Friday, 30 September 2022

The week the wheels came off the Brexit Britain bus

The political ambitions of the libertarian wing of the Brexit Ultras have always been ambivalent. On the one hand, they have largely preferred to complain of betrayal from the sidelines rather than take any responsibility or, if accepting ministerial office, to quickly resign rather than engage with the pragmatic realities of Brexit. On the other hand, they have hankered to be in charge not just so as to create ‘true Brexit’, but the ‘real Conservatism’ of which Brexit was a part and to which it was a gateway.

With the advent of Truss’s premiership, they have eschewed the sidelines in favour of governing and, with a rapidity that even their sternest critics would have thought it cruel to predict, have been exposed as utterly incompetent, both politically and economically, and in the most basic of ways. It is deeply ironic that this has happened at the hand of ‘the markets’ which they so slavishly fetishize.

Anatomy of a crisis

The occasion, of course, was last Friday’s tax-cutting ‘mini-budget’. “At last! A true Tory Budget”, the Daily Mail drooled, whilst Nigel Farage simpered about “the best Conservative Budget since 1986”. Yet, whether despite or because of this fidelity to Conservatism, and as anticipated in my previous post, there was an immediate crisis in the currency and bond markets, with the value of the pound falling to its lowest ever level on Monday, and the cost of government borrowing in the form of gilts or bonds rising very sharply. Amongst numerous knock-on effects, pension funds, which invest heavily in such bonds, came within hours of mass insolvency on Wednesday afternoon, threatening a major breakdown of the financial system and requiring major emergency temporary action from the Bank of England. This, in combination, with a clear signal from the Bank that interest rates will rise in due course, which eased pressure on the pound, has effected a degree of stabilization, but markets remain jittery and it’s by no means clear that this crisis has run its course, especially as regards gilts.

These weren’t routine or trivial market movements, but an overwhelming and brutal vote of no confidence in the government’s plans. Specifically, they were a vote of no confidence in the decision to cut taxes, or not implement previously planned tax rises, and to fund this through borrowing. Again as anticipated in my last post, the government’s refusal to allow its plans to be scrutinised independently by the Office for Budget Responsibility added to market alarm. So, too, did Chancellor Kwasi Kwarteng’s casual reaction over the weekend, even suggesting further tax cuts to come. The rout continued on Monday when, as Paul Donovan, Chief Economist at UBS Global Wealth Management, put it, “investors seem to regard the UK Conservative Party as a doomsday cult”.

Throughout the week, the absence of public statements from Truss or Kwarteng compounded this impression, and when Truss did emerge on Thursday morning it was to re-confirm the government’s policy and downplay the market reaction, as well as denying it had anything much to do with the mini-budget. To the extent she admitted any connection it is the false one that markets didn’t like the costs of the energy bill support part of the budget, when in fact it was the tax cuts. It has since emerged that this and the equally false claim that what is happening in the markets is a global event due to the Ukraine War rather than something specifically affecting the UK are to be the government’s lines of defence.

Amongst the most significant events was when, on Tuesday, the International Monetary Fund (IMF) issued what BBC Economics Editor Faisal Islam described as a “stinging and unusual rebuke” to the UK. What made it so unusual was that such IMF warnings are usually made to emerging markets, not leading global economies. I mentioned in my previous post that aspects of the economic situation resemble those which occasioned the IMF’s 1976 bailout of the UK, and its statement this week that it is “closely monitoring” developments in the UK carried echoes of that. It was also, like the comments of other international players and the decisions taken by traders, a reminder that, no matter what Brexiter ‘sovereignty’ fantasists may think, the UK can never be ‘independent’ of the wider world within which it is a relatively small player. Most fundamentally, the Brexiters’ belief that they can create their own reality, and that all opposition can be swept aside as ‘Project Fear’ or ‘remainer sabotage’, was tested almost to the point of destruction.

These events have been widely reported and there’s no point in me adding more to that. Instead, I want to tease out more about the Brexit aspects and implications.

The Brexit mini-budget

At one level, the mini-budget had very little to do with Brexit in that, so far as I can see, the only provision within it that wouldn’t have been possible whilst a member of the EU is the planned removal of the cap on bankers’ bonuses. That isn’t unimportant, politically, but it’s not what spooked the markets. However, it is the budget of the Brexit Ultras and it is intimately bound up with Brexit. In case anyone doubts that, it was underlined by Farage’s endorsement. Even more explicitly (£), John Longworth, one of the most immoderate of the Ultras, regards it as part of Truss’s battle “for the future of Brexit Britain”. It’s a sentiment widely shared in Brexiter circles, with the Bruges Group tweeting that “remain media are talking up market panic … to derail Brexit”.

So, given that the Brexiters themselves regard the mini-budget as integral to Brexit, it’s reasonable to say, as Robert Shrimsley of the Financial Times did (£), that “Brexit ideology lies behind the UK’s market rout”. It’s abundantly clear to even the feeblest intelligence that those Brexiters now include Truss, for all the fury  of Dominic Cummings’s denials (directed at me!) on the inane grounds that she supported remain in 2016. As I pointed out during the campaign, she is now a ‘born again Ultra’, perhaps the more fanatical for being so, and was extravagantly endorsed by the leading Ultras, making the fact that she was once a remainer the most tedious and least relevant thing to say about her.

As so often before, Brexiter responses to the crisis they created have been confused and contradictory. Some in the government prissily said they could not comment on market events, as if some new Trappist ordinance of political propriety has been invented. Others downplayed what has happened, suggesting that the market reaction is either trivial or transient, or even that it has little or nothing to do with the budget but is simply a result of a strengthening dollar (which doesn’t explain why the pound fell against all major currencies, or what happened in the bond market). Outrageously, some, like Crispin Odey, hedge fund manager, Tory and Vote Leave donor, and sometime employer of Kwarteng, blamed “remainers”. Peak insanity was reached by Daniel Hannan, who blamed the crash not on the mini-budget, but market fears of a Labour government!

In addition, or instead, some Brexiters blamed the Bank of England (BoE) for having failed to increase interest rates by enough, early enough, or to have reacted immediately to the crisis so as to support sterling and control inflation. That argument is more complicated than their others. There is a case that last week’s pre-budget interest rate rise should have been larger, although it’s not a straightforward one because doing so would also have been likely to impact on the cost-of-living crisis by pushing up mortgage rates.

Nevertheless, it was the government’s mini-budget, not the BoE, that caused this crisis and there is something bizarre about a government simultaneously taking inflationary measures it says will boost economic growth, whilst relying on the BoE to take measures to reduce inflation and choke off growth. Indeed, part of the reason for market nervousness is that the institutions of financial and economic governance are not acting in a consistent and coordinated way, something flagged up by Mark Carney, the former BoE Governor whose actions did much to preserve a degree of economic stability after the Brexit referendum vote. Perhaps the BoE could have acted earlier, though had it done so it's easy to predict that then it would have been accused of overreaction and of trying to undermine government policy. In any case, what is even more bizarre is the spectacle of Brexiters, with their disdain for experts, technocrats and unelected bureaucrats, positioning the BoE as having responsibility to save the government from itself. Or perhaps it is not bizarre, so much as a reflection of the Brexiters’ reflex refusal ever to take responsibility for anything even when in government.

Government by cultists

That refusal has as its counterpart the distinctively Brexity idea, now taken over wholesale by this Brexit government, that they are beleaguered revolutionaries of true Conservativism fighting the (presumably false) conservatism of ‘the Establishment’. The notion of Brexit as an anti-Establishment insurgency has been a ludicrous one ever since the 2016 referendum was won, and Brexit became adopted as the central policy and national strategy. It is even more so now that the Brexit Ultras are unequivocally in charge of government, though of course it is a standard populist trope, familiar from the Trump presidency.

What we have seen this week is that the Brexiters have added ‘the markets’ to the increasingly long and diverse list – encompassing the ‘Woke’ Blob, the civil service in general and the Treasury in particular, the BoE, remainers, rejoiners, the National Trust, the BBC – of enemy forces they must confront in the name of revolutionary purity.

Longworth explicitly included the City in this list, whilst unnamed government figures suggested that traders were enacting “a plot by the left” which will have come as a surprise to them. Similarly, the Daily Mail reported that senior Tories blame “City Boys” for “sparking economic chaos” with traders “trying to make money out of bad news”. Well colour me shocked. Haven’t these free-market ideologues worked out that ‘trying to make money’ is what traders always do, indeed it’s all that they do? Do they think that ‘City Boys’ care about making government policy look good? And aren’t these the same ‘City Boys’ who, according to Kwarteng, are the brightest and the best who must be encouraged to come to London by uncapped bonuses? Aren’t they, for that matter, good ol’ City Boys like Crispin Odey?

The IMF, which has long been on the Brexiters’ list of enemies, also came under attack for its comments. For example, Brexiter economist Andrew Lilico was outraged by its “left-wing” intervention, to the point that he advocated the UK should “withhold its IMF contributions”. It is a strange world in which the IMF is considered ‘left-wing’ (or even, as Brexit Party ex-MEP Lance Forman had it, “socialist” and under the influence of the EU), and the idea of withholding contributions seems to conjure up a vision where Brexit is the gateway to exiting any and every international institution, in a permanent revolution of endless Brexits.

Also triggered by the IMF, David Frost opined, contradictorily, that its comments were “somewhat eccentric” yet reflected its “highly conventional approach”. This is indicative of the fact that what is at stake is more than Brexiter whinging about the enemies that beset them. This government, and its semi-intellectual underlabourers in think tanks and the media, are convinced that they are the custodians of a new truth. The markets and their economists are “attached to the old way of doing things” as Patrick Minford put it, to the extent that “there is no sterling crisis except in the minds of idiots” (£). Similarly the BoE has “not got the memo” about the “economic consensus crumbling” according to Paul Marshall (£), investment manager and Vote Leave donor. Thus arch-Brexiter journalist Allister Heath insists (£) Liz Truss must “hold her nerve” and defy the “orthodoxy” of “the elites”.

Their problem is that, as the market reaction shows, the ‘old ways’ still hold and the ‘economic consensus’ remains. Calling it an “orthodoxy” is accurate, but that very accuracy shows why decisions to “defy” it are foolish. That’s why investors regard the Tory government as a ‘doomsday cult’, and responding that investors are ‘idiots’, ‘conventional’ or even ‘socialists’ makes no difference, except perhaps to re-enforce them in that view.

As I put it in my last blog, traders simply don’t care about the theories of Patrick Minford, or of the broader IEA-derived analysis of the cultist government. Indeed, one of the few semi-amusing features of Brexit is the spectacle of all these free-trade, free-market economists going into contortions to explain how erecting trade barriers doesn’t damage trade and, now, why markets don’t understand how to price currencies or debt. It’s this stupidity that accounts for the fact that, apparently, market traders talk of the demand for a “moron risk premium” in order to hold sterling assets and fund UK debt.

But is there a cunning plan?

However, there is a different interpretation of all this doing the rounds on social media*, in which, far from being utterly incompetent, the Brexit government has a skilful, if malevolent, plan. It is an interpretation which comes in two variants.

One version is that the government deliberately crashed the markets, secretly giving hedge fund traders and others – with whom the current government has strong links of networks and party funding – advance notice so that, as indeed happened, they could short the markets and make fortunes. It doesn’t really make sense, though, because no such secret information would need to be passed – it was obvious even to me, and widely predicted, what was going to happen if the mini-budget pursued the policies Truss had openly advocated during the leadership campaign. Indeed that’s why the pound was beginning to fall once it became clear she was almost certain to win.

It also doesn’t make sense given the huge political price of the crisis. Some suggest that the government is so fanatical that it does not care about winning elections, or already thinks the next election is lost, and will inflict any amount of damage in order to pave the way for disaster capitalists to swoop in. Even, some say, the government ministers devising this scenario are doing so in expectation of lucrative employment with hedge funds and the like. But I’ve never met or heard of a politician who having devoted years to a political career has so cavalier an interest in its continuing success, and it seems extremely improbable that it would characterise an entire government.

And if it really does, then why provide energy bill support, so plainly at odds with small state, libertarian ideology? Indeed that seemed to be Truss’s position early in the leadership contest, when she spoke against giving people “handouts”, only to change tack when it became clear what the political consequences would be. The same applies to the theory of a deliberately engineered market crash.

The second variant of the ‘cunning plan’ interpretation is that the market reaction was anticipated by the government with the intention of providing a justification for a subsequent full budget including massive public spending cuts, as well as ‘supply side’ deregulation of labour rights, planning, and environmental standards, in order to ‘satisfy the markets’. On this account, the government manufactured the current crisis as a step to that pre-existing end goal.

In reality, it is highly unlikely that any government would deliberately create such a crisis, again because of the political consequences. Whatever any government’s agenda may be, it can only deliver it if it is in power and able to exercise power. That remains true even if the agenda is a secret one to enact some Ayn Rand-like laying waste to society and the state or, at least, a massive rolling back of the state. It still requires being in power, and being in power for a considerable amount of time, and with very little opposition or constraint. Yet some, such as Guardian journalist Polly Toynbee, think this week’s crisis will put the Conservatives out of power for a generation and many Tory MPs fear just that. But if the analysis that the government wouldn’t want a crisis because of the political consequences isn’t accepted, then why would it feel the need to provoke a crisis to justify spending cuts, rather than simply make the cuts and face the political consequences of doing so?

I suppose that those who believe the ‘cunning plan’ theory, in either variant, will never be persuaded otherwise, despite its inherent implausibility. One thing about such theories is that (ironically, rather like those of the Brexiters) they constantly twist the available evidence to ‘prove’ themselves. For example, until very recently Rishi Sunak appeared in such theories as the arch-libertarian, product of Goldman Sachs, former hedge fund partner and, supposedly, masterminding the introduction of ‘Charter Cities’ into the UK. Surely if the plan to deliberately crash the markets existed then he would be part of the government delivering it, perhaps even leading that government? And if he had been then, inevitably, that would have been cited as ‘proof’ of this secret plan. Yet, in fact, it was he who, during the leadership campaign, repeatedly denounced the “fairy tale” of Trussonomics, anticipating exactly the effects it would have on currency and bond markets and rejecting it as irresponsible.

No, just incompetence

So my own view is that, in their arrogance and delusion, this Brexit government, and its cheerleaders, really do believe it has found a new ‘unconventional’ economic model and did not expect the market reaction, and that although a full November budget was certainly planned, including the announcement of the deregulatory ‘supply side reforms’ that will supposedly deliver the growth to pay for tax cuts, it was not going to include significant spending cuts which, instead, were anticipated for after Truss had won the election on the back of what they expected to be a growing economy. Then, with the legitimacy of a fresh mandate and a compliant parliamentary majority, she would declare it was time to shrink public spending but without coupling that with the tax cuts that would already be in place.

If my interpretation is right, the government’s plan is now in tatters, and the expectation is that the November budget will feature huge spending cuts (£) (and perhaps reversing the tax cuts, as some Tory MPs want, which can’t be ruled out though it seems unlikely at the moment). That may seem to be the same outcome as version two of the ‘cunning plan’ that I’ve rejected, but my point is that the government would not, from choice, have initiated spending cuts before the election but afterwards, because of the political unpopularity of such cuts. Otherwise, why not just have held a normal budget this Autumn, featuring both tax and spending cuts, avoiding a market crisis altogether, taking a political hit, no doubt, but nothing compared to that which they now face.

For this government was already politically weak, and as a result of this crisis is now much weaker. Although the libertarian cabal has taken control of the government, both it and Truss have many opponents amongst MPs and, as I remarked in a post during the leadership campaign, the current Tory Party is so riven by factions as to be unleadable, with rebellions an ever-present possibility. This week’s crisis has laid that bare, with, almost astonishingly given how new her premiership is, reports of letters of no confidence in Truss being submitted by some MPs and threats of backbench revolts.

Crucially, the latest opinion poll, published yesterday evening, shows a massive 33% Labour lead, an increase of 16% since the mini-budget. That may not last, but it’s very possible that the government will not recover from this crisis, rather as happened after Black Wednesday in 1992 when the immediate fall in the polls was actually smaller.

It’s not just a matter of the electorate reacting fearfully to headlines of market turmoil and the sense that the government has lost control, it’s the impact on prices, most obviously petrol, and on mortgages, with several major lenders withdrawing fixed-rate offers this week and rates certain to increase, as well as predicted significant falls in house prices, perhaps by as much as 15%. This comes on top of the acute existing energy and general inflationary problems voters face, and their negative reaction can only be compounded if this crisis is immediately followed by, and seen to be the cause of, a new round of deeply unpopular ‘austerity’ spending cuts. The consequence is that Truss is now much less likely to win the next election and, possibly, won’t even survive until then.

Ultimately, the key point as regards the competence of this government by cult is that actually it’s irrelevant whether the crisis was the unexpected consequence of last Friday’s mini-budget decisions or was indeed ‘the plan’. Either the government was too incompetent to anticipate the scale of market reaction, or too incompetent to anticipate the scale of the political consequences of that reaction.

The dangers of cultism

The question about design versus incompetence has a wider significance. Throughout the Brexit process there have always been some, mainly remainers, who are adamant that it is driven by Machiavellian master strategists who conceal themselves behind a fa├žade of stupidity and incompetence. To my mind, it is an absurd notion: not only did the Brexiters never have a single, unified, strategy but also everything I have seen or heard about them suggests that they really are just as incompetent in private as in public.

So now that we have a government of the libertarian Brexiters, it genuinely believes – egged on by its think tank advisors – that it is in possession of a new truth, one despised and ignored by the ‘experts’ whom they see as financially and intellectually invested in the ‘old way’ of doing things. That truth informs the fantasy economics of this ‘budget for growth’ but encompasses the entirety of the Brexit project, including the persistent, hubristic delusion of the UK’s power to dictate terms to the world around it and the fantasy which accompanies it about what ‘sovereignty’ means.

It rests upon a fanaticism, completely at odds with reality, shored up by the impregnable arrogance and mulish stubbornness of mediocrity. The most dangerous thing about it is not that these fanatics refuse to listen to any warnings, whoever they come from, it is that the more they hear those warnings the more convinced they are of their own rightness. This is the Brexiter logic I have written about so many times before (I think the first time was May 2017) in which every piece of evidence that proves their claims wrong is re-interpreted as proof that they are right.

That perverse logic is compounded in government by the creation of a groupthink bunker from which all dissent is banned, external constraints regarded as sabotage, and everything outside regarded as the treacherous machinations of the enemy. Some of the responses from the Brexiters to what has happened this week show the virtual insanity that is required in order to sustain this view of the world.

The bigger picture

This is an utterly disastrous approach to running the country, and it was brutally exposed as such by what happened this week. This, I think, was about much more than the government’s plans to increase debt. For one thing, it’s just the latest example of how the pound has ebbed and flowed since Brexit, always dropping when it seemed as the most extreme Brexiters would prevail (e.g. in getting ‘no deal Brexit’) and rising when it seemed that some degree of relative pragmatism was in the offing, though overall the general trend was always downwards.

Much more importantly, whilst the Donovan comment about a ‘doomsday cult’ being in charge of the UK was at one level a specific reference to Truss’s government it surely reflects a wider view of the UK since Brexit. That view isn’t simply to do with this or that budget, or even anything specific or measurable. It’s the more general reputational and cumulative effect of seeing a country which for six years has taken bizarre decisions, picked needless fights with its allies, showcased political instability, been cavalier about institutional probity, constitutional propriety and the rule of law, and all the other pathologies of Brexit and its aftermath. Throughout all of this has been the underlying presence and power of, indeed, a doomsday cult of Brexit Ultras, impregnable to evidence and reason. We are now seen, rightly, as a country which has become less reliable, less stable and less trustworthy, and, in some fundamental way, detached from reality.

So the market chaos this week and the economic crisis it has caused are contextualised by the general lack of confidence in such a country as well as providing an example of Brexiter fantasies, and specifically those of the budget, being found out by reality. In that sense, the current crisis is a crisis of Brexit.

A nation’s currency isn’t necessarily a reliable measure of its standing, and if it is then it’s a crude one and certainly not only one, and it is affected by many things. But it tells us something. Consider, then, that since the day before the referendum, when it was worth $1.49, to the pound’s lowest point of $1.03 this week – just six short years, though how long they seem – sterling has lost an astonishing one third of its value. It’s as good a measure as any of what Brexit has cost us economically, whilst symbolizing far, far more than our economic losses.

 

 

*I usually provide links when discussing the claims and arguments of others so that readers can judge whether I am representing them accurately and fairly. In this case I haven’t found any public figure making this argument which instead comes from numerous small social media accounts and it would be unfair to identify them. But the argument is being made by a significant number of such accounts, so is clearly widespread, which is why I am discussing it.

Friday, 23 September 2022

Strange times

What a fortnight to have been on holiday from blogging! That Liz Truss would become Prime Minister was, of course, expected; that the Queen would die two days later was not. One consequence of this conjuncture was to virtually suspend normal politics until this week thus muffling Truss’s early decisions. But perhaps we will not see a return to normal. It’s possible that the end of the Queen’s long reign will provoke new questioning of our politics. And, with more certainty, there’s a good case that Truss’s government is going to be unlike any we have seen before.

Death of a Queen

The Queen’s death was plainly a major historical event, but it might prove to be more than an event by triggering a process of national reflection. Two years ago, I wrote an article in Byline Times anticipating that her death could have such an effect, initiating or intensifying a conversation about Britain’s modern history and contemporary place in the world. There are already signs of it, interesting examples including Lewis Goodall’s reflections on ‘The Queue’ and  a debate between the twice Orwell Prize  longlisted journalist Nesrine Malik and leading historian Professor David Edgerton, though if it becomes widespread it won’t happen simply by formalised discussion so much as by a gradual seepage into public discourse.

It will entail much more than Brexit but it would encompass Brexit, if only because the Queen’s death ends one of the last direct links to the Second World War, which looms so large in the historical reference points for Brexit. But that is only a symptom of the more general way that, without many people really recognizing it at the time, the 2016 referendum was a kind of unacknowledged conversation about, precisely, Britain’s modern history and contemporary place in the world. It wasn’t explicitly couched in those terms, or if so then rarely, perhaps because both sides expected ‘remain’ to win. Nevertheless, both as an economic proposition about trading relationships and a political proposition about national sovereignty – and about how those things related to the fifty years of EU membership – this is what was at stake.

So, unwittingly, we had a national conversation but botched it by not knowing that’s what it was and not understanding what we were talking about. Largely as a result of that botch, the actual consequences of Brexit are still only gradually being uncovered. Yet, already, the blithe assumptions about the ‘sunny uplands’ that awaited Britain have been brutally exposed as false. Just this week, Truss has publicly acknowledged that one of the key ‘prizes’ (though in fact always of very limited value) of Brexit, a UK-US trade deal, is not even remotely in prospect. Though almost casually made, it is in itself a huge admission of failure, whilst exemplifying the wider failure of all the Brexiters’ promises.

The failure of Brexit

For to everyone apart from the diehards, who are so invested in Brexit that nothing would persuade them otherwise, it is now plain that Brexit has been, and will continue to be, hugely damaging to the UK. It simply isn’t viable as a strategy within a world of regional economic and trade blocs, and of trans-national regulatory systems, and no amount of ‘Global Britain’ blather can make it so. Relatedly, the idea of a post-Brexit geo-political ‘pivot’ to the Indo-Pacific, always a fantasy, has been shredded by the Ukraine War. Whether at the level of political alliances or of energy co-dependence, as well as at the levels of trade and regulation, the UK’s divorce from the EU has been exposed as folly. Hence only 27% of the population now think that leaving the EU has had a positive effect on the country (48% negative, 18% no difference, 8% don’t know), and although, despite that, 38% still think that leaving was the right thing to do (51% wrong, 11% don’t know) this has now been consistently the minority view throughout almost the entire post-referendum period.

In the process of enacting Brexit, the UK – in an almost literal sense, since the Brexiter fantasy involves a denial of geographical reality – has been misplaced in the world, and therefore the UK’s place in the world – in a metaphorical, geo-political sense – has been mislaid. Moreover, the very existence of a United Kingdom of Great Britain and Northern Ireland has been put under new strains. That is in no small part due to having treated the referendum result as binding on those parts of the Union that didn’t vote for it. And that in turn is an aspect of Brexit being pursued in the hardest of forms when, in any form, it only briefly had the narrowest margin of support even treating the whole of the UK as a single entity.

Imagine that Brexit was a success

So, in summary, whilst the Queen’s death, marking a fracture in, effectively, the entire post-war history of the nation, would always have had the possibility of opening profound questions about modern Britain, that possibility has been given a particular salience by Brexit. For her death has coincided with the pursuit of a new national strategy which is manifestly failing and which is clearly and consistently lacking majority support (and, as an interesting aside, it seems to have been inadvertently revealed this week that, contrary to reports at the time, the Queen was not in favour of Brexit).

Indeed, it’s highly revealing to consider just how different things would be if Brexit had been anything approaching the success its advocates promised. In those circumstances, the national mood (if there is really such a thing) would undoubtedly still be reflective about Queen Elizabeth’s death, but at the same time confident and united in being at the start of the exciting new journey of national renewal which Brexit was already beginning to deliver. Perhaps it would even be quietly muttered that, noble as the Queen had been, she had reigned over a nation that had given in to precisely the ‘declinism’ to which Brexit was the solution. Time, indeed, for a change to a new Carolean era of prosperity and optimism.

Instead this huge symbolic rupture with the past has overlapped with a profound disquiet about the present and the future because of Brexit. With this occurring at a time of severe and growing economic crisis, the possibility of serious national self-reflection becomes even more likely, although where it would lead is impossible to predict and not by any means assured to be either benign or unifying.

Enter Truss

The arrival of a new Prime Minister is not an unfortunate addition to this moment of historic instability. It is, as I wrote in my previous post, the latest episode in the political instability wrought by Brexit. It also marks a distinctive moment, in that it is the first time since the referendum that the free-market, deregulatory, libertarian right strand of Brexiters has been unequivocally in control of government, with advisors drawn from its numerous thinktanks.

Of course, that strand was important before and, in conjunction with the purely nationalist and anti-immigration strands, was hugely significant in pushing for Brexit in the first place and, subsequently, for insisting it meant hard Brexit. Even so, neither Theresa May nor even Boris Johnson was ever of their number, and Johnson’s 2019 majority, which Truss inherits, was predicated on the same shape-shifting about the meaning of Brexit that the Vote Leave campaign had used to secure the vote in 2016. It’s easy to forget now, but that Vote Leave team, headed by Dominic Cummings, which was also the power behind the throne for most of Johnson’s premiership, was deeply contemptuous of the ERG and most of the Brexit Ultra MPs who are now in the ascendant.

There is no doubt that they see this (£) as their first and perhaps last chance to get ‘true Brexit’, even though what they mean by that was never put to the electorate, either in 2016 or in 2019. No longer do they think it so crucial, as they once insisted when promoting Brexit, that the people choose their rulers. That means not only that the government has little democratic legitimacy but also that it will face significant constraints on implementing its agenda. The internal contradictions of the diverse voting coalition Johnson and Cummings created have not changed, whilst Truss’s popularity amongst Tory MPs is much more limited than Johnson’s in 2019 (or May’s, in the heady days preceding the 2017 election).

Moreover, whilst some people get understandably exercised by the role of ‘Tufton Street’ thinktanks, it’s worth recalling that Johnson’s government, probably no less than Truss’s, was heavily linked to such bodies. But governments are constrained in ways that thinktanks aren’t, and even the most ardently ideological libertarian SpAD quickly finds that political reality is very different to the world of position papers and whiteboards. For example, as Martin Wolf of the FT points out (£), it is hardly compatible with Hayekian doctrine for the government to be setting a national economic growth target.

Constrained Truss

More generally, the economic circumstances of the energy crisis, inflation, public service and especially NHS crises, flagging investment, and a currency in real danger of imploding – much of which has been made worse by Brexit, and all of which comes like punches on the numerous purple bruises caused by Brexit – are more severe than any British Prime Minister has faced for decades, and will place significant limits on Truss’s freedom of action. The most obvious consequence of this is that, “libertarian revolutionary” as she may be, Truss is about to preside over a huge expansion of government spending and debt to subsidise energy bills because of the unavoidable exigencies of the moment and in direct contradiction to the position she held against ‘handouts’ only a few weeks ago.

To the extent it has any coherence at all, ‘Trussonomics’ will repeatedly run up against these political constraints. Its guiding theme of ‘trickle-down’ economics, the discredited theory which informs tax cuts and the decision to lift the cap on bankers’ bonuses, is completely at odds with the politics of a country facing a profound cost-of-living crisis. Strangely, the chosen leitmotif of a relentless focus on GDP growth (£) ignores one of the populist lessons of the Brexit campaign – ‘that’s your GDP!’ – which informed the now abandoned rhetoric of the ‘levelling up agenda’.

Nor is the plan to review the restriction on working hours inherited from the EU Working Time Directive, for all that it is a longstanding cause celebre for Brexiters, one with obvious populist appeal (note, too, that it is only a ‘review’: like so many deregulatory reviews initiated since Brexit it may well come to nothing once the practical realities emerge). Indeed, as many have remarked, Truss’s early moves could hardly have given so many political hostages to the Labour Party. To that should be added the point that nor could they more clearly have fractured the already fragile coalition of support for Brexit.

Brexity Truss

In other ways, though, Truss’s approach is resolutely ‘Brexity’ and, whatever she may have thought in 2016, she must now be counted amongst the hardest of Brexiters. Apart from anything else, it is no coincidence that her economic guru is Patrick Minford, for decades an extreme and minority economic voice on Brexit and much else besides. It’s almost incredible that this Thatcherite fossil, already a schoolboy when Queen Elizabeth began her long reign, is now heavily influencing government economic policy. One thing which comes with Minford’s contrarian resentments is the familiar Brexiter hostility to the ‘economic Establishment’ and the civil service, of which the immediate decision to fire Sir Tom Scholar, Permanent Secretary to the Treasury, was emblematic.

This attracted much criticism as an unfair and foolish treatment of the civil service, but also reflects a deeper and even more dangerous thread in Brexit, which is to treat expert consensus as an ideological conspiracy against Brexiter truth. This is difficult ground, since it would plainly be wrong to assert that expert consensus is necessarily right, or is the repository of some non-ideological truth, and, for that matter, critique of the ‘Treasury view’ as a small-c conservative constraint on government ambitions isn’t confined to Brexiters. But whilst it is always possible that the consensus view in economics may be wrong, of all the forecasts of Brexit’s economic effects by far the most inaccurate was that of Minford’s Economists for Brexit group.

However, predictive track record is not what is at issue here. Ever since 2016, the repeated attacks on not just the Treasury, but the Bank of England (and especially its former Governor Mark Carney), or any individual or institution that even questions Brexiters’ claims, go well beyond the parameters of normal political and economic debate into something resembling religious sectarianism. Again, though, Truss doesn’t operate without any constraints, even in these very early days, and the backlash against Scholar’s sacking seems already to have forced her to hold back from doing the same to Sir Simon Case, the Cabinet Secretary.

Cakeist Truss

Truss also displays some of the ‘cakeism’ which did so much to transform Brexit from a political prospectus with which one might agree or disagree to a wholly dishonest project in which reality is denied in favour of quasi-religious faith. In particular, it can be seen in the ramping up of public debt to cover energy bills as well as massive tax cuts. As with the cakeism of Brexit, the issue isn’t the merits of the policy as such, which can be debated, it’s the refusal to accept that the policy comes with any costs or trade-offs. It’s as if the campaigning tactic of dismissing all Brexit costs as ‘Project Fear’ has morphed into a governmental principle that rejects any notion of risk in relation to any policy at all.

That seems especially bizarre in this case, when it has been an article of faith for the Thatcherite Right that ‘the books must balance’. There’s much to debate about that proposition, too, a debate in which context matters more than framing some general rule. In the current context, not least because of the damage Brexit has already done to sterling since the referendum, the principal risk is a full-scale run on the pound, which has already been foreshadowed in the currency markets since Truss took office on her tax-cutting platform.

It’s a risk that can only be enhanced if, as reported, the government is not going to issue an economic forecast with today’s major economic statement, as the suspicion can only be that it is dire. It’s pointless anyway as others can do the sums, and the Institute for Fiscal Studies has already warned that the government’s debt plans are “unsustainable”, highlighting the particular impact of the scale of the anticipated tax cuts but also reflecting the government’s refusal to fund the energy support package through tax-raising measures.

Delusional Truss

This matters because even if Truss and Kwasi Kwarteng were completely right to pour scorn on the Treasury view of the world that doesn’t affect the fact that currency traders hold very similar views, and act on them, and they can’t be sacked or ignored. As with Brexit dogma in general, reality can be denied and domestic critics derided as fearmongers or bullied into silence, but when that dogma meets the external world, whether that be currency markets or the negotiating power of the EU, reality always wins. Truss may put her faith in Patrick Minford but, to put it brutally and crudely, currency traders don’t give the tiniest f*** about Minford or his theories, and nor do investors or any other economic actor. Thus market analysts now say there’s a 25% chance that we will soon see pound-dollar parity for the first time ever.

The other big danger, given ballooning government debt, is that, as Mark Carney long ago warned, ‘the kindness of strangers’ could come to a ‘sudden stop’, with international investors refusing to go on funding government borrowing. For, of course, it is not ‘kindness’ that is at issue, but a cold-eyed assessment of risks and rewards. Although few commented on it at the time, I pointed out last April (see footnote) that the current account deficit was becoming alarmingly high and the forecasts were for it to get worse. Now (although we can’t be certain of the figures yet) it is set to increase dramatically.

In fact, as Paul Mason wrote this week “all six dials on the dashboard of the UK economy: inflation, investment, trade, debt, sterling and the current account [are] flashing red”. For Truss, to proclaim, as she did this week, that her “belief is that Britain’s economic fundamentals are strong” shows precisely the Brexiter logic that ‘belief’ equates with truth. Indeed it’s only last month that she was boosterishly proclaiming that recession was “not inevitable”, despite Bank of England forecasts: yesterday, as interest rates rose to their highest level since 2008, it became clear that even as she spoke the economy was already in recession.

Northern Irish uncertainties

That reality trumps faith and fantasy still isn’t a lesson that Brexiters seem able to learn, though. Nowhere is that more so than in relation to the still ongoing Northern Ireland Protocol debacle. There’s certainly a possibility of a ‘re-set’ now, especially since, as the government accepts there will be no trade deal with the US, the only barely credible reason for refusing SPS alignment has disappeared. And any half-way sensible government faced with as many serious problems as this one would certainly not add to them with the entirely self-imposed one of reneging on the Protocol. Doing so is not just profoundly damaging the UK’s international reputation and relations, it is also exacerbating the energy crisis and prolonging the damaging exclusion of the UK from EU science programmes as well as, down the line, risking the provocation of a trade war with the EU and a rupture with the US.

But, then, a half-way sensible government wouldn’t have appointed ERG Brexiter hardliners Chris Heaton-Harris and Steve ‘hard man’ Baker as, respectively, Northern Ireland Secretary and Minister, suggesting an intention for confrontation. Against that, Heaton-Harris has been making conciliatory statements, explicitly suggesting he shouldn’t be judged on his Brexiter background. In the last few hours there have also been signs of a more moderate approach from the government, with the threat of unilateral derogation from the Protocol apparently lifted (£).

If so, that’s welcome, though note that it would be a second early U-turn from Truss on her campaign promises. It’s too early to judge yet, and we’ve been round these loops of conciliation and aggression so many times, but if a deal is really going to be done expect at least rumblings of rebellion from the Ultras that, yet again, Brexit is being ‘betrayed’. Baker, in particular, who gave such strong support to Truss’s leadership bid might be expected to make that charge. The same old Brexit rows that May and Johnson faced lie in wait for Truss. Much more on all this in the coming days and weeks, no doubt.

A very peculiar government

As I write this analysis, and having read those of many others, it strikes me that it is almost impossible to articulate a coherent account of Truss’s government because it is one of the strangest this country has had. It does not even seem to know how to describe itself. It blends aspects of the economics that led to the 1976 IMF bailout – for context, just as the Queen was about to celebrate the mere Silver Jubilee of her reign – with aspects of the Thatcherism that subsequently grew out of that crisis. But whereas Thatcherites had the bedrock of realism to know that ‘you can’t buck the market’, Truss’s Brexiter Thatcherites think that true faith can trump reality.

The government’s avowed priority is economic growth, but it has an undiscussable commitment to hard Brexit, which is the most permanent drag on growth and which itself results in large part from a rejection of the Thatcher-inspired single market. It appears totally uninterested in the horrific impact of Brexit on small exporting firms, which were not only iconic for Thatcher but which are central to economic growth. In fact, it isn’t notably pro-business of any size – even banks aren’t hugely exercised about being able to pay bonuses – so much as in thrall to a ‘Janet and John’ ideological theory about capitalism that has no relationship to actual business needs and priorities.

It is a post-Brexit government, with Brexiters in every key position, but very little of its policy agenda seems to require Brexit. That is certainly true of the core tax-cutting policies, and also of the reported plans for new ‘investment zones’ with lower taxes and planning deregulation (these are different to Freeports but, as with Freeports, are nothing remotely like ‘Charter Cities’, despite the latest swell of social media excitement). Perhaps tellingly, the post of Minister for Brexit Opportunities has been axed, a tacit acknowledgment not just of its failure but of it being doomed to fail. As for the ‘Brexit Freedoms Bill’, wait for the arbitrary dates for dropping EU regulation to approach, and we’ll see what happens (much more on this in future posts, no doubt).

It is a government that presents itself as having a seriousness of purpose that Johnson’s administration lacked, but inherits his cakeism and vapid boosterism; as having a can-do pragmatism whilst asserting a populist preference for faith over evidence and expertise. It is small statist, whilst expanding the size of the state and rejecting ‘austerity’. It is deregulatory but largely coy about saying much about what this means in practice or how it would relate to the central task of creating growth. It acts as if it were a new government and has presented an entirely different manifesto to that of 2019, but it is reliant upon the voting coalition it inherited from 2019 (with consequences already emerging over Truss’s change in fracking policy) and has at best only a couple of years left of this parliament. It is an ideological government but without coherent ideology, and led by a dogmatist who is also an opportunist.

Perhaps more than anything else, and more dangerous than anything else, it seems like a government composed of chancers and mediocrities who are at the same time arrogantly certain of their beliefs. By an accident of circumstances, which in large part include Brexit, they have got hold of a power they have neither the competence nor the wisdom to be entrusted with, but to which they feel an unquestioning entitlement. This is the consequence of the winnowing out of any moderate or even half-way pragmatic figures in the Tory Party since the Brexit vote, to the extent that even someone like Rishi Sunak is now denounced as a ‘socialist’ and Brexit ‘compromiser’. About the best can be said for this government is that, despite earlier rumours, it seems it will not contain Iain Duncan Smith, John Redwood or David Frost, so, apparently, there are at least some depths to which it will not yet sink.

The bleak reality

Even if the strange coincidence of this new Prime Minister arriving just as the old Queen departs doesn’t lead to extensive national self-reflection, it does present an opportunity for the government. As Lord Ricketts, the former senior civil servant, wrote this week, the swell of international attention and goodwill occasioned by the Queen’s funeral could be a chance to repair the damage that Brexit has brought to international relations. So, too, might the moment of considerable national unity it brought be built on to assuage the divisions of Brexit.

But what seems far more likely is that the world sees a country that for all its faultless pageantry, its sombre and dignified mourning, has lost its way and is now further destabilised by losing one of its deepest anchors. Adrift since Brexit, it is now governed by a motley crew of over-promoted ideologues like Suella Braverman and self-important pinheads like Jacob Rees-Mogg, led by a peculiar and delusional Prime Minister. As the grandeur and collective emotions of the last couple of weeks fade, we are left with the bleak reality of a government not just incapable of resolving the dislocations – economic, geo-political, cultural, reputational – of Brexit and all that has followed, but incapable of recognizing their existence or even of caring were they to do so.