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This is unpatriotic of me, but I suggest that international bond investors take note of the following realities in Britain.
The Labour government has a tremendous majority in parliament. It does not have to call a general election until 2029. Its opponents are split, perhaps terminally. When it cut pensioner perks to save the indebted kingdom some cash, public anger was, while fierce, unexceptional. And still Labour capitulated to the pensioner vote. As it did to public sector wage demands last summer. As it soon might to some child benefit recipients. If this of all governments cannot withstand some run-of-the-mill moral pressure, which UK government ever can?
Now that we are at its approximate quarter point, we can derive a few rules of thumb from this unfolding century. Don’t launch a land invasion of another country. The wars in Iraq, Afghanistan and Ukraine all bogged down an overconfident invader. Don’t expect economic growth to please people. The US has left Europe behind in income terms but has at least as bad a populism problem. And don’t try to control public spending. It is politically near-impossible, except (more on this later) in a national crisis.
French President Emmanuel Macron put up fuel taxes in 2018 and the pension age in 2023. The result? The worst protests in that tinder box of a republic for half a century. Gerhard Schröder made modest cuts to the German welfare state as chancellor a generation ago. The reward was defeat to Angela Merkel, who won the next three elections by ducking such reform. Theresa May confronted British voters with the cost of elderly care in 2017. She never recovered.
And then there is the US, God’s own debtor. It could once at least count on the Democrats to show some token interest in fiscal rigour. Now both parties have a tacit agreement to ignore the debt — call it the Washington Consensus — even at risk to dollar supremacy. Elon Musk, having failed to change the federal government, must lower his ambitions to things like terraforming Mars.
So, debt is a pan-western problem, and a developing world one too. Why fear for Britain in particular? One reason is Sir Keir Starmer’s character. He waited for voters to dispose of Jeremy Corbyn before deciding the old socialist was unfit for office. He waited for a court ruling to clarify his position on what a woman is, which even then he did through a spokesperson. The estate of John F Kennedy will never have to update Profiles in Courage for this man. Controlling spending often comes down to one’s sheer capacity to absorb hatred. Starmer would only be human if he didn’t have it. There is a neediness at the centre of most public figures. It might not be coincidence that David Cameron, who cut spending, though to an overrated extent, is the one top-rank politician in my time who had no apparent insecurity. Public protests bounced off that unhaunted man.
I nurse a theory that low-charisma politicians are the biggest financial liabilities. Unable to win the affection of the public on their own terms, they go on expensive crusades to announce their goodness. When she had become a national joke, May signed up to net zero targets as part of her Please Like Me farewell tour. See also Gordon Brown in his Treasury years. Starmer and chancellor Rachel Reeves have that potential. A government tends to be strongest at the start. If this pair can’t hold the line now, imagine the dog days of 2027. If you believe that Labour is going to press on with welfare reform when backbenchers start the moral blackmail, I have some gilts to sell you.
Nor does it get better outside of Labour. The coming force in politics is Nigel Farage’s Reform UK, in some respects the more statist movement. The Tory party never saw a pensioner it didn’t try to bribe. Its intellectual climate behind the scenes consists of uncosted industrial dirigisme from the less numerate end of May’s former team. This is an odd thing to say of a country that has twice unnerved the bond markets in recent years, but investors worry too little about Britain’s political and therefore fiscal trajectory. The country gets by on a reputation for “institutions” that puzzles some of us who have seen inside them.
If the illusion breaks, and a debt crisis happens, it might at least force a reassessment of the state from first principles. The only way that painful but necessary change happens in high-income democracies is through a sense of emergency. One preceded Thatcherism. Another led to reforms in Mediterranean economies post-2010. I don’t want such an event, but do envisage one. Many western states have finances that would struggle to withstand another shock. Imagine a pandemic, even half as costly as Covid. There isn’t room in some countries to raise taxes without harming incentives. (Unemployment in Britain is rising as the national insurance rise takes effect.) In a world of high rates, governments are spending more on debt interest than on education or defence.
Reeves’ spending review this week smelled like an era coming to an end: the references to spending as “investment”, the hailing of the provinces over London and its productive satellites. This is a model of government that is almost asking to be put out of its misery. What the likes of Musk couldn’t do, the bond traders might.