I've been trying to get my mind around the way the Conservatives have lost their reputation for being sound economically and generally competent, at least to the standards of piss ups in breweries. As someone who is instinctively suspicious of political dogma of the left or right that has been the major reason I have tended to vote conservative in elections for a long time now. This susceptibility to chaos started gradually under Boris Johnson before going to warp speed with Truss and Kwarteng.
Sure, all governments make mistakes which become apparent sooner or later. But, for example, George Osborne's "omnishambles" budget in 2012 was trivial - a picnic in comparison (literally, as the main bit that unravelled was dubbed the "pasty tax").
The fundamental objective of the Truss/Kwarteng strategy (if it deserves that name) was laudable - growth. Without growth the ever increasing demands on the public purse, driven partly by the inevitability of demography, will not be fundable. But that doesn't mean you can just do what you've always wanted to, irrespective of the prevailing circumstances. Truss's comment that they went "too far and too fast" was quite an understatement. The immediate loss of market trust was the sort of thing one might have expected to follow John McDonnell's first budget, had we ever been unfortunate enough to experience it, rather than that of a Conservative chancellor.
One thing I found very odd were the references to Margaret Thatcher as a tax cutter. When she got the opportunity, yes, but Thatcher increased taxes at the start of her reign, as was required to get the public finances on a sound footing. Kwarteng and Truss seemed to forget one of the Iron Lady's best known quotes: "you can't buck the market". Thatcher's tax cutting came much later, mainly when Nigel Lawson was Chancellor. And you can argue he also went too far too fast. Lawson admirably simplified the tax regime, but his cuts to the basic and upper rate of income tax in 1988, together with artificially low interest rates as he followed the flawed strategy of shadowing the German Deutschmark at his preferred rate of 3DM to £1 in the EU's Exchange Rate Mechanism, created a housing boom and then a bust which led to higher inflation, lower growth and the recession of the early 1990s*.
So, then, does my long held belief that the Tories are more economically competent actually hold water? After all, the last time a Tory government went unconditionally for growth a bust followed. That chancellor was Anthony Barber in Ted Heath's government. I recall seeing a cartoon in a newspaper at the time that showed Barber holding up his budget red box and saying "boom!" followed by the same again, representing his next budget. In the third frame the red box went boom and in the final frame Barber was left, charred and clothes in disarray, holding the remnants of his exploded red box.
Older readers will know that this presaged the start of a very difficult era in British politics: two general elections in 1974 narrowly won by Labour, soaring inflation and the need for a bail out by the International Monetary Fund in 1976, with cash limits imposed on the spending of government departments. The supposed austerity of the Cameron coalition government was minor in comparison.
It was Labour who lost what reputation they had left for economic competence as a result of the IMF bail out, after it was badly dented having presided over an ignominious devaluation of sterling in 1967. Yet in the meantime they had surprisingly lost the 1970 general election, handing on to the Tories a healthy economic picture after Chancellor Roy Jenkins repaired the situation, presiding over the only UK annual budget surplus between 1936 and 1988. Jenkins was blamed by Labour supporters for an overly cautious neutral rather than giveaway budget only 2 months before the 1970 election.
Labour didn't regain the electorate's trust until 1997, with Blair and Brown. They inherited a strong position from John Major and Ken Clarke, though they had the good fortune that Lawson's dalliance with the ERM, continued under Major and Norman Lamont, had ended with a even more sudden switch of policy than the transition between Kwarteng and Hunt. On "Black Wednesday" in 1992 the markets forced sterling out of the ERM but not before the government had attempted to buck the market by hiking interest rates from 10% to 12% and then farcically to 15% in one tumultuous day.
The fact that Black Wednesday became known as White Wednesday to many, as it was the catalyst for a change in policy which paved the way for 15 years of steady growth until the 2008 financial crisis, was overlooked by the electorate, who decided that the Tories had lost their economic marbles (as well as over £3billion trying to maintain sterling in the ERM) and Labour duly won the next three elections. The role Black/White Wednesday played in the growth of Tory euroscepticism is, I believe, very significant.
There are some lessons from these various crises in our recent history, most of which feel more serious than the current situation, branded a 'profound economic crisis' by our new PM in what I take to be an attempt to manage expectations. Devaluing the pound when you said you wouldn't; having to call in the IMF; trying to sustain an untenable currency rate in a sham (or at least virtual) pre-euro and being made to look idiotic by the markets all made the party of government look foolish and led to a change of government at the next election. The financial crisis of 2008 is perhaps a bit different: Labour's spendthrift policies in its third term coupled with weak regulation left the UK more vulnerable than most to the global recession that followed but that government was arguably less culpable than the other examples. They still got kicked out. On those grounds the Truss/Kwarteng fiasco looks very bad for the Tories and good for Labour.
But what about my feeling that the Tories are generally more competent? Jenkins pulled the situation round but Labour still lost. Barber blew up the economy and the Tories lost narrowly but the seeds of the inflationary seventies were laid. Labour still got the blame, though arguably they didn't do the right things to avert disaster between 1974 and 1976. Lawson also blew up the economy, but the Tories faced a weak opponent, got back in, made asses of themselves, pulled the situation round and still lost. Labour left us vulnerable to the 2008 crisis but were arguably unlucky. Truss alarmed the markets so much she didn't get the chance to do much harm**. However they still looked like idiots who didn't know what they were doing.
External factors should not be forgotten in the above history lessons: the current energy price shock is the biggest since the oil crises of the 1970s, which were material to high inflation rates around the world but this time the energy shock is combined with a war affecting one of the world's most important areas for food and fertiliser production. The sub-prime and banking crisis of 2008 wasn't of Labour's direct making. Events dear boy matter and governments tend to get punished, culpable or not.
But not always. The Tories were re-elected with an increased majority in 1959 only two years after the ignominy of the Suez debacle***. So I expect Sunak will feel 2024 is all still to play for and Labour can't assume that they can rely entirely on government unpopularity and 'time for a change' to win. My current hunch would be that, despite Labour's large poll lead, it might well be close, with neither party held in much affection by the electorate.
After all, the Tories curently look idiots but Starmer has still to decide what a woman is. This isn't the first question Starmer has struggled to come up with an answer for. So, even if he ever reaches an answer, he won't seem the sharpest tool in the box come the election, will he?
There have been pleas for the Tories to get back to being boring and competent. Personally I don't find competency boring and, after the 'excitement' of the last few months I suspect I'm not the only one. They desperately need a period of quiet, steady competence. What chance?
* https://econ.economicshelp.org/2008/01/lawson-boom-of-late-1980s.html
** some might argue this point but sterling and bond rates are back where they were before Kwarteng's "special fiscal operation" and, while mortgage rates are higher they were goibg up anyway driven by international interest rates, especially in the USA. David Smith agrees with me on this (Economic Outlook column, Sunday Times 30 October 2022)
** https://en.wikipedia.org/wiki/Roy_Jenkins#Chancellor_of_the_Exchequer_(1967%E2%80%931970)
*** Wikipedia's summary of the 1959 election notes that the econony had turned round (good luck with that Rishi) and that Labour weren't trusted because of industrial relations and nuclear disarmament issues. The latter is a bit puzzling as it wasn't a decade since a Labour government created the British bomb. Still, not much changes, does it? History could yet repeat itself; the train drivers might be Sunak's not so secret weapon
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