The error has been to treat tax cuts and spending plans as if they are part of separate decision systems. They are not. If you want credibility you don’t start with the income side of the P&L but with expenditure. What do we need to spend public money on and then how do we fund it, not the other way round.
Cutting income by cutting taxes could only lead to increasing borrowing if expenditure remained the same. But with interest rates rising servicing this debt soon appeared unaffordable. The three elements of tax, expenditure and borrowings have to be managed together. This is hardly a revolutionary idea.
Truss and Kwarteng once given the levers of power couldn’t wait to start moving them driven by their kindergarten level ideology. To change the basis of our nation’s tax and spend system may be a desirable thing to do. But if you have to sack a highly respected Treasury official to do this there should have been a pause for thought.
The rush to action was also profoundly undemocratic. It took place outside the normal budget cycle, was undebated in Parliament and had the character of emergency decision-making when there was no emergency. Well now there is – with markets reacting as markets do. There is nothing irrational about stock or currency trading – we may not like the wisdom of the market but it’s how it works and always has.
Penny Junor’s panegyric is understandable when you realise how little we have to celebrate. Yes it was a well directed and choreographed spectacle showing that we could still do the past with style, but we can’t do much else. Defending our currency, feeding our people, heating our homes, lighting our streets are likely to defeat us this winter.
The long drawn out day of the funeral brought our a well-heeled audience and it must have been galling for Italy’s president to have to discard his Maserati in favour of a bus. The couturiers (Chappelli and Stella Macartney included) must have run out of black silk and taffeta for the mourning apparel.
I was reminded of a Cameron MacIntosh production, well directed and cast with at times a surprising script. The Archbish put Johnson in his place: In “those who serve will be loved and remembered when those who cling to power and privileges are forgotten” he was to the point. The ushers had halted Johnson and his consort’s attempt to barge in. The new King looked sad and bewildered, as well he might, but held it together. As did the confident little future King George.
La Reine est Mort, vive Le Roi. And what a potentially disastrous reign is in prospect.Will Charles feel empowered to intervene as his subjects starve and freeze? As the pound slips below parity and inflation skyrockets? As civil disorder spreads?
Pageantry can be used to cover up failure but I think that was consequential here, though it was convenient. For twenty-four hours and more it would have been churlish and out of place to address the realities of modern life for many. No more.
“However, more recently [Charles] has travelled to the Vatican for the canonisation of John Henry Newman and to India, to celebrate the 550th anniversary of the birth of Guru Nanak, the founder of Sikhism. These visits and expressions of ecumenical sympathy for the religions of others will only get bolder, now that he is finally able to make the judgments for himself.” Daniel Finkelstein in “The Times’.
The thing about Cardinal Newman, of course, is that he was an apostate moving from the Established Church, of which the then Queen was head, to the Roman Catholic Church. For Charles to attend his canonisation was frankly bizarre. Maybe he felt it was OK to mark the Sainthood of a man who had rejected the Church of which his mother was now head but it was unclear what message was being given.
Charles has always had a fluffiness about religion which his “Defender of Faith” (singular) suggestion illustrates. If you imply some equality in religions you cannot have an Established Church. You can’t with intellectual logic predicate one true religion (the Church of England) and acknowledge the credibility of other faiths as alternatives as well.
Less than one fifth of Britons adhere to the Church of England and even fewer to other Christian sects like Catholicism and the Non-Conformism (see pie chart above). Nearly half of the country has no religion at all. This fact also argues for the disestablishment of the Church.
The American Constitution asserts Freedom of Religion although this at the time it was drafted really meant freedom of Christian worship. When adherents to non-Christian faiths began, much later, to come to the United States the Constitution gave them comfort though that was a bit serendipitous. None of the Founding Fathers were Jews or Muslims or Hindus nor for a century or more were immigrants.
Donald Trump’s Islamaphobia was unconstitutional and shameful and unworthy but it concentrated the mind. Unlike Britain The United States has no established church or religion. The Christian faith is implicit in the rituals and no non Christian has ever been elected to high office. But the Constitution protects all. We are much more singular.
Whilst our formal behaviours are singularly C of E our society is not. Religion is on the decline and secularism is increasingly the norm. King Charles may try and address the paradox implicit in the fact that four-fifths of us reject the Church to which the State adheres.
Those of us who reject all religions should not in any way deny the rights of believers. But in a curious way to view the subject from a secular standpoint can be helpful. To argue freedom of worship and religious equality whilst being a devoted member of one religion is a stretch. To do it when you’re Head of the Church is even more strange !
The pain of losing Empire was considerable to Churchill and other leaders under whom it happened. So a pseudo-Empire was created and called, rather pompously the “British Commonwealth”. It was ersatz imperialism , a gathering of nations that had little in common other than the fact that their citizens had once been subjects of a King or Queen Emperor/Empress in a Palace in London.
The Commonwealth was not designed to be or do anything substantial. It took over the “Empire Games” a quadrennial sporting tournament which the Brits rather liked because we won a lot of medals. A mini Olympics shorn of the best athletes.
The “British” designator was dropped, the number of nations expanded – some even with no British connection. That said there was still little of substance for the countries’ leaders to do other than eat well and exchange fraternal banalities.
The Commonwealth has never been political, and most of its members are republics. It was briefly a trade alliance (“Commonwealth Preference”) but never has the association acted collectively to do much. The countries mostly speak English but they are scattered around the globe. They have British High Commissions rather than Embassies but without collective power or authority the Commonwealth is a Ruritanian anachronism.
Browse through social media and you will find plenty of references to the “stupidity” of our about to be new Prime Minister Mary Elizabeth Truss. I disagree. She is a well educated woman who, just out of Oxford with a decent Degree, joined Shell as a Graduate entrant , and Shell doesn’t often recruit “stupid” people !
Individuals’ intelligence doesn’t increase over time much, but how we learn to apply it does. We become more effective ( there are exceptions !) Successfully applied intelligence is when a smart person learns (knowledge) and then adds value to this by applying their intelligence.
So decision-making, at its best, is when bright and knowledgeable people apply their knowledge and brains to a problem and come up with a good solution. Often (but not always) this is done with others – the “Two heads are better than one” syndrome.
Let’s return to Ms Truss. Accept for a minute that she’s academically bright. Accept also that she has twelve years experience as an MP and ten as a Minister during which you would have thought she will have acquired a broad knowledge of issues. And she’s only 47 – an ideal age you might think. So what’s the problem?
Here we need to go back to David Cameron who became Prime Minister at the age of 43 and who had a rather better Oxford degree than Truss. The problem with “Dave” was that he was completely remote from the real world. Eton, Oxford and a couple of handy sinecure jobs before becoming an MP. He had intelligence but had never applied it. In short he had no social intelligence. Much the same applies to Boris Johnson who though he was a good (if somewhat dilettante) journalist and writer had also never acquired social intelligence.
Liz Truss comes from a much more middle class mould than Cameron or Johnson, she is not a Toff. But like them she has never really done a job of substance outside politics. A job in which engagement with ordinary people is required. When she speaks Truss sounds like an alien from another planet. To paraphrase CLR James “What know they of politics who only politics know ?”
Truss’s record as a Minister is patchy at best. In February this year the Financial Times said: “Her keynote speech on foreign policy last year, in which she talked of rebuilding the “muscle” of “Global Britain”, was described by one former UK ambassador as “the biggest load of drivel I’ve ever heard”. Her early ministerial career was a flop and, until recently, her national profile has been relatively low.”
Truss in “Nerd” mode is comfortable with the shallow ideology of the Right but there is little or no depth in what she says, and certainly no pragmatic and thought-through proposals. She will soon find out that leadership is about more than using trigger words or references to Margaret Thatcher to get applause.
So we have replaced a buffoon in Number 10 with a nerd. Someone who from time to time engagingly made us laugh with someone who will send us to sleep or drive us to drink. She’s not likely to be a PM who fails because she lacks academic intelligence but one who fails because she isn’t the full deal. She’s not Thatcher, Major or Blair. We’ll soon find out what she is though. The auguries are not promising.
The Left is wrong to call for “nationalisation” of failing public services. There are alternatives, and there aren’t many physical assets to take into public ownership anyway! The physical infrastructure of water, gas and electricity supply (pipelines and cables) , including the connections to our homes, is already part of our national fixed assets register like roads and railway lines. The issue is how we manage these assets and the products and services they provide.
The supply of water is controlled by private sector monopolies, the worst model imaginable. The companies have a licence to print money, pay shareholders dividends and their senior management huge salaries and benefits. As a consumer I can only buy my water from one supplier. There is no competition.
The supply of gas and electricity is from a multitude of retail suppliers none of whom has any significant strategic advantage over the others. Price competition is the only differentiator and it is entirely phoney. Prices, as we have seen recently, are determined by world markets. Downstream of the producers the retailers have played with price offers but none of them has any real chance of offering enduring better deals.
There is nothing much to “nationalise” in our water, gas and electricity (downstream of the power stations) supply sectors. Few assets and no supply infrastructure that are not already effectively publicly owned. In each case all that is needed is to create an efficient Not For Profit entity to act as the middleman between the producer and the consumer. A good parallel is the London Underground. The Tube invests its profits entirely in its infrastructure and has no shareholders, nor needs them.
We live in a mixed economy within which there is a symbiosis between the public and private sectors. They need each other. Essential services can be run as a sort of third way without any overriding ideology. The public and private sectors and, especially, we the people need efficient, reliable and well-managed water, gas and electricity supply. The Not For Profit model can provide it.
That the voters have little or no idea how our energy sector works is hardly surprising when journalists and politicians don’t understand it either.
Gas is a commodity which internationally is priced in an almost perfect market. That price is at the intersection of the supply and demand curves. If, as at present, supply is constrained whilst demand is constant then the price goes up. Our Gas supply sector (retail) takes its product at international prices. It has no alternative.
The pricing realities for Gas in Britain would be the same whoever owns the retail sector. After the botched privatisation of thirty years ago we have a multitude of private sector gas retailers who compete on the margin by offering largely synthetic pricing deals to customers. None of these “suppliers” has a significant strategic or acquisition cost advantage over the others. The competition is largely artificial .
Taking private sector retailers into public ownership and creating a single publicly owned supply entity would eliminate the phoney retail competition but it would have no effect on international prices at all. Economies of scale could reduce local costs and eliminating marketing costs would also be beneficial. But these benefits, though measurable, pale into insignificance compared with the effect of changes to international (wholesale) prices.
Back in the 1970s the world had to adjust to a huge increase in oil prices taking the price of refined products to unprecedented levels. Similar forces are at work now with Natural Gas. It’s supply driven. In the 1980s prices fell back as supply increased and again this is paralleled today. If supply from Russia returns then oil and gas prices should fall again.
Let me return to the specific situation we have with gas in the U.K. Fifty percent of our consumption is from indigenous resources, mostly from production from British waters offshore. The producers (see above) include multinationals like Total, BP and Shell and some independents like Harbour Energy – the largest producer of all. The suggestion in some quarters that these companies could be nationalised is laughable and can be ignored. But other actions are feasible.
These producers price their output at the market price I referred to above. Hence when the sell it to the retailers that’s the price the latter have to pay. The graph showing the price of Gas from the Netherlands above is illustrative. The recent rise mainly caused by shortages of Russian gas since April is clear. However although traditionally domestic output in the U.K. has been priced at international prices in fact it doesn’t have to be. It’s our gas !
There is nothing to stop the U.K. Government paying U.K. producers a lower price for their gas. For example a price similar to that in Summer 2021 before the massive world price escalation (see graph). Remember producers were perfectly content with their receipts in 2021 and have done nothing to justify the serendipitous windfall profits they have made over the last year.
Obviously there is nothing we can do about the price of gas for the 50% we import. But for our home produced 50% there certainly is. Set that at a much lower level and reduce retail prices in line. The producers would complain of course, it would in effect be a windfall profits tax. But it would be a positive move in times of high inflation and stress.
Education is surely about more than stuffing our heads with knowledge. Yes we do need to know things but it’s what we do with what we know that really counts. The best schools and universities, and homes for that matter, are in the game of teaching the application of knowledge as much as they have a responsibility to impart that knowledge.
Wisdom is applied knowledge. To make wise decisions you have to understand (“know about”) the subject. Or know where to find someone who does. An “expert”. Politicians may have in depth knowledge but generally that’s not why we vote for them. We want them to use their intelligence to brief themselves and then do the right thing. We are mostly disappointed.
When knowledge plays prejudice all too often the latter wins. There is an iteration here. Politicians are highly selective in their use of facts ( a key element of “knowledge”). Or they make things up.
I spent much of my career in a fiercely knowledge based business – highly technical and scientific. My own skills, such as they were, were more qualitative. Lateral thinking and judgmental rather than quantitative. This dichotomy links to the Left/Right hand side of the brain factor.
It’s not better to be narrowly creative or solely evaluative. We are all a mix. Real Wisdom comes when we get the balance right. Ground breaking scientists are those who have the capability to think outside the box of their knowledge.
Who we are as individuals is a complex mix of personality and intelligence and knowledge. To be the “Smartest guys in the room” (the phrase used to describe the crooks at the top of Enron) wasn’t much help without integrity and principles.
An education system has to focus in part on imparting knowledge but as I say it’s more than that. Reading about schooling as recently as the nineteenth century is scary ! This is because religion was the driver of education. In those days morality was Christian morality. So a “fact” (e.g. that the Earth was created in six days) was taught even though it may clearly be nonsense. Anything that challenged the Christian belief set was disallowed and rejected.
We enter a classroom with a portfolio of “facts”, opinions, prejudices and reason in our heads. The teachers role is to deepen and widen the fact portfolio, but also to add process (how you think) and structure. And to equip you to be sceptical and be prepared to challenge. That, for me, is why schools and universities must be secular. Thinking has to be free of superimposed and arbitrary rule books.
The principal driver of any upstream investment decision is the assumption about the oil price. And there is no more volatile and difficult to forecast factor than that. Obviously if the development costs of Cambo are exceptionally high then it requires a high oil price assumption to justify the capital expenditure. But are they?
My gut feel (no inside track !) is that it is not the “economics” at all but concern about the public reaction that is at the heart of this. Shell has become a very diffident corporation in recent times failing to robustly defend its business. Oil/Gas corporations like Shell do not (these days) create demand for hydrocarbons they supply it. This is not sophistry but reality. The criticism directed at the likes of Shell is mostly misplaced and ignorant.
The world needs oil and gas and until it stops doing so someone has to supply it. The need to reduce dependence on hydrocarbons is self evident but the main mechanism for this has to be government and consumer decisions.
If, over time, we continue to switch into renewables for power generation and to means other than oil fuels for our transportation on land, sea and air Shell, BP and the rest will lose customers. So be it, a good thing most of us would say. But for the foreseeable future we will continue to be hydrocarbon dependent. Shell should confidently state the reality of energy supply/demand and the part they play in it.
This is profoundly chilling. As it happens I did a degree which was vocational with subjects that helped me throughout my Business career. But that is far from the only way. University is about so much more than providing you with a toolkit for employment.
But it’s the “earning potential” which sent a chill down my spine. Maybe in Sunak’s world, heavily influenced by his time in the United States, success in life is measured by “what you make” – in American parlance. But don’t we need people who are motivated by more than their paycheck?
Perhaps it will come as a surprise to Sunak but millions of people in Britain choose a vocation rather than a job where they can maximise their wages or salaries. Teachers, nurses and a raft of other people across the public and private sector choose to work in a job to make a difference not to feather their nest.
Universities offer courses to equip people with a vocational bent to prepare themselves for careers where “earning potential” is way down the list of priorities. I have young relatives in teaching, nursing, midwifery and other professions who studied these subjects at university. They are probably all bright enough to have had a well-remunerated career, like Sunak, in Financial Services. But they preferred to work somewhere where they could make a difference.
When I extolled a career in the public sector because of its favourable pension arrangements a friend said to me that he disagreed because “someone has to create the wealth”. This is a common fallacy and one that Rishi Sunak seems to share. We live in a mixed economy where there is a mutual dependency between the Public and the Private sectors. Whatever job we are in we are part of the national wealth creation process.
Many years ago when I lived in The Netherlands the son of a Dutch friend of mine was studying the Poplar tree at University. He had done so as an undergraduate and was now going even deeper on a post graduate course. I don’t think that the “earning potential” for poplar tree experts was very high but this young man was very satisfied by this rather esoteric area of study. Mr Sunak would want to turn him into a banker. Which would’ve have been a shame don’t you think ?