Blog 2023 Malcolm Blair-Robinson

Mervyn King has warned that higher fuel prices will push inflation to 5% before the end of the year. Normally this should be alarming news and, as this blog as often argued, presage a rise in interest rates. That is not going to happen, because higher interest rates would mean a stronger pound. The industrial recovery, geared to exports, would find a higher pound much more difficult than a marginal hike in borrowing costs.

This reveals a weakness in the current model of inflation management. Interest could have been used at the start of the cycle, but the opportunity was missed. By letting interest stagnate while inflation rose on a falling pound, the value of sterling debt was reduced. The benefit of this is, however, lost against the rise in value of overseas debt, measured mostly in dollars and which is very large.

The problem now for the MPC is that even if inflation is not out of control, yet, it is out of the MPC’s control, because it cannot use the only weapon it has in the curent climate. It still believes everything will come right in the end. We must all hope so.

Like many, I listened to David Willets, the Universities Minister, explaining on the radio this morning that the Government was thinking of allowing rich parents to buy their offspring places at the best universities. This peculiar proposal was, among other things, to help with the the establishment of better social mobility. By the time I was able to apply the time to writing what would have been one of the most withering denunciations of public policy in the history of this blog, the Westminster sky fell in and statements were issued watering down the whole idea and pretending it was something else.

This, for the coalition government, is an alarming episode. Unfortunately it is not isolated but part of a pattern. This government, having started well and remaining strong on the economy and deficit reduction, is losing wheels from almost everything else. It is beginning to look headstrong, reactionary and inexperienced. There are so many u turns it is hard to know where actually it is or where it is trying to go. What is clear is this. It must get a grip or it will not go on for long.

I recall the ill fated government of Edward Heath, elected in triumph in 1970 and ejected in exasperation in 1974. It was full of reforming zeal, inspired by some kind of bonding conference at a Croydon Hotel, but its reforms went off the rails and the country ended up with a three day week and trade unionists in prison. That was that. Interestingly between 1964 and 1979 the Tories were in government for just four years. They were rescued from the doleful shadow of perpetual opposition by the rampant left going looney and the weakness of the Callaghan government. Oh, and a certain former Tory eduction secretary cum housewife, Margaret Thatcher.

If this Tory led government is going to avoid a Heath experience, it needs to buckle to. One more crackpot proposal to turn the social clock back to pre-war days and the Lib Dems, already uncomfortable with the project, will walk out altogether.

The Tories will feel happy with the elction results. They did much better than expected and the No campaign, which they backed, won a landslide. Their happiness may be misplaced.

Their gains were largely at the expense of their coalition partners in the south, the Lib Dems, who also lost out to Labour in the north and to the SNP in Scotland. Their partners in coalition are bitter, smarting and angry. The Lib Dem membership is close to rebellion and their MPs are restive. Through gritted teeth they proclaim faith in the coalition, whilst Nick announces that the NHS reforms will be vetoed unless revised and Vince declares Tories to be rathy nasty and untrustworthy people. This is not an ideal way to conduct government, especially in a financial crisis. Voters can see cracks and the cracks will get bigger. Filling them in with spin will do more harm than good.

The reality is that the Tory victory has brought them a hobbled coalition which in future will find that it is little better than a Tory minority administration kept going by a Lib Dem confidence and supply arrangement, albeit with Lib Dems in the government. Indeed many Lib Dems want to get out of the government and become just that. Minority governments doing unpopular things do not last beyond the period of inflicting maximum pain. When conditions start to improve they are brought down and made to go to the country. If that happend the majority of Lib Dem defecting votes would turn left to Labour. The Tories would then be back in opposition.

The price of Cameron’s victory is a crippled coalition, as the unfolding weeks ahead in Westminter village will reveal. Hmmm.

I have long believed that Constitutional Reform was necessary to modernise our democracy. I look to something  beyond just the voting system. Modernisation of the Monarchy, the House of Lords, the Church of England and the way Parliament functions are all on my Agenda, which goes as far as a Written Constitution, but stops short of proportional representation. I do believe every MP should have a majority of the votes cast and that is best achieved by a second run off election, of the top two candidates, on the French model. I believe also in an independent Scotland ,Wales, Ulster ( if not eventually united into one Ireland) within a single United Kingdom, which would include an independent England. Each would have its own parliament and electoral system, but a United Parliament would manage defence, foreign policy and the currency. None of this was ever likely to happen; after yesterday it definitely will not. 

The British people, or those who care in numbers which surprised commentators, voted to keep our British system exactly as it is.  All the nations which make up our kingdom have their own parliament or assemblies (except England) and have a proportional element in their electoral arrangements. The question posed was therefore about changing the core element in the government of the whole UK, but a YES would have been received as a bigger change in England than in the regions. The rejection was a resounding declaration that first past the post is best. The landslide view was that it works and Britain is one of the most stable of all the world’s democracies. That is true, but at its centre it is one of the least democratic. How does it work?

The British Constitution remains a Monarchy with some delegation of powers to Parliament, of which only one Chamber is elected. The country is actually governed by a mixture of permanent civil servants who run everything and the Royal prerogative which determines policy and is exercised by the Prime Minister and the Cabinet. All is financially restrained by Parliament which alone holds the cheque book. All operate through a multitude of quangos and State forces including the armed services and the police. Only the Commons are elected. All the rest is not.

In this amalgam, which is called, mysteriously, the Establishment,  lies all authority.  All power lies with the people, not so much because they were given it, but because that is the outcome of the technological revolution. The Establishment and all its parts stand because the people not only allow it, but are happy with it. If they all rose up together in revolution all would be swept away.

The safety valve which allows excessive pressure to be released is the House of Commons. It holds the purse strings and supplies the Prime Minister and the majority, but not all, of the Queen’s Ministers. It has to approve new laws. It is elected by universal franchise of all citizens over the age of 18. Voting is not compulsory. Those who exercise this right and a third do not, cast their ballot on the first past the post system. This means that loads of people are elected with far fewer than half the votes cast. It also means that all single party governments, which is most of them, have a majority of seats which bear no relation to the percentage of all votes cast. Therefore most people have voted against almost all governments, but it is in this peculiar arrangement that the strength of the whole democratic settlement lies. Because the majority  have voted for parties not in government, this makes the Oppostion not only a constitutional pillar, but very much more powerful than in many other electoral systems. It ensures a creative tension between governors and the governed which guarantees liberty and inhibits extremism. Unless there is broad support for a policy it cannot happen. Even the most powerful are toppled. Eden and Suez. Thatcher and the Poll Tax. Blair and Iraq.

The odd thing is that the present coalition has a majority, quite a big one, of the votes cast in May 2010. We now know the voters do not feel comfortable with that. They took it out yesterday on the one and only party that made the deal possible. They did that because it is not what they voted for in the first place. They voted Lib dem because they believed it was a permanent party of opposition. This was why they liked it and supported it. Once in government Lib Dems lose their brand.  Better to vote for one of the big players. The NO landslide was not just a vote against changing the voting system. It was a vote against what such a change would introduce as a permanent feature. Coalition government.

Friday was a very intersting day politically. Very interesting indeed.

Yesterday will be seared into the Lib Dem psyche as its worst day. Black Friday. Defeat on every front. Humiliation is not too strong a word. The biggest blow is the massive rejection of electoral reform, one of the pillars of the party’s raison d’etre. Some are already suggesting the party has received a mortal blow. Tories are extending a welcoming hand on the lines of the post Lloyd George National Liberals who took the Tory whip. Maybe, but not yet and if so, not many.

The party is down but not out. It lost half its councils and councillors, but not all of them. Its days in government may be limited to the life of this coalition. This may not be as long as people think. There may be outright Lib Dem rebellion over NHS reform or a soft touch to banking re-structuring. If the tinkering to education does not work out there could be trouble there too. Tuition fees, on which the making and breaking of their pledge, the foundation of their diaster was laid, may not go away.

Smarting, angry and emboldened, the Lib Dems may feel they have little left to lose, or perhaps more to gain, by pulling the rug from under the hugely enhanced Cameron. Their comfort zone is opposition, after all. For this reason he needs to be cautious. What has emerged is that while some Lib Dems in the south are willing to go with the Tories, the majority of the modern Lib Dem party are nearer Labour, unlike the historic National Liberals. Their votes will either go to their own candidates tactically to keep the Tories out, or go to Labour. Projections of yesterday’s results into a Parliamentary election give a clear working majority for Labour.  Considering the Brown defeat of only a year ago and the uncharismatic (though empathetic) leader chosen since, that shows a remarkable recovery for Labour and danger ahead for the Tories. It would tend to indicate that the natural majority is now with the centre left and no longer with the centre right. On that tide the Tories alone could never win nationally. Even on first past the post. They are no longer the one nation party. They are the English party and especially of the English countryside. That is not enough to govern the whole of the United Kingdom.

The Tories, who were braced to loose 1000 seats and actually have a net gain of over 50 so far, have done very well. Labour, with a net gain of 700, have done well considering it is only a year from their election defeat, but nothing like as well as everybody, including opinion polls, suggested. They have, however been totally trounced by the SNP in Scotland.

The Lib Dems have had a calamity. They have lost seats to Labour across the north where their advance  has been the bedrock of their increased numbers at Westminster since 1997, but they have also lost to the Tories in the south where their coalition partners are their main challenge. In other words they are losing votes both ways. Lots of votes. They have lost some 600 councillors. For them this is a meltdown.

It is a meltdown because their protest vote component, a key ingredient for a party that was seen as the permanent party of opposition, has drifted back home to Labour, ex Blair and Brown, or to the Tories, now that they have become more moderate and nicer. What their future is, or whether they have one beyond counting their MPs in teens, depends on the outcome of the AV referendum and for that we have to wait a little longer. We think we know, but nothing in these elections has gone according to expectations, so before this blog goes further, we will wait for the actual result. We do know that turnout is higher than expected, but we must wait to see what, if anything, that means.

It is rash to comment on a blog like this one, before the outcome is known in an election. However a trend has developed which is very interesting. The Lib Dem vote has crashed back to the level of past times when it was never enough to be more than a nuisance. The Tories are holding their own in England so far (they do not count anywhere else). Labour have been making big gains up north and have gained one landmark council in the south (Gravesham). The SNP is on the way to a spectacular victory in Scotland, where Labour has had a disaster. On the other hand Labour is doing well in  Wales. So what do we make of all this?

What is happening is that the Lib Dem protest vote, which is  a big segment of its total, has drained away, but not all in the same direction. In Scotland it has gone to the SNP, with spectacular results. In the north of England it has gone mostly to Labour and locally with a vengeance; in Manchester every single LibDem candidate has been defeated.

The question now hangs, where is that Lib Dem flood going to pour in the south? Or will there be no flood? When those answers are known this blog will have a lot more to say.

Meanwhile a thought. Since 1974 only two political leaders have been able to gain and sustain a majority in the Commons. Thatcher and Blair. The Labour governments of 1974 (two) either did not have or later lost majority, as did the Conservative government of John Major after a narrow win in 1992. Thatcher and Blair both depended on the distribution of the third party protest vote, since neither ever had a majority of the votes cast.

William Hague made a rather off balance return to government as Foreign Secretary. First there were personal issues and a departing aide, then one or two uncharacteristically lacklustre performances in the Commons. People began to wonder if his heart was in the job. Maybe he wondered also.

He shows increasing signs of not only finding his feet but of shaping a much more independent foreign policy than we have seen for many years, which not only evaluates British interests, but also defines the deeper meaning of unfolding events. This gives his words a much more sophisticated ring than the State Department driven mantra of several of his predecessors. There are signs too that Downing Street does not always get its way. Hague is beginning to show sharper judgement than Cameron, when it comes to assessing the best way forward. I am not at all sure that he was as gung ho for military action as Cameron over Libya.

We shall now have to wait on events, before we know whether he will make the transition from politician to statesman. Libya, Syria, the Palestinian State in the making, Afghanistan, the Taliban, Pakistan and of course the nervous Israel are all big issues on their own. Taken together they are a challenge of complexity. A lot could go wrong. But if the right judgement calls are made a lot could go right. More than we ever imagined. Hague’s shadow could then  take a good deal of light away from Cameron and Osborne.

The general view is that interest rates should stay on hold a while longer. This blog has supported those who think a small rise is overdue. Especially we disagree with the economists and politicians who want to slow the cuts as well as  to hold interest rates down. However there is a case emerging for keeping them down now. 

Commodity and tax inflation has not fed through into wage and salary inflation, thus disposable incomes are shrinking. This is holding down house prices, which is a long term must, as well as preventing indiscriminate price rises. All of that bears down on the kind of inflation within the remit of the Bank of England to control. Additionally, this is important for one of the world’s most indebted nations, household debt and mortgage debt is coming down. In part this is because many borrowers have left their monthly payments at the old level, thus paying off more capital, while paying less interest.

There is another factor. This recovery has to be manufacturing and export driven. Indications are that it is, but only to a point. The impact of cuts both on jobs and spending is likely to be nearer the pessimists’ fears than the optimists’ hopes. All the more is it necessary for the private sector to take up the slack. This is easier with a low pound. A hike in interest rates will increase the value of sterling. Above all, we do not want that now.

Had rates been increased by a quarter or half point months back when inflation began to take off, it may, likely would, have been possible to drop them back again now, giving a sharp  boost to industry and business just at the moment when an extra heave is needed. That opportunity was passed over. Now may not be the time to try to catch up. If damage has been done in the battle against inflation by being too slow, to act now after the economic balance has shifted would be  to be wrong again. There is enough resilience in the economy to be wrong once; twice over would be another matter.

The time before the country votes in only its second national referendum can now be measured in hours. The opinion polls are thus far united in giving the NO camp a commanding lead. It is possible the polls are wrong, that YES people will all vote, whereas NO people may not, the undecided will all go YES and so on; all probably wishful thinking if you were hoping to change the way we run our parliamentary elections.

The responsibility for their defeat, if it happens, lies firmly with the YES campaign organisers for doing such a lousy job. I do not recall a more inept campaign for anything. Most people have no idea what their message is. Their failure to get across one simple stark and clear message, that no person should go to parliament unless elected by more than half the votes counted, has never been properly proclaimed. Instead we are caught up in confusing arguments about votes flying from one candidate to another with no rhyme and little reason. 

If it goes pear shaped on Thursday for the Lib Dems they can blame nobody but themselves. They had the Tories by the short and curlies at the coalition negotiations and they could have stood out for a Parliamentary free vote (a referendum is constitutionally quite unnecessary) or a better system than AV. The Tories who have most to lose from a YES win, knew all along that AV was a difficult package to sell and that they could win a NO vote easily in  a referendum. That’s why Oliver Letwin was chuckling. The chances are that he will still be smiling when the result is declared. YES people will have to pull out all the stops to wipe that smile from his face. But then again, in politics, anything can happen.