Has Sunak lost his Midas Touch?The Tories’ golden boy is finally losing his lustre, and not before time. Having charmed us with his assured manner, his slick presentational skills, and his winning smile; and having risen to the occasion of the pandemic with lavish funding of emergency relief; Rishi Sunak is, judging by Treasury leaks, about to mess things up spectacularly in his coming budget by raising taxes at the worst possible time (the depths of a recession) in the worst possible way (on struggling businesses). A steep rise in corporation tax risks not only killing off the recovery before it has begun, but penalising spending in the one area it is most desperately needed: capital investment to raise our dismal levels of productivity and secure future growth.
I confess I have never warmed to Sunak’s persona, his smug ‘cat that got the cream’ assurance, which seems to derive from a combination of elite public school (Winchester) background and vast inherited wealth. While an understandably nervous-looking Hancock was being mercilessly pilloried at those interminable press conferences for the government’s incompetence, Sunak seemed to handle them effortlessly, bathing in the glow of his financial largesse (except for the self-employed who were left to rot), as if personally bestowed on the masses, congratulating all concerned including himself for their ‘amazing’ efforts, with not a glimmer of doubt or regret, and not a bead of sweat forming on his brow.
But my main objection to Sunak is that his qualification for the job of chancellor, for rebuilding our economy, for boosting investment and productivity, for developing an industrial strategy, for safeguarding our strategic assets, is that he was a hedge fund manager, a financial speculator. In other words, he made lots of money by shuffling around financial assets (on borrowed money) to maximise short run profits and capital gains – precisely the opposite of what is needed if long-term investment-led growth is to be secured.
Sunak knows how to read a set of accounts and is keen to balance the books as quickly as possible. But any serious economist could tell him that governments can never balance their books like a private household or business. It is a fundamental principle of macroeconomics. For if a government raises taxes or cuts spending, and by doing so triggers a recession or stifles a recovery, the effect is to reduce its tax receipts and increase its spending on benefits (the national income multiplier). Though taxes will need to go up and/or public spending will need to be cut once the economy is growing, doing so now risks making things even worse.
But equally important is the need to boost private sector investment and productivity. The neoliberal notion that it did not matter if our industry went to the wall so long as the City of London flourished and engaged in ‘financial innovation’, that manufacturing could be ditched in favour of services, that open borders, free flows of hot money and cheap labour, and booming property prices were all that were needed for global markets to flourish, has been cruelly exposed in recent years – by our dismal investment and productivity, by the pandemic, by Brexit, and above all by the Chinese mercantilists.
For ‘Global Britain’ read ‘Warehouse Britain’, where our young people are deskilled and our regions are deindustrialised, and where we flog off our strategic assets one by one (euphemistically termed ‘attracting foreign investment’) to plug the hole in our trade deficit. Few remember that if Vince Cable had not stepped in as business secretary to block it, much to the anger of Conservatives at the time (who no doubt stood to benefit from the City’s cut of the takeover proceeds), AstraZeneca would have been flogged off to Pfizer. Then where would our vaccine programme be now?
Industrial strategies which seek to pick winners are fraught with danger. We need only recall Tony Benn’s National Enterprise Board and British Leyland, or the sad tale of the British nuclear industry and its air-cooled reactors – though truth to tell, our dire industrial relations and our toxic class divide had much to do with it. But ‘aerospace valley’ in south-west France shows what can be achieved when things are not left to global markets and equity fund managers. We might just begin by ring-fencing our hundred fastest growing and most strategic firms from take-over, and ensure they have access to the long-term finance they need to invest, to innovate, and grow; and fund proper apprenticeship training on the German model, redirecting funds from University arts, humanities and social science courses if needed. But we should not hold our breath.
It is no longer a matter of managing industrial decline. Our very survival as a nation is at stake. And yet we have entrusted the task to a hedge fund manager.