No.150 - Mr Sunak's Smile and the Great Reckoning

Dear James, 

The time of the Great Reckoning is upon us. Until now, it has been easy for Mr Sunak to flick and flicker his boyish smile across our screens as he spends huge sums on this, that and the other. However, when it comes to working out how to finance the massive debt that such spending incurs, Mr Sunak will be aware that he will be doing what no peacetime Chancellor has ever had to do. He has to rescue our nation from a huge debt overhang that will affect us all for decades. That is some challenge. Will his smile survive?

The Office for National Statistics has said that the economy contracted by 2% in the three months to March, following zero growth in the final quarter of 2019. The drop was driven by a record fall in March, and reflects just one full week of lockdown. Analysts expect a much bigger economic slump in the current quarter. Some are saying a -5-10% fall in GDP for the year. Many are predicting a super-recession, if not a full blown depression. Yesterday Rolls-Royce announced 9,000 job cuts and claims for unemployment benefits have reached almost 2.1 million forcing up the overall UK claimant count by 69% in a month, the highest on record.

Before coronavirus hit us, our economy was producing a GDP of about £2.3tn p.a. Our overall debt was about £1.8tn and our annual addition to that debt was approximately £65bn p.a. In other words our debt burden  was running at about 86% of GDP. Since the catastrophe, the economic costs of ‘keeping the economy on ice’ has been immense. The government foresees a worst case scenario, budget deficit this year of £516bn which means that overall debt will rise to £2.3tn. causing our debt to GDP ratio to rise from 86% to approaching 100%. This would be an unprecedented peace time record.

Meanwhile the government’s very own Hereford Bull, David Frost, has been in Brussels throwing childish tantrums at the EU and hoping that the damage his plans will do will be lost in the economic aftermath of coronavirus.  He has to face the fact that at the moment 80% of our imported food comes from the EU and that the only way to replace that will be deals with the US and others involving hugely lower food standards. However, a Harvard report on the prospects for a US/UK trade deal has found the gains for the UK in such a deal to be minimal. The gain would be £3.4bn compared with a £112bn loss from our exit from the EU. We currently do 43% of our trade with the EU, and only 15% with the US. That’s some corner into which Boris has painted us. Brexit was based upon delusions of national grandeur. We were to become a champion of international free trade.  Some hope of that now! Any ideas Mr Sunak? 

So we are facing a sovereign debt crisis of historical proportions in which the challenge will be to demonstrate financial responsibility to the global lending community. Mr Osborne’s disastrous policy of austerity is out. The only way forward will be higher and fairer taxes.

So here’s a thought for you Rishi. Your spending spree is what a man who died 75 years ago could have told you a lot about. John Maynard Keynes believed in much more than managing demand i.e spending money when the country was in deficit rather than cutting back (austerity) and thus converting recession into depression as in the 1930s. Keynes believed in the necessary and constant management of the economy which flies in the face of the free wheeling monetarist capitalism of the last fifty years. It is based upon the idea of a regulated fairness – that we are all in this together rather than every man for himself. So Keynsianism may be seen as the financial mechanism behind the human instinct to be kind and fair. Surely, this is what the British people, who have recently held this country together - despite this chaotic government - deserve?

The current pandemic has proved to us that the world can never be the same again. The irony, of course, is that all this is happening under a Brexiteer government whose dreams lie in ruins. A Great Reckoning requires a Great Leader, not just Boris bluster and a chancellor’s boyish smile. What do you reckon James?  Do you have anyone in mind?

Kind Regards, 

Your Concerned Constituent