After the Holiday from Reality – you have to go home

James Cleverly, the Conservative Education Secretary has acknowledged the Conservative leadership campaign has gone on far too long. This late acknowledgement is only offered because the Party candidates, the character of the Party membership demographics, the poisonous quality of the debate, have together exposed the Conservative Party to a lengthy public scrutiny it is ill-equipped to manage and seems not even to have expected. Michael Gove has pronounced Liz Truss as taking a “holiday from reality”. This could be said of the whole, endless campaign.

Nothing has survived the campaign but empty sloganising, the repudiation of the Conservative Government’s own inescapable record of failure, and has even produced the overthrow of fundamental Neoliberal shibboleths. The world is turned upside down. The Conservatives are now offering themselves as both Government and Opposition.

Oddly, the most important repudiation of all; the dismissal of the principles of Neoliberalism itself by the core supporter of Liz Truss, Jacob Rees-Mogg has largely been overlooked, after the briefest of passing, uneasy press interest. Rees-Mogg (Sky News interview, 2nd August, 2022) dismissed Sunak’s promise of income tax cuts, albeit deferred into some undated future, airily claiming it was a “fairy tale”. Curiously, while Rees-Mogg brushed off this idea of tax cuts far into the future, as a Truss supporter he is tied to Truss’s promise of £30BN tax cuts immediately. Perhaps the yet undisclosed small print in the Truss tax contract, will be a future, penal tax clawback, somewhere just beyond the sound-bite horizon – interview here:


On Debt, Rees-Mogg simply conceded that the years in which the Government “pays back debt are very few and far between”. Rees-Mogg should know, for the Conservatives are at pains to remind us endlessly that they are in power more than any other Party, and therefore are identifiable as among the spendthrift Governments who rarely pay anything back, but more typically kick the can down the road, for future generations to pay.

Now in a mood to slay dragons, Rees-Mogg turned his attention to the Office of Budget Responsibility (OBR). The OBR economic forecasts, he decided are hopelessly wrong, and they are to blame for grievous errors; “the fantasy has been with the forecasters”. Either he didn’t remember that the OBR was an office invented and set up by the Conservative Party, as promised in its 2010 Manifesto; Rees-Mogg presumably voted for it, and his government has specifically chosen to rely on the fantasy forecasters ever since. More likely, he just doesn’t care and the OBR are simply now serving in the convenient role of Conservative scapegoats.

Challenged on the Government’s well known hostility to borrowing, Rees-Mogg dismissed the whole history of the last twelve years of Austerity, delivered to the largely defenceless population by his Government. Governments, he intones “almost always borrow”. He developed his theme with an extraordinary volte-face from the deeply held Neoliberal orthodoxy his Party and government have stoutly defended throughout their period in power: “Total borrowing, excluding the Quantitative Easing [QE] of £875Bn which is owed by the Government to the Government, if you net that off, we are under 60% of GDP. I think it is a perfectly sustainable level”. Rees-Mogg’s ‘netting off’ is a recognition of the underlying, critical accounting identity involved in QE, that the Bank of England, Treasury and ONS appear very, very reluctant even to discuss in the public arena: if the Government owes itself a debt (i.e., is both the debtor and the creditor), then in establishing its total financial position, on consolidation the debt and credit would automatically cancel each other out.

Rees-Mogg has suddenly embraced a monetary idea his Government has long simply ignored, because it does not fit the ‘household budget’ convention on which the Conservatives have relied to spook the public on debt, and that reliably returns Conservative Governments to office in a haze of confidence in the financial probity of a Party that actually possesses a highly chequered history in real debt management.

In the Sky News interview Rees-Mogg, incidentally overlooked the fact that £50Bn of QE is owed to third parties, so the net Government position appears to be £825Bn, not Rees-Moggs’ £875Bn, for the debt Government owes to itself. This, however still represents no less than around 35% of Britain’s total national debt, owed to itself. Such an acknowledgement by a leading Truss supporter changes the rules of political engagement over the issue of debt. The goal posts have been moved, overnight.

How does Rees-Mogg’s view of Debt and QE fit with the core beliefs and actions of Conservative Governments, particularly over the last twelve years? In 2010 Liam Byrne the Labour MP and Treasury Minister, famously left a note for the incoming Conservative Government suggesting there was no money left; and the Conservatives duly obliged by acting as if it was true, and used Byrne’s political solecism to pin the whole financial crash debacle, and the debt mountain solely at the door of the Labour Party. This was a crude device; it was simple-minded, because the banking collapse was an international market-driven crash in which the Labour Government was neither the only, nor the principal culprit; this was a market crash in the financial sector, hallmarked by the direct consequences of the relentless application of neoliberal ideology, inadequately regulated and out of control – but in British politics, this simple-minded factionalism of Conservative Parliamentary slapstick and knockabout works only too well in the public realm.

The 2010 Conservative Manifesto that contained the programme for Government to oust Labour, was dominated by the problem of debt, and of Labour’s responsibility for it: “now, with the national debt already doubled and in danger of doubling again, it is this debt – together with the jobs tax that Labour will introduce to help pay for it – that threatens to kill the recovery” (p.3). David Cameron exhorted the voters in his introduction to the Manifesto that: “only together can we can get rid of this government and, eventually, its debt”.

This neatly and quietly detached any political responsibility for the crash and the failure of financial markets from the real market failure that caused the crisis, and transferred responsibility to the Labour Government’s rescue of the financial system through the use of debt, as both the lender and liquidity provider of last resort; hence the national debt’s sharp increase under Labour.

Yet the Foreword to the Conservative Manifesto uncomfortably insists: “nor will we allow irresponsibility in the private sector to continue unchecked. We will bring law and order to our financial markets as a necessary step to restoring confidence” (p.viii); but without mentioning the financial debt cost of that irresponsibility, from the rise in national debt required to fix it; which is however referenced in the preceding paragraph, suitably and exclusively condemned there as “Labour’s debt crisis”.

Throughout the Manifesto the word ‘debt’ is used no less than 23 times; it permeates the document, including graphics on the national debt and deficit, and a section headed “Urgent action to reduce the Debt” (p.7), with cuts to ‘wasteful government spending’ (a neatly Delphic portent for twelve years of hard Austerity that followed) and a programme to eliminate the deficit, the bulk of it in a single Parliament (a severe programme of deficit elimination to allow a reduction in debt).

In 2010 the Debt/GDP was however only 69% when Austerity was unleashed, against Rees-Mogg’s current claim that 60% Debt/GDP (adjusted to net out QE), presents no problem at all. The Government, however has not followed Rees-Mogg’s QE adjustment and continues to act as if the debt was over 100% of GDP, unadjusted for the QE consolidation, and for the last twelve years insisted the debt level is unsustainable (using another arbitrary measure of debt sustainability).

In 2015 the Conservative Manifesto again strongly promoted debt reduction. A bullet point list of Conservative priorities for a “strong economy” is led by “running a surplus so that we start paying down our debts” (p.7, in bold). This is a strong policy assertion of deficit elimination, running surpluses and reducing the national debt. The word ‘Austerity’, however is never used, but the reduction in debt is somehow going to produce more schools and hospitals, in spite of a guarantee to continue “to reduce government spending by one per cent each year in real terms” for seven straight years (2010-2017): while insisting that “failing to control our debt would be more than an economic failing; it would be a moral failing – leaving our children and grandchildren with debts that they could never hope to repay” (p.8).

This rhetorical claim has no substance, and never had any. Ironically, it is based on an illusion that folded with the First Crash in 1720 (the South Sea Company collapse, sponsored by the then Tory Government’s own dud bank which it preferred to the Whig Bank of England – the Sword Blade Company). The South Sea Bubble was largely a Tory Ponzi scheme, literally to privatise virtually the whole national debt in South Sea shares, in an attempt to eliminate the public debt altogether. It all spectacularly bust in the First Great Economic Crash, in 1720 (See Richard Dale, ‘The First Crash’, Princeton UP 2004; Thomas Levenson, ‘Money For Nothing’, Random House, 2020). The Conservatives have, then or now, never quite been able to grow up, or learn the lesson. The harder truth Conservatives cannot face is that Britain has been leaving the national debt to be paid by future generations since the national debt, as we now understand it, was created. The Empire was built on Debt, and so is the City of London.

In the 2017 Conservative Manifesto Theresa May proudly presents the same, now routine debt dogma with a note of triumph, not about actual success, or the penalties of Austerity, but by offering a new forecast: “The Conservatives have laid these essential foundations. Ten years after the banking crisis, the deficit is back to where it was. The independent Office for Budget Responsibility forecasts that the national debt is finally about to start falling” (p.13). How wrong can you be? Rees-Mogg may have supported the OBR fantasy in 2017, but in the modern Truss-Mogg world, the past is another country. The past they ignore could of course include, yesterday.

In the 2019 Conservative Manifesto the old reliable staples are still in use by the new Johnson broom, but now pushed off into some future period (and no reference to the OBR view at all): “debt will be lower at the end of the Parliament – rather than spiralling out of control under Labour” (p.7). Nine years in power was not enough time to fix it. Fourteen years may be enough – if we are all prepared to bank on another Conservative forecast: but never mind, it will still all be Labour’s fault.

Remarkably, in spite of slow recovery and a poor record on deficit reduction, no reduction in debt in spite of the severity of nine years of unremitting Austerity, no growth, stagnant wages and poor productivity, it seems the Conservatives had at last exhausted their interest in the subject by 2019, presumably because it was so difficult to point to much success. The Manifesto had little more to say on the matter.

Then the spaghetti hit the fan; the unconsidered but long forecast crisis (by Public Health professionals who were ignored, to say little of the carefully stored £1Bn PPE pandemic stock, that was allowed to deteriorate and became unusable), finally arrived – in the form of Covid-19, along with 180,000+ deaths. The crisis could have been anything, it could have been anytime, for this is the real world of intermittent, unforeseen crises, and this one did not come alone.

Real crises always require a Government to have recourse to the national debt – with no strings attached. In 2010 the Conservative Manifesto used an HM Treasury figure to show £952Bn of debt at the time, a level which the Party insisted was unsustainable. In June, 2022 the debt, almost exclusively in the hands of the Conservative Government throughout, was now estimated to be circa £2.4 Trillion (ONS); an increase of 2.5 times. Work out the implications of that for yourself.

Neoliberal Conservatives appear to have a real problem understanding the concept of debt, or its real purposes; until they have to face the consequences of crises and the importance of Government Debt for liquidity as the last resort provider, with nowhere else to go (see also Bella Caledonia, ‘The Conservative Party and the National Debt’ for a review of the history of the Conservative governance of finance, borrowing and the National Debt).

It is difficult to understand the approach to Debt now upheld by Rees-Mogg’s damascene conversion to the overthrow of the Neoliberal, Conservative conventional wisdom on debt, following both his and Liz Truss’s long established loyalty to the Conservative Manifesto principles stated and restated on debt – both financial and moral – over no less than twelve years, and without a murmur; until the sudden fall of Johnson’s premiership. Had Rees-Mogg’s words been uttered by any Opposition politician whatsoever in repudiation of their record on debt; wrath and ridicule would have fallen on the guilty Party in a withering, relentless, endless Press and media assault, sustained by systematic social media trolling that would have been unsustainable by any individual or any Party.

Rees-Mogg was, however merely clearing the ground in a calculated rebranding of the Conservative Party that is re-born under a Truss leadership, and neither he nor Truss somehow had anything to do with the last twelve years of Conservative Government and (three) PMs, even though both have been elected MPs or ministers since 2010. Truss has served at ministerial level in government since 2012, and is currently Foreign Secretary. All of this passed by virtually unnoticed by most of the media.

The “Magic Money Tree” phrase is used as a staple of Conservative invective against monetary ideas the Party abhors, but it also reveals its own essential intellectual frivolity, and the need to deflect from popular focus on the substantive intellectual failures of Conservatism and its over-reliance on the corrosive and divisive, but enduringly unproductive exploitation of low-grade, populist ridicule, simply to stay endlessly in office. At least, that was until Rees-Mogg discovered that the Conservatives are only going to survive the current cost-of-living crisis, and £6,000 annual domestic energy bills, by going back to the “Magic Money Tree”: yet again.

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