these problems; the UK’s ramshackle economic underperformance, funding crisis, and depressed spending within the first 100 days (without weekends off). After that, everyone, including Rishi Sunak’s successor, will be blaming them for the miserable state of the economy.

Things will likely remain depressing. The Reform Party and whatever rump of the Tories survives the coming electoral Armageddon will probably reach an uneasy accommodation – I’ve got £500 on Farage as Leader within the next three years), issues like LGBT+ rights and wrongs will continue to dominate the media, parliament will still be equivocating on matters of vital import like the number of angels that can stand on a pinhead while not being sent to Rwanda.

According to the Torygraph, the journal of the Tory party, Rishi Sunak has already chosen the spot for his office at the world’s biggest Private Equity Fund, Blackstone’s new offices in London. That’s a surprise – most folk think he’ll be off to California..

As for the Angela Raynor £1400 unpaid capital gains accusations… let them without sin, non-dom status as a Belize national, or wives with non-dom status till caught out, throw the first stone…

Bill Blain

Author of the Morning Porridge

Wind Shift Capital

www.windshift.capital