OH DEAR, more bad news for Rishi Sunak. The number of UK companies going bust is at the highest since records began in 1960, according to the Insolvency Service.
While the detail and procedures of insolvency are complex, if a company can’t pay its bills it is on the threshold of going bust. Generally this happens due to a combination of rising costs and falling sales income. Given soaring energy costs, rising interest rates, increasing taxes, rising inflation and households tightening their belts the outcome may be logical, but the increase of more than 80 per cent over last year is steep. Very steep.
As I’m sure Sunak’s supporters will rush to point out, much of this lies outside of the control of a Chancellor, particularly the energy costs. And that’s a fair comment, to a point. However, the government of which he’s been a part followed their successors in rushing into renewables (which, as I have written before, increase energy costs). In doing so they may not have properly considered the potential for gas prices to rise and Putin to throttle the supply to Germany and Europe. (No doubt Sunak’s fan club will also argue that Putin’s invasion of Ukraine was a diplomatic failure by Liz Truss; good luck with that.)
The sad reality is that there is little that Sunak (or anyone else) can do to avert the consequences of the energy price spike. However the blame for economic failure goes with the job and no Chancellor is ever slow to claim the credit for growth or rising prosperity. That too is unfair, as the people taking the risks and delivering the growth lie far outside the Whitehall and Westminster bubbles. They’re the ones putting their houses, wealth, health (stress kills) and happiness on the line. The mandarins, politicians and most financiers are not. Were a Chancellor honest he (or she) could claim credit for not stuffing the economy up; Sunak can’t make that claim.
He was Chancellor when lockdowns cost this country £500billion or so. He’s presided over tax rises in the vain and unprecedented hope that this will balance the budget and eliminate the deficit. He’s a highly educated man – has he not looked at the history? Government spending (particularly the black hole that is the NHS) expands to consume all tax, plus as much as the Treasury can borrow. While I can imagine that the Chancellor’s job is particularly taxing (ha! Got to love a pun!) when there is a spendthrift in No 10, he knew that when he took the job.
The reality, which is going to be unpopular so unlikely to be heard from Liz Truss, is that government spending needs to be brought under control, rapidly and aggressively. There are few things that only the government can do (law and order, taxation, welfare, diplomacy and defence – although that was largely contracted out in the 18th and 19th centuries, when I seem to recall our armed forces did pretty well).
If Sunak or Truss wants to be a bold Thatcherite, as opposed just to being a poor mimic, he or she needs to ringfence the core services (which do not include the NHS) and slash the headcount. Ten or 15 per cent across the board in every grade would be a convincing start. Then start looking at the departments. Do we really need Business, Energy and Industrial Strategy? For sure we need an energy department to sort out the mess. But what does a department for business do? Business will get on and grow whenever it can: it’s called capitalism. As for industrial strategy, thankfully the government no longer owns industry so what strategy does it need? Most of our manufacturing got exported, what remains (think BAE Systems and JCB) is world class and really doesn’t need advice from government.
If I had a vote it would be going to Sunak as the least bad option. That’s no ringing endorsement, but then the Conservative Party’s adoption of centre-left economic policy is hardly a cause for celebration. We’ve been dragged too many steps down Hayek’s ‘Road to Serfdom’. Time for a smart U-turn; Mrs Thatcher would definitely approve.