I have posted this thread to Twitter:
The Tory leadership campaign grinds on. The offers from both candidates continue to make no sense. The coming crisis of government in the face of a looming economic meltdown is obvious, except to Truss and Sunak. What to think? A thread….
One thing that is very clear from the Tory leadership campaign is that Sunak and Truss both hold most people in this country in contempt. The tax cuts both offer are aimed at providing big increases in the post-tax incomes of the wealthiest in our societies, and for large companies in the case of Liz Truss.
Neither has any plan to really help the poorest with the crisis to come. Truss tried, even, to rule out further direct help for those in greatest need, although she might have changed her mind on that now.
Sunak took pride in telling people in Tunbridge Wells that he had initiated the changes in policy that have reallocated support spending from poor, urban areas to richer, rural towns and communities, like his own constituency.
Truss has now confirmed she wants nothing to do with a windfall tax on the profits of energy companies that are exploiting war to extract tens of billions from UK households, who are being driven into poverty as a result.
Why won't she tax those companies? Because, she says, profit is not a dirty word. She apparently thinks this even when it is earned by those exploiting the vulnerable.
It's easy to get a very clear impression of where the Tories are from these claims. Once they excused their policies of greed by claiming there was a ‘trickle down economy' where wealth from the rich eventually benefited everyone. But they are not there any more.
Now the Tories are blatantly a party of ‘flood up economics', where their aim is to reallocate wealth upwards in society. The pretence of inclusivity has gone. They know the only thing tax cuts for the rich do is increase the wealth of the wealthy, and they are doing them anyway.
The Tories also know they are not really the party of growth, which they claim to be. Any party wanting growth in the UK now has to talk about three things. They are rejoining the single market to cut red tape, reopening borders to migration and significant new public investment.
Instead the Tories are united in wanting to take us as far from the EU as possible, making it ever harder for business to trade with it due to the divergence in standards between us and our major trading partners.
The Tories and their prospective leaders are also more than willing to play the race card. The support of the candidates for the hideous Rwanda policy is the clearest evidence of that.
And, when it comes to public investment we hear nothing. Forty hospitals are not mentioned, even though the hospital serving Liz Truss's constituency is literally falling down now.
And when it comes to the biggest issue of the day, which is climate change, Liz Truss can only attack renewables whilst defending oil company profits. It's as if she is in as much denial on climate change as she is on her Remainer past.
The answer both she and Sunak have instead is the same in that every government has relied upon for the last forty years. It is that we should rely on the market to find solutions to our problems. The claim is that they are always more efficient at doing so than governments.
There are just three problems with this claim. Whilst it may have been the case that forty years ago business did try to make money by addressing issues that would create new markets for them and meet need in society, that is no longer the case.
Business now makes money from financial speculation and exploitation. The current crisis is good example of that. Putin's war provides a perfect opportunity to make a buck at cost to western consumers, and that's what the oil companies are doing, without compunction.
Like Truss, business also has no real concern for climate change. That's in the future. Their financial models erase the future, and only think about the bucks to be made today. And this is literally what they are now taught to do. The thinking is endemic.
So business is not the answer to any known problem now. More likely, business is the problem now.
That brings me to the second problem with the claim that business can solve our problems. It simply has not got the means to do so any more.
As research I have done with colleagues at Sheffield University and elsewhere has shown, over a decade many of our largest companies paid out more in the way of dividends than they made in profit.
These companies did that by borrowing money to pay out the dividends they wanted to pay, hollowing out their balance sheets in the process and making them much more prone to failure as a result.
Why did they do that? Because paying excess dividends pushed up the share price and (this is the most important bit) triggered the directors' massive bonus schemes as a result. Businesses have been fleeced. So have investors, who have been conned.
The result is business may now be unable to fund the finding of solutions to any problems we have, however much Tory politicians believe otherwise.
Then there's the third problem, which is that this whole creaking business edifice in which the Tories place so much faith may be unable to survive either inflation, or very large parts of UK society having literally no spare cash to spend, which is the situation we now face.
The cost-of-living crisis directly challenges energy companies with massive bad debts. It won't be people refusing to pay that will create this massive bad debt problem. It will be simple inability of people to pay that will do that. And bad debts are losses by any other name.
I estimate that in two years domestic energy bills in the UK will increase from £30 billion to £110 billion. I strongly suspect tens of billions of that to go unpaid, simply because people will not have the means to make payment.
Of course, the energy companies could try to cut off supply to all these people. They might do that. But let's be clear. That won't work. Their business models are built on the idea that every household needs fuel. Unless the system works at full capacity I doubt they can make money.
What I am suggesting in that case is that the energy companies' exploitative drive for profits has reached the point where these companies are destroying the hand that feeds them - which is the consumer market.
The energy companies can try charging the prices that are proposed now, but if they do the likelihood is that so many consumers will be unable to pay that the energy companies might themselves fail, as many did in autumn 2021.
And there is little chance that the government will give handouts to big to UK consumers that this problem can be avoided when it will be obvious to everyone that all those handouts will really do is not help households, but will instead deliver massive profits to energy companies.
And of course it is not only energy companies at risk from the failure of their customers to pay now. Landlords, banks, water companies, and broadband suppliers all face big bad debt risks that threaten their existence too. It doesn't take much to tip companies over now.
After them, the retail, leisure and hospitality sectors are at risk. They too could fail. I fear many will. And, of course, unemployment will then make matters much worse.
What has all this to do with the Tory leadership election? Quite a lot, actually. The reason is that both candidates are discussing policy as if life is going to carry on as normal when the simple fact is that it is not going to.
Once households face enormous debts they have no chance of paying we have no idea how the market based economy will work. And we are not facing having a few households in this situation. Up to 50% might do so come January 2023. Meltdown will arrive.
We can easily predict what Truss will do in this situation. She will do nothing of consequence. Anything she does do will help the rich the most, and they will not need help. She will then say the market must be allowed to work.
In fact, she will celebrate the companies failing, and unemployment rising. She has long subscribed to the idea that the UK is populated by what she would calls zombie companies, overladen with debt, that must be cleared out of the system.
She will claim the recession to come is just what we need to build the foundations for a new society built on low tax, low regulation and low protection for society. Call it the far-right dream.
That there will be casualties in terms of real people whose lives will be wrecked and even lost along the way will be a matter of indifference to her: that is a price she will think worth paying for the free-market nirvana to come.
Sunak will not agree. He will argue for intervention. He did on Covid. He will again. It may be inadequate intervention, but he will demand it.
And now we come to the crux of this. As this ghastly situation unfolds - and I see neither prospective PM stopping it doing so - the open warfare within the Tories that the leadership campaign has exposed will continue.
Truss will be in the extraordinary position of becoming PM with the support of less than one third of her MPs. She has the mad ones in the ERG, plus Dorries and Rees Mogg plus a pile of carpet baggers, for sure. But remarkably few Sunak supporters have shifted to her.
The reality is that such is the Tory leadership selection system that Truss can become leader without commanding her party in parliament.
What will happen in that case when the proverbial really hits the fan this winter? Will Truss fold and offer support? Will she have to tax energy companies more? Will she redistribute wealth downward? And will the Steve Baker crowd let her?
Or will she hold out to impose misery in the style of the National Government in the 1930s?
But will Sunak supporters go along with that? Given the splits in the party that are now very apparent, why will they support her unreservedly in the months to come? I can't see that happening. The blue on blue action is going to continue.
My fear then is that as the economic crisis deepens we will have a collapsing government, riven by internal Tory warfare to deal with as well.
Now of course, if that leads to a general election that might be a good thing. But don't expect that. The Tories will fight each other and leave the country adrift, but they will not vote to bring a Tory administration down.
So we face, on top of everything else an absence of government.
And in the sidelines a Johnson / Farage axis of evil might develop. I think that likely.
So, where are Labour? They have today announced higher tariffs for prepayment meter users are a bad thing, which is undeniable. I have also said so. But that is not a strategy
In the toxic environment that we face we need a real alternative strategy, ditching all prior assumptions. We need a plan (and not Gordon Brown's half-hearted one) to actually tackle the mess we are in. People need to know there is an alternative.
For the sake of democracy, order, and the protection of people it is time for serious debate on how we get through the economic, social and political crises to come. I just wish I saw evidence that such discussions are taking place, but I don't.
I have offered some solutions on my blog and here, but we need more and no one is coordinating this. We are in very deep trouble.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
One of the many positives of visiting this website is to read intelligent discussions about the real problems that this country and the world face.
One of the most worrying aspects of our present situation is the extent to which a very right-wing government, aided and abetted by 3 or 4 fanatically right-wing newspapers, has succeeded in intimidating most of the rest of the UK media into silence about such matters and thereby succeeding in gaslighting most of the nation into accepting as normal government ministers talking about policies and actions that are immoral, corrupt and often downright illegal.
It was startling yesterday to hear the boss of Ryanair Michael O’Leary, right-wing but Irish, say that he frequently meets UK Businessmen who think that Brexit is a disaster but are too scared of the consequences to speak out. I never thought such a thing could happen in Britain.
Seconded. I might bang on about this hobby horse of mine but I do believe that until the media is reigned in there will be no respite. Labour fail to understand that no matter how much they try to soft pedal any government criticism the press barons (remember when we had ‘union barons’?) will turn on them with no limit to the lies and vitriol.
There was some good discussion of why Starmer could be acting the way he does that seemed plausible but that approach will lead nowhere.
There are areas Starmer could show leadership without seeming to endorse a 1970s socialist approach. On civil rights, on stopping privatisation of the HNS, aspects of the green New deal and pointing out that if working people accept below inflation wage increase it is 1) unfair for shareholders and landlords to be receiving increases above that level 2) it will lessen demand and push us further into recession.
One can understand that he wants to distance Labour from the Corbyn defeat but Ian is quite right. However ‘moderate’ he tries to be, come election time, the billionaire media will turn on him with lies and malice. Starmer needs to show he has ideas, better ideas than the stuff the Tories are trotting out . He needs to mock the tabloids in the way Mick Lynch does.
We need some energy to meet a desperate situation.
Your description of Truss renders her much like Andrew Mellon, Hoover’s Treasury Secretary. At the beginning of the Depression, he argued for no assistance in order to get the rot out of the system, which does not seem to be different from her approach. It is insane, of course, just like his. Hoover was replaced by FDR, with a radically different approach. Unfortunately, we don’t have an FDR; we have Starmer. I don’t see any substantial fiscal program from him. He appears to be inadequate to the task facing him.
It is a curious aside, but Andrew Mellon spent much of 1930 negotiating with Stalin to buy the best paintings from the Hermitage collection in St Petersburg. That was a lot more important than boring stuff like the onset of the Great Depression in the USA.
Yes. Incredible. What an ass he was. And I am being polite here.
Richard as ever a thought provoking and slightly terrifying read.
I heard today of two leisure related businesses who are considering shutting large units from jan 23 till March 23 because of anticipated energy costs in trying to heat venues/premises.
There is no cap as you know for business customers.
Truss is the runt of a very bad pack of unelectable people in the Tory party. I honestly do not know how they will retain power at the next election unless all they do is outspend the other parties.
For discussions about what is going on, let me tell you what has been going on between me and the ‘Ministry for Levelling Up’ shall I?
From 2020, my org’ delivered 30 units purchased from the market with a £60K subsidy via Homes England with us funding the rest. These units were used to get rough sleepers off the streets and into supported living. We were one of the few ALMOs/RSLs to deliver the project within the time frame.
So, we applied again to do another 10 and our offer was accepted for it only to change at the last minute when were told by the MfLU that we would only get £40K subsidy per unit this time. This in the context of grossly over-priced local housing market BTW.
Can someone explain to me why a successful deliverer of an agenda would be offered less money to do the same project again?
No – neither can I – so we declined to do another 10 and that was that. What are they thinking at Whitehall? All HRAs now are self financing with no prospect of a central government top up, and there we were expecting to use more of OUR money to deliver on the LU agenda – a Tory policy – not Government money. Unbelievable! We were successful and were punished instead with less subsidy!!
Next up is low carbon agenda and the ‘Social Housing De-Carbon Fund’ we successfully applied for.
We got an initial allocation of I think £845,000. We worked out that to modernise our stock would be in the region of £25K each unit. That means that we can (drum roll) de-carbon 33 out of our 12,845 homes!! Wow (not)!
Added to this is that the grant rate has been reduced and will now only contribute £10K to each of those units – we will have to provide the rest. Yet the MfLU sees their contribution as ‘fully funded’ (I promise you that is what they tell us). The extent of the climb down by MfLU is so high that we are going to have to give some of that money back as we cannot afford to carry the works alongside our current newbuild and programmed maintenance commitments.
I mean, how half hearted or insincere is all that? How notional is it? It’s just gesture policy with no real scale of impact so that numpties can tell the world they have done something even though it will not even scratch the surface.
Not even a fantasist would call what I describe above as ‘levelling up’; but it seems a bunch of lying Tory bastards would.
I ask you!
So, in conclusion I concur Richard with your thoughts.
That’s bizarre
In my opinion giving the corporations and the rentiers that invest more tax cuts is a way of lining their pockets prior to the nationwide release of charter cities.
As you say the need is to get help to those who need it most.
But the devil is in the detail.
The basic problem is that global demand is greater than global supply because of sanctions on buying Russian gas.
The price that will equalise global supply and demand will mean than many people will struggle to heat their homes.
These people therefore need to be able to buy gas at a price less than the equilibrium price. Should the government introduce some sort of price taper and just rule that the first X M3 of gas most be billed at £Y per M3 where X and £Y are amounts that mean that no one will die of cold? The government then reimburses the supplier for the difference between what they paid for the gas and the price at which they were forced to sell it. Note that suppliers make no windfall profits. It is the upstream companies, from which the suppliers buy the gas, that make windfall profits.
I am in favour of a windfall tax. In the 1980s the windfall tax was called Petroleum Revenue Tax (PRT). The tax rate for PRT was 75% of PRT profits. The calculation of PRT profits was decidedly complicated and non-linear.
My point is that it will take time to develop a windfall tax. But with some sort of price taper in place that need not be an issue of concern. And, of course, everyone on this group knows that taxes do not fund government spending.
Would a price taper be a sensible policy for the Labour party? I have very little knowledge about these things.
Why not just cut out the profit centre middlemen (the downstream companies) and replace them all with a single government-backed not for profit organisation supplying energy to all consumers (including businesses)?
Because the supply chain is multinational how does that work?
I’m sorry, Richard, I don’t understand. I don’t think any of the current suppliers to Uk consumers are multi-national? I know some are owned multinationally, but they only supply our domestic market. Do away with them, intriduce a single NFP supplier in this country, who buy from the energy producers and sell to the consumers.
But this still leaves us exposed to international pricing and solved little, imo
The UK suppliers (Bulb, Robin Hood, etc) do not make windfall profits. They just have a markup on the price at which they buy from the upstream companies who are trading internationally and do make windfall profits.
If the UK was energy sufficient then you could make a case for doing what you suggest.
In December 2021, Obrador, President of Mexico, said he was, in 2023, going to limit Mexico’s trade in global markets to what was left over after the domestic market was supplied. Mexico has the advantage that, unlike the UK, its production of oil & gas is greater than its domestic consumption.
But, as Richard points out, the UK has to trade in the global energy market because it only sources some 50% of its energy internally.
In global markets price is typically used to bring demand into equilibrium with supply. A price solution always favours the rich. An alternative to price is some form of rationing. (Ernest Bevin insisted on rationing of meat in WWII because he knew that otherwise those with money would get the all the meat.)
I am proposing a form of rationing in which all household should be able to buy from their supplier an amount of gas which meets their basic needs at an affordable price. The affordable price will be less than the market clearing price, so the government would have to reimburse the suppliers the difference between the price at which they bought the gas from the upstream companies and that at which they were required to sell it to their customers. The government could recover this amount from the upstream UK companies through a windfall profits tax.
However, suppose the UK upstream companies do not produce sufficient gas to meet basic UK needs. Gas would then have to be bought on the international market from companies on which a windfall tax could not be imposed. The international markets would only accept £s in payment if they feel confident that those £s have value. Will they have that confidence or will they prefer German Deutschmarks?
Maybe if the TUC and Matin Lewis got together, as the unions and Lewis are the only public voices getting a wide airing, then the seriousness of the situation can be hammered home and some energy price lowering and freeze can be put in place. France has an energy increase price of just 4% and the EU average is about 40%. If they can do it so can the UK.
David Byrne says:
We must think the unthinkable, that being the collapse of the UK economy within the next 12 months. And one resulting outcome is certain, the rats will desert the sinking ship.
We need an early general election in order to to test the UK’s desire for democracy or a further drifting towards repressive fascism.
Sorry, can’y seem to reply t the thread.
Richard said: But this still leaves us exposed to international pricing and solved little, imo
In which case the multinational energy suppliers can chose to charge whatever they want to charge?
See another answer already provided
Cyndy,
They can charge a price which is competitive on the international market and so make windfall profits (at present).
If the company is producing gas in the UK then those windfall profits can be taxed. If the UK buys gas from a company that is operating in a different fiscal regime then its windfall profits cannot be taxed by the UK government.