2007 - 2021

Sunak’s Mini Budget Solves Nothing

A DAY or two on, what are we to make of Chancellor Sunak’s Summer Statement, aka mini Budget? The markets were not exactly overflowing with enthusiasm. The FTSE and the pound were both down after his presentation, which offered a £66bn stimulus package.  Normally that would have sent both indices skyrocketing.
Actually, Sunak’s offering – in fact his third stimulus package in less than six months – was perfectly reasonable from the point of view of saving British capitalism.  There was a boost to the housing market and construction, a cut in VAT to bump consumption, and a daft subsidy for restaurant meals by way of good cheer.  In the small print – literally, in a footnote – Sunak also gave away another £33bn in public spending, mostly for the NHS.  This is the sort of chequebook politics that dished Corbyn and McDonnell in last year’s election.
The real problem is that the economic future is so uncertain than anything Sunak does seems limited – hence the gloom in the financial markets.  No one knows the real impact on future demand or unemployment, caused by the lockdown. Plus there is the car crash of Brexit and its impact on what’s left of British manufacturing. Add on a global recession and the US-China trade war, and you have an economic black hole of interstellar proportions. Sunak could have doubled his stimulus package and the markets would still have sulked.
However, that said, I’m not very excited by the Chancellor’s various gimmicks.  If I was a concerned capitalist, rather than a VAT cut – which will be appropriated by desperate retailers – I’d have gone for giving every consumer a spending voucher to get them into the shops.  When you can print money like there is no tomorrow – the Bank of England is doing just that to fund the Chancellor’s spending spree – why not stuff notes into the electorate’s pockets.  If I was Boris, the thought of every teenager in the land hitting the High Street with half a grand I’d given them would be a political dream.
Next, to keep big manufacturing on board, why not double UK defence spending.  That’s roughly half the £63bn Rishi actually spent on Wednesday.  Personally, I’m agin propping up the defence establishment, but in Sunak’s position I’d have had the aerospace, rocket, shipbuilding, and computer industries on double time, rolling out every conceivable hi-tech killing machine.  The very fact the Chancellor still has a total blind spot concerning manufacturing shows he is every inch a City gent.  With Boris and Rishi in charge – never mind gross incompetents like Mat Hancock – we can assume British manufacturing is headed for the knacker’s yard.
Which leaves us precisely where?  As the autumn unfolds, and a hard Brexit looms, expect yet another “stimulus” package from the Chancellor. He is going to toll pound notes around with no apparent results.  Unemployment will zoom and Boris – who has no idea about economics – will spend more and more funny money. Eventually, the Bank of England will start to worry about the zillions of cash it is printing.  There will be lots of silly articles about the impending threat of inflation – a silly notion because (with demand flatlining) the shops will be groaning with unsold produce.  Eventually, those nice City folks will start panicking and demand more austerity for everyone but themselves.
I’m a bad prognosticator but I suspect the Tory Government’s stomach for unrestrained spending will give out by next spring.  By then the UK budget deficit will be of historic proportions and the usual suspects (the Mail and Telegraph, the Tory right, the hedge funds, etc.) will be demanding tax rises and spending cuts.  The pound will come under pressure and capital will start gently heading to the various tax havens (aka British dependencies).
I take no pleasure in the impending economic tsunami.  In difficult economic times, the far right has a bad habit of coming to the fore.  Rising expectations generally favour the left, while economic disaster stirs the fascistic. However, the economic crunch time might arrive just as the Scottish elections are heaving into sight (assuming they are not cancelled).  In which case, the independence argument will have to be framed in terms of sorting out the economic mess.
There is a possibility that Starmer’s Labour Party could make a mini comeback, offering an alternative to Tory economic disaster.  I doubt, though, that Sir Keir has it in him.  He can’t outspend Boris.  There’s always the possibility Starmer offers whoever replaces Boris the option of a National Government.  At least that would split Labour and offer the chance of a new radical left down south.  More likely, England will shift further right and blame the EU for everything.
Which brings us to Scotland.  Faithful readers will know I am critical of the direction of SNP economic policy.  This is not because I am unappreciative of the talent that we have in Nicola Sturgeon, Kate Forbes, Andrew Wilson or Benny Higgins. The SNP Government has bent the stick to think long-term in a way the gadflies in the Tory Government have singularly failed to do.  My criticism has nothing to do with lack of brains or accusations of self-interest or lack of integrity.  Instead, my worry is that SNP economic policy – from the Growth report to the recent Recovery Plan – is premised on situating Scotland inside a global free market system that has just been blown to smithereens.
Chancellor Sunak’s inability to frame a coherent economic recovery package results from the same problematic.  At least Sunak seems to understand that no one knows what the hell is going on or where we will end up, economically.  He is refreshingly honest that he is making it up as he goes along.  Scotland does not have that luxury.  Instead, as a small country, we need to make bold choices.  Economic policy based on inserting Scotland into a status quo that just disappeared is no policy at all.
Bottom line is that Scotland needs to seize all the economic policy levers it can get a hold of – fiscal, monetary, and public ownership-wise.  And use them to rebuild an economy that is self-reliant and not beholden to foreign capital. In this economic weather, Boris is right to talk about replicating the Roosevelt New Deal, even if his particular version pale’s by comparison. But a New Deal is not just about the amount of cash the state is willing to spend.  Primarily it is about taking bold action – and immediately.  If we do not claim independence next year, Scotland may be engulphed by the economic disaster the UK is sailing straight towards.
At any rate, the forthcoming independence campaign will be fought in the midst of a raging economic crisis.  If we fight it on the back foot – genuflecting to the City and pretending to be fiscal conservatives – the outcome will be disastrous. Plus, there is no possibility of constructing a Scottish economic strategy that is all things to all economic interests.  We cannot put off discussing the bones of what such an economic strategy will look like.  If we do, we hand the Tories the political initiative.

Comments (7)

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  1. Adrian Roper says:

    This sounds right.

    Can you summarise what you think the bones of an independent Scotland’s economic strategy should be?

    Are the following headings helpful?

    – Currency
    – Financial levers – tax, debt, etc
    – Trade – investment priorities, risk mgmt, etc
    – Public and community services – investment priorities, risk mgmt etc
    – Welfare – benefits/basic incomes etc
    – Other government costs – security, arts, environment, etc

    Have I missed anything crucial?

    Either way, proposals are needed.

    1. Coinneach says:

      I suggest you’ve missed a biggie: the climate emergency and the need to transition to a greener economy along the lines of the Green New Deal

      1. Adrian Roper says:

        Cheers Coinneach
        I sort of had it in my list as “environment” but I agree it is a biggie and needs a big focus. Maybe the biggest.

  2. SleepingDog says:

    If you have all this magic money, why not pour it into research? Not just science, technology and medicine, but all kinds of social research to help build better predictive models, analyse best practices across the world, pursue practical philosophical questions, so we can plan and build better. Not to capitalize on commercially-closed patents, but to contribute to global ideas commons (itself a form of reparation for past knowledge enclosures). Or put it another way, on a smaller scale, what makes one set of householders with similar resources better than another set at managing them?

    Another way to look at it is the long-term strategic goals like you get in games like Civilization. Intermediary means to those ends become ends, and you subdivide your progress towards them into turns, where you allocate your budget into priorities accordingly. I wonder if the bunch of politicians referred to are any good at such games. It doesn’t mean anything in Civilization to say just ‘world-beating’, you have to say to what end (OK, there is a score win, but that’s only a fallback).

    However, if the unspoken aims of the government are to lead the British Empire to world domination (or rather, win as a minor ally to the USAmerican Empire), then the opposition should focus on the dismantlement of the non-self-governing territories that provide the economy with tax havens, and of the USAmerican bases, weapons systems and security apparatus that staple the British Empire to the USAmerican one (before their economies are merged).

    1. Papko says:

      That’s an interesting point I believe you have made: That the British Empire was established using much the same skill-sets as in the game Civilization.

      I would imagine if you were good at one you would be good at the other.

      1. SleepingDog says:

        @Papko, Civilization is commonly classed as a 4X game, in other words its gameplay centres around your activities to “Explore, Expand, Exploit, Exterminate”:
        Of course, this can lead to vastly destructive outcomes, including nuclear wars between rival empires. However, the Civilization family of games (including Alpha Centauri) offer more-or-less peaceful victories compared to conquest (great scientific/exploration/environmental phase shifts in human social organisation).

        However, Civilization is a simple and comparatively transparent game; the British Empire was built on a lot of trickery, deceit, gunboat diplomacy, world-beating drug pushing operations, missionary softening-up, world-beating enslavement of peoples and so on that is beyond the scope of such a game. Plus any self-respecting player will want to face better-armed and higher-technology opponents in the game at some point to make it more challenging.

        There is sadly a lack of computer games (and I have searched and asked) dealing with historical conflicts between empires and colonial target peoples. Since the underdog is such a popular game player choice, I wonder why that is.

  3. Gordon McAdam says:

    Very disappointing to hear Nicola Sturgeon being interviewed a couple of weeks back and still referring to the need to pay back all this debt. The higher echelons of the SNP still don’t seem to understand how an independent Scotland could manage the economy. They’re stuck in the past. Similarly, many people talking about “full fiscal responsibility” meaning further devolution/federalism fail to grasp that only independence can deliver “full fiscal responsibility”. Scotland needs to be independent with it’s own currency to achieve “full fiscal responsibility”.

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