Burnham or bust

I think the end is in sight - sooner than many think

The King in the North will shortly be coronated and then we can all relax as the land will bring forth food and honey and we will be showered with gold sovereigns. There will be so much wealth we will all install wood burners to annoy Ed Miliband and co and burn £50 notes to stay warm. If only this was likely, but we can all live in hope – well aside for the £50 note thing. If you can’t use at least £500 notes for kindling, then you are not even trying.

Sadly, I suspect that this is going to be another disaster. Certainly, the newspapers reporting today that infighting has broken out just days before he drives into Downing Street over who will be Chancellor does not bode well. I will be honest and say I had a quick giggle but then I am now pretty much the most cynical man in Britain when it comes to politics. This is tempered by a genuine belief that only a real crisis will get us out of the mess we are in, so I suppose in some ways this is bullish for me.

For I still think we are likely to get one sooner rather than later and so I am fortunately placed to be able to laugh enroute which is what I am doing now. You see the main issue that crash and Burnham just like Starmer has to contend with is that the Labour party is now so detached from reality that most of the Parliamentary Labour Party (PLP) should be locked up in Bedlam as a danger to society. They should definitely not be in charge of a G7 country or any country including the really small pointless ones.

You see we are on a one-way train to fiscal disaster with benefit costs blooming, GDP per capita falling and an economy which is now in deep crisis with collapsing jobs and stagnate wage growth. We are in short in deep shit with millions now struggling for the basics whilst the British state achieves the impossible in hoovering in ever more taxes whilst providing ever worse security, services and quality of life for all.

Now there are many reasons for why we are here including horrific long-term planning by the British state over social care, crappy debt management, a useless central bank, piss poor public service reform, terrible trade policy and much much more. However, what I think we need to focus on is the economy. If anyone used to watch the series Heroes, they would remember the tag line “Save the cheerleader save the world”. Well in this case save the economy and save Britain.

For economic growth provides the cash to allow us to do stuff and it provides the state with resources to achieve its aims many of which are intergenerational in nature and so are not quick to resolve. Yes, we need to reform all of the above and yes, we need to stop pouring money into the triple lock and more however this is all much easier if you have money coming in to pay for said reform. A good example of this would be the NHS which needs massive change much of which requires up front funding.

Currently the British economy is staggering along growing at about 1.5% a year which is half (3%) of what we had before the Great Financial Crisis (GFC). Now this does not sound like a lot but if you take £100 and you run compound growth at 1.5% over 20 years you will get £135. Now if you do that with 3% you come up with £180. So, the difference is between an economy growing by a 1/3 in the period or more 4/5s. That matters when it comes to everyone having money and the state having resources to fix our plethora of problems.

It gets worse as if you look at the official British government figures then our population has grown by about 15% in that time. So, in fact our growth when you remove that skew in the figures is half of what it is officially. So basically in 20 odd years the British economy has barely grown in historical terms. It has stagnated whilst the British political class attempted to hide this fact via human quantative easing. This is why the country is busier than ever, and you are poorer than before as the pie is barely growing but there are more people eating it.

Now this growth issue was understandable immediately after the GFC due to the way that everyone’s balance sheets were knackered by the credit crunch. No one wanted to spend and the banks didn’t want to lend (Made worse by regulation). The end result was that the government had to keep spending as the only party with the space to do so. If they had not, then the economy would have cratered into a depression. The coalition if anything made this process more painful by attempting to cut across the board without a clear plan causing short term economic problems and massive long term social and security ones.

However, some 20 years later the balance sheets of the banking system, consumers and businesses are largely resolved. We are in a good place especially when you compare us to many countries across the West. It is no longer good enough to blame the GFC and say “Well that changed everything”. No, it changed a lot but any dynamic system like an economy would have long since adapted to the new normal and it has. Politicians need to take ownership of the battered British economy.

To start with you have heard for years about the mythical Brexit damage that is repeated ad nauseam across the liberal media. Well unlike them I am actually interested enough to look at some of the models and they are largely bunkum. One produced by the NBER is a case in point. They came up with their long-term GDP damage to Britain of between 4-6% which was trumpeted in and out of parliament as proof that this was indeed the reason for our malaise.

However, to complete their comparative analysis they picked out such winners as the United States being in a huge debt bubble and holding the global reserve currency, Ireland a global tax haven which even the EU excludes from its own data, Greece which has been going through catch up growth after the Eurozone debacle and Estonia a small and highly open economy. These were all indexed and this was used to prove that Britain had grown slower because of Brexit – yeah okay.

In reality when you just do a back of beer mat comparison of Britain and our genuinely nearest competitors of France, Germany and Italy you find out that Brexit was a macroeconomic non-event. You literally can’t see it such is the piss poor performance of all the countries over this period. This matters as it shows that the crisis is 1. Not about Brexit and 2. Is impacting all the big economies in Europe. This in analytic terms is called a correlation and now we can ask what could be combined causation.

I suspect the fact we were all part of the same sclerotic trade bloc for much of this period may well be part of the answer. This is not by the way an attack on the EU but simple analytic reasoning as the economies were tied together in this time with similar underlying legal and regulatory structures which would have forced similar but not the same outcomes on each one.

When you take this with our similar welfare systems you get economies which are highly regulated, highly taxed and with similar trade and energy issues. This I suspect is where our problems lie and it is important that we call it as politicians simply don’t want to admit this which is why they keep talking about Brexit. Sadly, because I have come to conclusion that most of them do not want to do the hard work required to fix things. I say that with genuine sadness because it underlines my personal collapse from someone who largely thought the best of politicians to one who thinks the worse.

How this ties back to Burnham and Britain is simple. With Britain leaving the European Union most of our problems are now domestic in nature. No amount of trade deals especially with countries which are also in deep crisis will resolve the ongoing economic and fiscal train wreck. No, we need deep domestic reform to try and knock the train onto a new line which will hopefully return us to the sunny uplands of economic growth and with it a more sane, safe and prosperous country.

However herein lies the rub – this kind of reform is a complete anathema to a Labour party which thinks welfare spending should only go upwards, that all regulation is good and that tax should be set at a level which makes sense for their spending requirements and not what will yield the best trade off between encouraging economic growth and maximising the tax take for those public services that we all use at some point and time.

Pat McFadden wonderfully exposed the paucity of intelligent thinking within the party in a WhatsApp message that was published due to the Mandelson affair. The PLP does not care about economic growth it only cares about shafting a few more quid out of Joe Public to transfer to their client groups. Well, that may well have been workable during the New Labour years, but it is not possible now as we live in different times.

“Every meeting I have is ‘who can we tax in order to pay benefits to others’. They’re asking the wrong questions.”

Burnham, is I suspect going to realise this very quickly when he gets and reads the books. There is simply no space for more spending on current growth trajectories – we have long since passed peak tax whereby new ones produce ever lower rates of growth and thus receipts. We are in a doom loop with British politicians trying to get more cash out of a patient who is dying ever faster the harder they squeeze.

He is going to suddenly realise that his many wonderful promises of good growth for everyone (whatever that means) and fairy dust for dinner etc are simply not possible without faster economic growth, but he can’t do much to get it. I mean does anyone seriously think that the Labour party is going to abolish tranches of the regulatory state to make it easier to do business? If you do I have a bridge to sell you!

What about the idea of reducing taxes in order to promote growth? I mean there are plenty of ideas about including changing Stamp duty which stops people moving through to getting rid of the many cliff edges in the tax system which put people off from working harder, earning more and thus paying more tax. I mean look at the VAT thresholds, child allowance and childcare stoppages and more. Does anyone seriously think the PLP will change these and in the short-term reduce spending whilst the growth comes - nope.

The same goes for energy which is the life blood of the economy. This is I believe a massive part of why we are here. Net zero sounded great on paper but the reality has turned out to be less than fantastic. Europe as a continent is de-industrialising at a fantastic speed. Labour still bangs on about Thatcher, but their policy has done more damage to British industry than Mags ever achieved. This not hyperbole but a statement of fact using the data – go check it out. But again, this is holy writ for the party and so we can expect more of it even as the EU waves off at least a little as the European car industry and more slowly circles the drain providing even more support and succour to the populists.

No, no, no, whatever direction he goes to find that growth Burnham will hit the hard wall of a breaking economy, mounting debt and a PLP which just won’t move. Thus, I think my wish and expectation of a crisis will likely bear fruit and I think sooner than many think. The most likely catalyst won’t be Ed Miliband becoming Chancellor but the first budget which will no doubt attempt to placate the left and soft left by plucking the public of a few more feathers of tax.

I mean Labour has already increased the tax take by nearly £70 billion in their first two budgets after promising not to do so before the election, so what is a few more billion between friends. However, this time the markets will be watching like a hawk especially after hearing Burnhams deep thinking on them - “get beyond this thing of being in hock to the bond market.” Global interest rates have been rising for months, and Britain is very exposed and though 0.15% etc may not sound like a lot when you owe just shy of £3 trillion then marginal changes to debt servicing costs really do add up not that your average Labour MP gets such basic arithmetic.

Thus, if I am right, I think the second half of this year will be a darkly funny comedy of errors by the last gasp of this Labour government as it staggers towards the end. Utterly unwilling to face up to reality it will go over edge whilst still moralising about how wonderful it is. It will inflict pain and hurt on millions because it is completely unfit to run a McDonalds let alone one of the biggest economies on the planet for make no mistake if things really go wrong then the outcome will be universal cuts demanded by those lending us the cash moving forward.

This will be the start not the end in my opinion as once you remove an even semi functioning economy then all our many social ills will spill onto the streets. No more will the state be able to buy off groups via higher welfare spending. That scares me as things are primed not just here but across the West for urban conflict and once things start, they create a momentum of their own.

Labour still has time – Burnham still has time. They could swerve – they could put country before party. They could put reality before worldview. We can all hope that they do but I have no confidence, why would I. At 46 years old it is easier to be cynical and be pleasantly surprised as I have seen enough expect the worst. Perhaps this time will be different but probably not.