Consciousness of Sheep
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Britain’s Labour government finally managed to bring some growth to one corner of the economy this week. Forgetting, perhaps, that most people over thirty are forced to find a local teenager to fix tech problems, and overlooking that pornography accounts for between 20 and 30 percent of internet traffic, the government implemented its mendaciously named Online Safety Act (which is primarily about extending censorship) with the entirely predictable result that downloads of VPN’s (virtual private networks) which allow people to appear to be outside the UK, spiked by more than 1,400 percent in just a few days, leaving the censorship elements as the only enforceable part of the new law.
While the government may comfort themselves that at least this part of the economy has enjoyed some growth, Keir Starmer might want to consider that he is now so unpopular, that the name “Keir” is on a par with the name “Adolph” when it comes to naming newborn babies in the UK. Starmer’s “favourability rating” has plunged from 44% just after winning the election to a mere 23% today, with 67% of Brits reporting a negative opinion of the man… unquestionably a consequence of his pathological lying and promise-breaking and his government’s attempts to balance the books on the back of the poor.
It is unlikely that his Work and Pensions secretary Cruella Kendall’s decision to bring forward a review of the retirement age is going to do anything to restore the government’s fortunes. Since the aim of the review is to save money rather than to maintain the last fragments of a social contract, the review will make the claim (i.e., lie) that life expectancy is rising (it stalled after the 2008 crash, and has fallen sharply since 2020) and so, the retirement age will have to rise further (it is currently 66 and rises to 67 by the end of 2028). Not only is this a form of intergenerational economic warfare, since the convention since the pension was introduced is that today’s working age population pays for today’s pensions with future generations paying theirs, but it is also a form of class warfare because of the huge class disparities in life expectancy. In effect, and in line with previous attacks on pensioners and disabled people, the Labour (in name only) government is ensuring that the wealthy will benefit far more than the poor (who will die a decade earlier) in old age, despite the latter accounting for most of the 30 percent of us that do not have private pensions.
Applying Anthony Stafford Beer’s maxim that “the purpose of the system is what it does,” in addition to concluding that one of Starmer’s aims is to install Nigel Farage as prime minister as soon as possible, we must conclude that the government is terrified of deviating from a failed neoliberal system by doing anything that might upset the elites and the wealthy. And this may be a far bigger problem than establishment media are reporting.
Given the Tory Party’s self-immolation in the run up to last year’s election, we may have been watching the fabled “good election to lose,” and that the UK economy was in a more perilous state than anyone was letting on. The first indication of this was Labour’s lie (in an election year the opposition is fully informed on government finances) that the Tories had left a £20bn hole in the budget. More importantly though, was that while the government ditched its pledge to increase taxes on “non doms” (people who reside outside the UK for tax avoidance purposes) it slashed winter fuel allowances for pensioners (a cut that hit poorer pensioners hardest). Indeed, weasel words and outright lies have become a signature of the government, as promises to freeze council tax and to cut electricity prices went out of the window even as taxes on employment were hiked to an eye-watering level (triggering the sharp rise in unemployment and business failures in the last quarter). Meanwhile, the attacks on poorer and disabled people have more or less finished off any chance of the government winning a second term.
But why are they doing it? A large part of the answer came last week with the news that government borrowing had increased sharply. Insofar as any attempt was made to explain why in establishment media, most settled on the idea that government was borrowing to pay off the public sector unions. And while this was plausible a year ago, when public sector workers received higher-than-inflation pay increases, it is less plausible today. Indeed, the big spike in government borrowing is due to a single factor… Interest rates.
That being the case, you might assume that all the Treasury has to do is to call up the Bank of England and tell them to cut interest rates. But therein is another problem. When we think about interest rates – mostly when establishment media report the result of the Monetary Policy Committee meetings, where they set the overnight interest rate – we think about the rate that impacts mortgages and personal loans. But the interest rate that the government is currently failing to get under control is the long-term rate on the gilts (UK bonds) the government needs to sell to roll over its existing borrowing and to take on new debt.
A gilt is a financial instrument sold to investors on the promise that the government will repay them with interest. But like everything else in the financial arena, it is no more than a promise… in one sense, no different to me borrowing £10 off you with the promise I’ll pay it back on payday. And just as in that example, you are going to assess my character and my ability to repay you, so investors buying government bonds will assess whether the government is likely to repay them 10, 20, or 30 years from now… and that’s a big headache for the UK just now.
Whereas if you lend me £10 until next Friday, you are not too bothered about the rate of inflation or the comparative value of the pound against the dollar or euro, these are key considerations for investors whose funds might be locked up for decades. And in the last year, enough investors have concluded that the UK government cannot be trusted to repay, that the interest rate on long-term bonds is spiking, as government has to increase the interest rate to try to reverse the falling sale of bonds.
This also explains why the government is terrified of levying what might be deterrent taxes on big business and global corporations, since any threat to the existing economy – particularly of the loss of big employers – threatens the tax receipts used to pay the interest on gilts, thereby making them appear even less attractive. In the same way, it explains why the government is attempting to balance the books on the backs of the poor, since they tend not to be tax payers anyway… the attendant problem with this being that the poor – the clue is in the name – seldom receive enough from public spending for government to claw back even a fraction of what they hope to.
We saw this in the cack-handed way in which the government was forced into a series of U-turns over the winter fuel allowance and the proposed cuts to disability benefits. And those, despite Starmer’s deceitful claim that they were “hard decisions,” were actually the easy ones… wait until he has to take on the public sector unions when ministers are forced to lay off thousands of civil servants. This is also why whatever conclusion the pensions review comes to; the eventual savings will be far less than imagined even as they destroy what remains of the Labour Party’s political capital.
Since spending cuts cannot fill the gap, we can be certain that taxes will be increasing in November’s Budget. The only questions to be resolved are whether the government will ditch the promise not to raise Income Tax, and whether they will appease their backbench MPs by increasing taxes on the rich. As with spending cuts, however, we are already too far along the Laffer Curve for increased taxes to result in anything close to the hoped-for increases in government revenues. For thousands of British businesses which are struggling to survive, more taxes are likely to be the final straw that drives them to insolvency… the ensuing unemployment payments costing more than the taxes were designed to bring in.
So, with economic growth a distant memory, with spending cuts far easier in theory than can ever be achieved in practice, and with tax increases more likely to ruin what remains of the economy than to fill the gaps in the government’s finances, there is just one thing left to the government to do. No longer having the revenues from North Sea oil and gas, and having flogged off the public assets decades ago, the UK government is going to commit monetary seppuku – it is going to turn to currency creation… in practice, having the Bank of England spirit billions of new pounds into existence at the stroke of a keyboard. And it will fail!
The main reason why the UK government is currently having to pay high interest rates is because the UK is so dependent upon imports that it cannot survive without attracting foreign investment – mainly dollars and euros. But as soon as it embarks on currency creation, the pound devalues against those other currencies. On the one hand pushing import prices up, on the other deterring investors even further.
There are, of course, a host of things the government could do to offset the problem, even within the current system. But these require a radically different way of thinking than is permissible within the neoliberal framework, and so they won’t be done until it is too late. It also means that by the time an alternative government – Farage or Corbyn/Sultana – is elected they will have been set up to fail too, with something akin to the economy of 1940, and a dependence on the charity of strangers being the likely outcome.
Only the timescale for this to unfold remains to be seen. It may unfold over the course of the parliament. But it is just as likely to occur suddenly and rapidly in the face of widespread investor flight… an investor flight that of all the western states, the UK is least likely to survive.
As you made it to the end…
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