Friday 30 September 2022

The end of the Tory party is in sight

Mel Stride, Conservative chair of the Treasury Select Committee was on Radio 4 this morning ahead of the emergency meeting between Truss, Kwarteng, and the head of the Office for Budget Responsibility. Prime ministers don't normally attend OBR meetings so I think we can all see how serious the problem is, regardless of what the government is saying. It would be fascinating to be a fly on the wall. We know that the OBR told Kwarteng they could have a forecast ready for his announcement last Friday but he rejected the offer.

We also know the huge negative market reaction - which is still reverberating through - was due partly to traders not being convinced by Kwarteng's statement because of the lack of independent figures to back up his assurances that the new debt he proposed is sustainable.

The result was the pound tanked. It has recovered a bit since ($1.11 as I type, still below where it was last Friday morning) but only because the Bank of England is buying long-dated (20-year) bonds using a £65 billion fund guaranteed by the Treasury. On Wednesday morning there were no buyers willing to take on those bonds.

This is all completely crazy because (a) the BoE does not normally have to step in to stabilise the currency market in response to government policy and (b) Kwarteng's plan was to sell government bonds but is now effectively buying them!

Stride made an important point. If Kwarteng and Truss had been confident about what they were doing they would have taken the OBR's offer and published a forecast last week. It is obvious that the OBR would not have been supportive and that's why the government didn't want the markets to see the official forecast.  The figures simply did not add up.

So, some things will need to change after today's meeting although the government is still insisting it will stick to its plans. I doubt that.

The OBR has a duty to be as accurate and as fair and transparent as it can be so they are unlikely to bend to the politics and claim that the UK's debt levels are sustainable or that the vague 'supply side reforms' which are being hinted at are credible and will be effective in the short term (or indeed ever- they are a fantasy fig leaf let's be honest).

You can imagine when Truss and Kwarteng suggest that changes to the planning rules, improving skills, scrapping EU regulations, or any of the other mad ideas floating around Downing Street in the heads of the pro-Brexit economic advisers will improve our finances, the OBT will ask for evidence. And that's when reality kicks in. There is no evidence.

The meeting can only result in humiliating changes to the mini-budget and its purpose can only be to manage the climbdown and save Kwarteng's (and Truss') blushes, nothing else.

Stride mentioned that improving skills is a long-term thing but easing immigration rules could do the same but far more quickly. This was to me, an implicit reference to the damage Brexit is doing to the economy in just one area, although the B word wasn't actually mentioned. In any case, the idea that there are thousands of migrants, especially from the EU, skilled in the areas we are short and just waiting to come here after the last six hate-filled years is itself a fantasy.

No, there will have to be some changes to the mini-budget but they will be presented as not really being changes at all.  

Kwarteng's problem (or more likely Truss') is that he has lost all credibility and will not be able to recover it for years, if ever. 

I have often mused that Brexit is such a bad idea but so deeply ingrained in Tory thinking that it could pose an existential threat to the party in the longer term. Even after all the damage wreaked so far and the gradual fall in support for Brexit in the population, it is still heresy inside the party even to even hint that it might not be a good idea.

This is one of the reasons Truss is now the leader. Those who have 'faith' like nothing more than to see converts to the cause, particularly converts who seem to have made the great leap needed, to have seen the light and been persuaded by the sheer force of their preaching.  Truss had to switch sides to succeed among the membership and she knew that.  Sunak thought they would respond to logic. Some hope.

But nothing is going to change the reality that Brexit is indeed a disaster and it will take the party down with it unless there is a massive U-turn and a split with the UKIP contingent carrying on while moderate Tories try to rebuild.

I think that is happening now. YouGov's poll yesterday gave Labour a 33-point lead (54% to 21%) which is in total wipe-out territory leaving the natural party of government with just 61 MPs. Other pollsters were registering (for them) record Labour leads of 17, 19, and 21 percent. 

A lot of familiar heads are going to roll as well as the red-wall seats. I think voters are starting to realise they have been conned. Once that happens there is no coming back, perhaps for a decade or two.

And don't forget we have not yet seen the worst of the problems of the cost-of-living crisis, the energy crisis, and now the housing market crash expected following the mini-budget fiasco. Who can see Liz Truss' already appalling poll numbers improving anytime soon?

The round of local radio station interviews she gave yesterday was a disaster. Her responses were wooden, had no empathy and quite often avoided the question altogether. People notice these things. Even right-wing commentators are in despair.

No, I think the tide for the Tory party has not so much turned as gone out never to return.

There was mixed news for the government on the economic front a few minutes ago. The ONS now says the UK economy grew 0.2% in Q2 and didn't experience a fall as thought. We are not in recession, that's the good news.

The bad news is that the economy shrank more than first thought during covid and is still 0.2% smaller than it was pre-pandemic. Previously, the ONS had said it was 0.6% bigger.


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