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Tuesday, May 28, 2024
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Sunak, living on borrowed time

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THE Prime Minister is seeking to unleash a Thatcherite transformation while ‘doing the right thing for our kids’ and eradicating smoking. Achieving the former worthy aim will require a libertarian instinct that precludes nanny state antics such as the latter. I fear that Mr Sunak is more compromiser than achiever, adept at building bridges between those of differing opinions but without the drive and ruthlessness necessary to deliver his own vision.

The state machine has failed collectively and by department. The NHS was broken before Covid, now it’s in tatters. Try getting a GP appointment for anything other than an unnecessary jab if you don’t believe me. The Home Office can’t (or won’t) secure our borders, imprison offenders, deliver justice quickly or even police the moronic Tarquins and Cressidas of Just Stop Oil. The MoD is as bad: the Army has sent too much of its ammunition to Ukraine; the Navy’s vaunted carriers are expensive missile magnets which are still not up to complement of aircraft, and the air force has no airborne early warning capability (and it won’t have until it buys more than two Wedgetails). Transport ain’t working and the country isn’t moving. Fixing all this, and much else besides, will take money. Unfortunately the country is virtually bankrupt.

One of the few unambiguously true statements by any politician ever was made by Labour Chief Secretary to the Treasury Liam Byrne when he wrote to his Tory successor: ‘I’m afraid there is no money.’ (He regrets that honesty now.)  He wrote that in 2010, when following the financial crisis the national debt had risen from £500billion to £1trillion. Today it stands at more than twice that at £2.5trillion, as the chart below shows.

Source: Trading Economics https://tradingeconomics.com/united-kingdom/government-debt  

Part of the surge is due to Covid and the global financial crisis. However it’s been rising inexorably since 2002, when Gordon Brown abandoned John Major’s spending plans. No government has balanced its budget since. It was folly in the days of low interest rates; it’s madness now. This year’s interest bill will be around £100billion, or around 10 per cent of government spending. Alarmingly, the current deficit will be about £130billion for 2023-24 (on a forecast spend of about £1,200billion). The UK is borrowing to pay its interest bill.

As a former banker and Chancellor of the Exchequer, Mr Sunak must know this. He must also know that it is the markets, not the Bank of England, which set the rate that the UK pays on its debt. Remember, rather than repaying debt we simply roll it over, giving the market frequent opportunities to set the rate for newly issued debt. The graph below says it all.

Source: Trading Economics https://tradingeconomics.com/united-kingdom/30-year-bond-yield

As old, cheap debt matures it will have to be replaced with new, more expensive debt.

There is only one solution to this, which is to stop spending money that we do not have. Unfortunately Mr Sunak has decided to spend the £36billion that he has ‘saved’ by scrapping phase 2 of HS2 on other northern projects and potholes. He’s not balancing the books, he’s just messing about with future infrastructure spend and kicking the economic can down the road.

Were the UK a company, its directors would be placing it in administration rather than trading while insolvent (which is a crime).

If Mr Sunak really wants to do the right thing for our children and their children, it would be to balance the budget – something Mrs Thatcher recognised and achieved. There’s only one sure way to do that, which is to slash public sector expenditure. While Mr Hunt, like every Chancellor in my six decades on this planet, is seeking ‘government savings’ and ‘increased efficiency’, they won’t come. They certainly won’t come in time to save Sunak’s bacon. He’s got one option: he needs to reduce public service headcount by at least 10 per cent, starting from the top. As he hasn’t got time he might as well do it by ballot. One in ten get  compulsory redundancy. The other nine get to work in the office, not from home, and for longer hours – many of the blue-collar economy are on 60-hour weeks to pay the public sector’s wages.

This would release workers to rejoin the private sector, which in turn would reduce the need for migrant labour. The bond markets would indubitably welcome a government re-establishing control of its spending and that would reduce the UK’s cost of capital and, in short order, the government’s interest bill. That in turn would give scope for reducing taxation. If Sunak had the nous to chop corporation tax he would then have created conditions where growth was possible. (It’s the Irish ‘Celtic Tiger’ effect, which I described here.) It would be even more likely if he abolished the green subsidies which line the pockets of overseas investors and manufacturers.

Such a course of action would be hugely unpopular with Mark Carney, Al Gore, Greta Thunberg, the establishment and the public sector unions. So what? It is necessary pain and it will come one day – sooner than many imagine.

The Labour party has evolved from the party of the industrial worker to the party of the Blob. Having confused the centre ground with the common ground, the Tory party has stopped being the party of the small businessman and also become the party of the Blob. Sunak had a chance to sort this out; his predecessor tried; he hasn’t even bothered.

Which leaves the question of whom the non-public servant should vote for? The only party likely to confront the Blob is Reform. Perhaps Nigel Farage was in Manchester on a recruiting drive.

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Patrick Benham-Crosswell
Patrick Benham-Crosswellhttps://www.conservativewoman.co.uk
Patrick Benham-Crosswell is a former Army officer who has spent the last 30 years in commerce. He is the author of Net Zero: The Challenges, Costs and Consequences of the UK's Zero Emission Ambition. He has a substack here.

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