It’s nearly Christmas, and no-one is more closely associated with Christmas in British minds than the 19th century author Charles Dickens. The story of how Ebenezer Scrooge is transformed from grumpy miser to warm-hearted dispenser of largesse to the poor and needy is regularly trotted out at this time of year. The new Prime Minister is promising largesse on the grandest of scales
But a more relevant Dickens’ novel for the UK right now is The Posthumous Papers of the Pickwick Club, and in particular the episode which shows Mr Pickwick at the parliamentary by-election in the fictitious borough of Eatandswill.
The Eatandswill by-election is fought between Horatio Fizkin and Samuel Slumkey. They slug it out in a drunken, brawling semi-riot, in which they try to outdo one another in the promises they make to the electorate.
Which sounds familiar.
The UK now has a strong Government, one with a handsome 80-seat overall majority. The 2 ½-year paralysis over Brexit will shortly be in the past, although much remains in doubt concerning the precise relationship between the UK and the European Union. That is surely good news, as everyone is by now weary of the seemingly endless wrangling over should we leave or should we stay.
On the news of the Conservative Party victory, the Pound Sterling went to its best level against the US Dollar since May 2018; it recorded a three-year high against the Euro. The Gold price slumped, losing more than 40 Pounds per ounce, although it has since recovered much of the lost ground. Yet those immediate variations in the value of the Pound and Gold tell us nothing about the more long-term consequences of the Conservative victory.
The Prime Minister, Boris Johnson, is fully aware that he owes his success to the mass defection of former Labour Party supporters to his own Party – they have “lent” his Party their votes, he acknowledged. He is also aware that if he is to have a chance of staying in office following the next election – due in five years, currently – then he needs to pay some interest on this ‘loan’. Johnson will show his thanks by lavishing £100 billion over the next five years on roads, railways and other infrastructure projects.
Where will the money come from? It will be borrowed. The Conservatives hope to run a surplus of £5.3 billion by 2022-23 but the margin for error is wafer-thin.
Having a large Parliamentary majority is good and bad news. It means the Government can get things done. But it also means that it can, in the process of earnestly paying interest on the loaned votes from the North and Midlands, previous Labour strongholds, be extravagant, throwing borrowed money at projects which may or may not satisfy the voting public. In one sense the large Conservative Party majority has removed uncertainty; but the sheer size of that majority inevitably means that the uncertainties are merely pushed out to the longer term.
The UK’s national debt is currently around £1.8 trillion, the annual servicing of which takes about 8% of government tax income. Piling on more debt may be politically necessary, but economically it is a high-risk venture. The additional £100 billion in capital expenditure will amount to an approximately 25% gross increase in public sector spending – a level that has not been seen since the early 1980s.
So today’s austerity today will soon be over. But it may mean that, unless the economy starts to charge along at a more rapid speed than has been seen recently, there could be much worse austerity tomorrow. The Eatandswill voters got Slumkey or Fizkin – it doesn’t really matter. They were not noticeably happier and more content, in any case.