Recently I was gently taken to task by a Labour supporter for supposedly spending too much time attacking Keir Starmer’s weak position on Brexit. Surely I should be more positive about Labour?
Well, I have alluded to my justification before, and will do so again today. I remember all too vividly how Harold Wilson’s government of 1964-70 was severely limited in the fulfilment of its ambitions by a strategic mistake made as soon as Wilson took office.
This mistake was to rule out a devaluation of the pound that would have been necessary if the economy were to regain its competitiveness. The result was that, from 1964 to the autumn of 1967, too much of the government’s energy was absorbed by an ultimately vain attempt to “protect the pound”. Other goals, not least the successful carrying out of its grand national plan, were unnecessarily inhibited.
The comparable strategic mistake today is for Starmer and other Labour spokespeople repeatedly to cry that there is no question of our rejoining the single market or the customs union. The catastrophic hit to an already dismal level of gross domestic product has already been calculated by the Office for Budget Responsibility as rising to 4% a year. In Alastair Campbell’s memorable quip, “Brexit is the disaster that keeps on disastering”.
Now, I hear all sorts of reports that behind the scenes Labour are surreptitiously planning various forms of closer association with our former European partners. But is this good enough? I think not. Mindful of the pretty gloomy economic prospect they will inherit if, as widely expected, they win the next election, Labour are already cutting back on the rather limited promises they made only recently. They are even beginning to disappoint natural supporters.
Some people I meet are, worryingly, asking what the difference between the two major parties is. OK: before I go on, let me remind them that in 1979 the Thatcher government embarked on a policy of sado-monetarism that wrought huge damage to our manufacturing base, which has yet to recover. Instead of using the windfall of North Sea oil to invest in the economy, they dissipated those revenues.
The Blair-Brown governments of 1997-2010 did much to repair the damage to the public sector, and it should never be forgotten that Gordon Brown was a powerful influence on the rescue of the entire economic and financial system in 2009. Little thanks he got for it.
In came the Cameron-Osborne age of austerity from 2010 onwards, a strategic error compounded by the ill-judged referendum of June 2016. The public debate is now fully engaged with the accumulated damage of austerity and the Conservatives’ obsession with the putative wonders of privatisation.
Meanwhile, out of office, Labour watches as the era of sado-monetarism returns, and the media is full of speculation about just how high interest rates will have to rise in order to bring inflation down to the arbitrary target of 2%.
Recently, the Bank’s former chief economist, Andy Haldane, called for a halt, pointing out that the long series of interest rate increases from 0.25% to 5% had yet to take full effect, and that there was a danger of overkill. This evoked memories of the populist monetarist of days gone by, one Milton Friedman, warning that monetary policy operated with “long and variable lags”. (By the way, when older and wiser, Friedman disavowed the monetarism he had preached!)
The interest rate policy is in the hands of the independent Bank of England, but seems to be endorsed by Prime Minister Sunak. It evokes memories of the time in 1988 that former PM Edward Heath complained that, by relying on interest rates alone to control inflation, Chancellor Nigel Lawson was “in golfing terms … a one-club man, and that club is interest rates”, adding: “But if one wishes to take on Sandy Lyle and the rest of the world, one needs a complete bag of clubs.”
Lawson quoted Heath’s remark in his own memoirs, adding that Heath was “not normally a great phrase-maker”. Not normally, but occasionally. It was Heath who described the buccaneering Tiny Rowland as “the unacceptable face of capitalism”. That was in the early 1970s. The Conservative era since, and the obsession with deregulation, has brought many unacceptable faces of capitalism to the surface.
Starmer will have his hands full if elected. But for goodness sake, above all he should grasp the nettle and opt wholeheartedly for re-entry to the EU. Why, this would be such a tonic to the financial markets that it might well help to undo the inflationary damage inflicted by Brexit.
