There is understandable schadenfreude around the place about events in London. Sometimes, watching the increasingly bizarre performances of Liz Truss in recent weeks culminating in her tragicomic fall on Thursday, a day after she declared herself “a fighter and not a quitter”, not to mention the frantic contortions of the Tory press, and now the scarcely believable possible return of Boris Johnson — sure you’d need a heart of stone not to laugh.
The collapse of Conservative support is unprecedented in British politics and has the feel of a paradigm shift about it. Keir Starmer’s leadership of the Labour Party might have been uninspiring but an appeal to centre-ground voters has been the only viable approach for Labour for decades now, even if half the party (and sometimes more than half) periodically refuses to recognise that. Events have fallen spectacularly in Starmer’s favour and suddenly his strategy of making sure that Labour is not unelectable and waiting for Brexit to eat itself looks like a masterstroke. The attitude of a Starmer administration to Northern Ireland is now of real and immediate interest to Dublin.
There is a sort of poetic justice to the immolation of Brexit on the altar of the global financial markets — in whose sunlit uplands global Britain was, the Brexiteers insisted, set to thrive. As one British academic observed last week, the country is “going through all kinds of intellectual contortions just to avoid the really obvious conclusion, that being in the EU and raising about 40-45 per cent of GDP in tax is what you need for a fair and prosperous society”.
But while it’s understandable, we should maybe all dial down the amusement a bit. In fairness, talking to people in and around Government in recent days and weeks, once you get past the sense of amazement that the great edifice of British politics and government with which the Irish political class was so familiar has been so degraded, the predominant response in Dublin is concern about the economic and political spillover to here. In Brussels, where leaders and officials from the bloc’s 27 members gathered on Thursday and Friday for a summit meeting, the response is much the same — amazement, yes, but also concern.
Having your backside handed to you by the bond markets is not a pleasant feeling, as we can all too well recall in this country
The fact is that a British recession or a long period of stagnation — both seem likely — will hurt not just millions of blameless ordinary people across the UK, but also hundreds of thousands of Irish people who either live and/or work in the UK, or whose lives are in some way entwined with our nearest neighbours.
Having your backside handed to you by the bond markets is not a pleasant feeling, as we can all too well recall in this country. The consequences are felt in the daily lives of real people — living standards down, life chances stunted, material comforts diminished in old age, ill-health, poorer public services, unemployment, increased suicides and lives blighted and wasted. We know this is the cost of economic disaster and fiscal calamity because we experienced it not so long ago.
Liz Truss resigns. Now what?
That’s the reality of austerity. That’s the reality of slashing public spending because the people who most depend on the state are the people likely to be hit when the state shrinks its reach and capacity because it needs to cut spending. Sure, you can choose to protect, to some degree, those who are the most vulnerable. But anyone who tells you that they could be completely insulated, or that there’s an easy way of fixing the national finances when the markets are ranged against you and refusing to lend you money at affordable rates — they’re not being straight. There’s no painless way of doing it.
This is why there are a couple of lessons in the British disaster with which we might usefully refresh ourselves. It’s no good for everyone to say “never again”; our politics has to make sure it never happens again.
The Government must run stable public finances, ensuring that current expenditure is covered by tax receipts and that borrowing for investment is kept at a sustainable level
The first lesson upon which all others are grounded is that any government needs to accept the power of the markets. The complacent assumption of Liz Truss and Kwasi Kwarteng that the markets would accept their hare-brained budget, with all its £65 billion (€74 billion) of unfunded spending commitments and tax cuts, should serve as a warning to all governments who have to rely on the bond markets to finance themselves — as the vast majority of governments do. Even when — as is the case here — the national debt is not growing, the Government needs to refinance maturing debt with new issuances. This year the National Treasury Management Agency (NTMA) will borrow more than €10 billion. In a September auction the NTMA borrowed for 10 years at an interest rate of 2.2 per cent. Last week, as the Westminster omnishambles unfolded, the British Treasury had to pay over twice that rate: a difference London market commentators are now calling the “muppet premium”. Ultimately, the markets will make up their own mind and governments have to deal with the consequences.
And this, in turn, means that the Government must run stable public finances, ensuring that current expenditure is covered by tax receipts and that borrowing for investment is kept at a sustainable level. That the promises to throw money at problems, with which politicians of all parties are so enamoured, are accompanied by realistic estimates of how much they will cost or how they are to be paid for. That we remember the bleak but unchallengeable observation of economist Colm McCarthy as austerity bit hard here a decade ago, that the government was not short of compassion, it was short of money. Giggling at the Westminster omnishambles is all very well. But let’s make sure we don’t end up back there ourselves.