Blain’s Morning Politics 22 Nov 2024: UK Political Polarisation Spells Crisis Ahead for Gilts, Sterling and Growth
Cry Havoc and let fly the dogs of war…
The new Labour Government is struggling as the revived Tories polarise UK politics. The consequences on the economy and UK markets could be significant and highly damaging – with gilts, stocks and sterling all suffering long-term.
I’m going to break one of my own rules this morning, and comment further on an issue I raised in a post from earlier this week: UK Farmers Trigger The Revolution.
Back in July I started playing a game of my own invention; Socialist Death Frenzy. I would amuse myself each morning reading the most ridiculous stories in the Daily Torygraph about the evils of the new Labour Government. There were some wonderful, extraordinary and entirely invented tales about how awful they all were. The Torygraph writers missed nothing, taking any opportunity to turn mole-hills of difficult government decisions into mountains of deliberate socialist wrecking of the economy. It was fun. For a while.
It’s no longer funny. Sentiment in the UK today feels more fractious and unstable than ever before.
A lack of any political consensus and the increased polarisation of the UK political landscape is increasingly apparent. It has been highlighted this week by the imminent complete and utter destruction of UK farming – according to certain UK papers. It’s become highly emotive – and that is deliberate. It’s become a game of destructive, destabilising politics – which the Tories are showing a natural affinity for, understanding what Trump has taught them about polarisation. Tell a lie often enough and the truth changes.
The Tories are proving adapt at creating chaos for the dullard Labour Party. Earlier this year I commented Labour was the best conservative government that was on offer. The electorate agreed, throwing the Tories out. Now the new Tories are regrouping, and they realise their political future is not challenging again for the crowded centre-ground of UK politics, but doing as Trump has done – redefining themselves as the party of right which now includes the 4 million largely working-class votes Reform won. Much of Labour’s core vote could fall into that bracket. The whole of Labour’s Red Wall is vulnerable to a UK iteration of MAGA.
All this matters because unstable politics lead to uncertain markets, overturning economic expectations. We’ve got political dither at a time when the UK needs to find new directions, find a new place in the world, and make itself relevant – see my comment from earlier this week: The UK is Piggy-in-the-Middle. Instead of confidence, the national debate is introspective and mired in misinformation. There will be long-term consequences for the UK’s virtuous trinity of a stable currency, a sustainable bond market and political competency reflected in the markets. Unless Labour can recover and seize back the initiative, 4 and half-years of lame-duckery will be a disaster.
A few months ago the election of the New Labour Government with a massive majority looked positive for the UK. After 14 years, 5 prime ministers, Tory infighting and multiple distractions, there was a hope Political Stability would address the very real problems of decaying infrastructure, the behemoth of the NHS, and productivity. Instead, the new government is being bounced from mini-crisis to mini-crisis – largely through their own poor communications.
The New Government’s intent was to look terribly professional, while being open and truthful with the electorate. But it made so many poorly communicated missteps – the cuts in Pensioner fuel allowances, paying of striking doctors and train drivers, free clothes for ministers, the end of VAT exemptions for private schools, the mini-budget, and Prime Minister Starmer and Chancellor Rachel Reeves unremitting doom and gloom – that confidence has been seriously undermined.
None of these difficult “policies” and mistakes should have amounted to much – each was easily explainable if anyone had made the effort to so. But they have now set the tone. It’s entirely possible the Government will be trapped on the backfoot and defensive.
The outlook is not good. There is the potential of stubbornly high (normalised) interest rates, persistently high inflation, a trade war with the US from Tariffs, even as re-engagement with Europe triggers a new wave of Brexit fury, plus the rising threat of conflict and geopolitical crisis. OmniCrisis could become the theme and legacy of an overwhelmed Labour single-term government. It could become OmniShambles if Starmer does not show more grip.
It could leave the UK economy reeling as inwards investment looks elsewhere. It will leave the accommodation crisis for young workers unaddressed. It will leave roads, rails, ports, airports, water, energy, grids and defence even more tired and run-down. And when Starmer and Reeves are inevitably replaced, nothing will change because the same problems will remain.
Or…. the Government could put on some big boy pants and actually do something… Farming might be a place to start.
The suddenly pro-farming Tories are very, very keen the electorate get very, very angry about the sudden crisis they’ve manufactured in Farming. Let’s not forget, the Tories did not show much concern about farming’s rising economic crisis from 2010, and especially since they enabled Brexit, but opposition teaches losers many lessons.
One lesson is rural constituencies matter. In the past the Tories assumed the rural vote, comprising squires, wealthy farmers, and rich middle classes exiting the cities, would vote for them. Now they realise that is not a true snapshot of the UK countryside, which is a story of rural deprivation, a lack of well-paid work, and a lack of homes for locals, are potential vote winners.
I am utterly sure the new Tory Warrior Queen, Kemi Badenough, (in her brand new Barbour (which had the label still attached)) is absolutely sincere in her love of the land and farmers. (US Readers – Sarcasm alert.) The battle over farmers paying inheritance tax has become a battleground in the civil war for the soul of the nation. It is being characterised as the country-loving Conservatives protecting rural communities against the wealth-hating socialists intent on destroying them.
The basic charge imposing IHT on farmers is class-based genocide – articulated best by Jeremy Clarkson’s comment Starmer intends “to ethnically cleanse the countryside of farmers”. Everyone loves Jezza, he says it like it is. If he said it … it must be true, because he’s a farmer now. Er, no. he is a hobby farmer with a great line in humour, but he bought his farm to avoid IHT and it’s about 20 times the size of an average UK farm, so lets not call him a genuine voice of farming. (Also… he hates Labour: first thing he did in his new pub was ban the innocuous Sir Keir Starmer…)
The narrative is about how Labour hates farmers, how they are trying to smash farmers’ livelihoods, destroy the UK’s productive farming capacity, and wipe them out – just as Stalin did to the Kulaks. 320k diehard Torygraph readers have exploded in paroxysms of joy – at last British Yeoman values are being defended. 4 million Reform voters are furious Nigel Farage was barred from speaking at the protest (Farmers may be right-wing, but they hate Brexit more). Reform voters will get over it – they are Pavlovian in their salivating fury at anything Labour say or do.
The protest, tractors defending the nation against Labour’s War on the Countryside, the speeches, but mostly the misinformation and misdirection about farming that’s been laid out in recent days has been brilliant attack politics. If Starmer and his Childrens Crusade of a Cabinet are going to restore the Broken Britain they inherited in July – they are going to have to learn, and learn fast how to play Blitzkrieg politics the Tories excel at.
The gist of my article earlier this week, was how the bulk of farmers should not be affected by Inheritance Tax payable on a valuation over £1mm. I cited the data showing only 117 farms would have paid any IHR out of 210,000 UK farms. I pointed out Farms are a classic example of a high value/low yield asset: that’s because land prices have risen to astronomical levels, while farm incomes have collapsed on the back of poor Government Policies; the dither over Brexit and farming subsidies, and the effective monopoly pricing control Supermarkets have over farmers.
I made the point that rich men investing in agricultural land to avoid IHT was what was pushing up the price of land. They (actually their inheritors) stand to gain because they avoid paying the 40% IHT everyone else has to pay. As a result, land prices have been massively bid up.
Since I wrote I’ve come across lots more data (much of it from Tom Bacon on an excellent thread) that strongly suggests the rumours of the death of farming are greatly exaggerated, and deliberately so:
- 1/3rd of UK farmland is farmed by tenant farmers – they are completely unaffected by IHT. Most would like to own their land, but high prices make that impossible for proper farmers to farm! Prices are high – because of the IHT exemption.
- There is plenty of evidence the rich invest in Land to avoid IHT. Clarkson admitted that’s why he bought Diddley Squat farm.
- Half of UK farms are less than 20 hectares, but the average is 83 hectares – meaning lots of low value small farms, and a small number of very large ones… which are more efficient, wealthier, and likely to fall into the IHT bracket. Clarkson’s is 400 hectares!
- According to land agents Strutt & Parket, 56% of farmland purchases in 2023 were by non-farmers. I cited a case in Cambridge where property developers out bid farmers for premium land. That is unusual – someone like James Dyson is normally in the frame as an IHT investment.
What’s happening here is Right Wing Politicians, Torygraph Readers and Reform being urged to support maintaining the IHT exemption – which benefits not farmers, but give a massive uplift to the rich and wealthy, and physically stop real farmers from aquiring more land to increase their efficiency.
Labour should fightback – they can argue the case better for maintaining IHT or even to abandon it, but they have to get smarter than the Tories. That means some proper thinking on how to support farmers with less regulation, open planning and more effective subsidies alongside new rural policies. They need to address the issue of land-price-inflation as a result of IHT buyers – by taxing rich landowners eficiently, and they need to learn how to speak to the electorate.
Here endeth today’s rant..
I’m off to France tonight by Ferry, coming back Saturday night – there is hurricane in the English Channel. It might get.. spicy…
Have a great weekend and off to do the day job..
Bill Blain
Author of the Morning Porridge, founder of Wind Shift Capital
4 Comments
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Good piece Bill – thanks. It strikes me that a reason Labour’s comms are awful is because so many of their front-bench are second rate at best. They’re a mirror image of BoJo’s Tories: all the good ones were thrown on the bonfire because of Brexit/Corbyn. Thus anyone who survived was someone who prioritised simply clinging on to having anything relevant to say. There are exceptions, but Starmer really needs to get a Cabinet that’s up to the job rather than just the usual coalition appeasing various factions with the party. I think it’s called leadership?
Folk think I’m a terrible lefty, but I worked with Tories I liked and respected in last administration to share my experience on markets – particularly bonds.
I did respond to a reach-out from Labour pre-election, but after a couple of chats, they must have decided they knew better than I… No problem. I still voted for them.
I don’t think either party is better or worse… but I despair to read the hatred of Labour in the Torygraph. I suppose I am also guilty – I can’t help but call Kemi – Badenough.. (She is actually a politician I’d like to meet – I’m told meeting her is something one is unlikely to forget in a hurry.)
Labour do have to up their game or we face 4 more wasted years, which will be disasterous after the 14 years the Tories just squandered. Starmer has to figure out how. His options are limited, but they are still options. He needs to show Grip. You call it leadership. Same problem to overcome I think.
Bill, From the Wall Street Journal dated 11/23/24: The U.K. now is prosecuting those standing silently across the street from abortion clinics. Should they testify that they were praying, they are guilty of a crime.
Being an ex Bear Stearns person, and following Ace Greenberg’s philosophy, and since you are my only source of English info: Is this true? Peter Fink
Massively, massively exagerated statement.
Passive agression toward women outside clinics will be very quickly and properly dealt with by the Police – including arrest if they refuse to cease and desist. Most people in UK accept that is fair and good policing.
However, there is a national debate underway on what hatecrime is and how it is defined – and that’s why suddenly its ok for religious bigots and extremists to express their rightness and everyone else’s wrongness.
More on this later.