Conference season is almost upon us and there is huge anticipation this year as these are likely to be the final annual conferences before the next general election.
For Labour, that means it is the last formal opportunity for party members to contribute to the manifesto, which is why there is some excitement about the publication of the National Policy Forum (NPF) final documents.
Here are the five things you need to know.
1. The NPF is elected to shape Labour policy
For those of you who aren’t Labour nerds, you might be wondering what this is and why it matters. Briefly, the NPF is an elected group of Labour members, trade union members and the Shadow Cabinet who debate and shape policy submissions. They last met for a long weekend in July and agreed a wide-ranging policy programme which is being circulated today. It matters because, as a democratic socialist party, Labour members expect to be able to shape policy.
2. Don’t believe the hype – this is not the manifesto
Despite all the noise, we are a long way from the Labour manifesto. First, this document needs to be endorsed by delegates at Labour party conference in October – where it can still be amended. Then Starmer and his team will spend the next year listening to businesses, unions, trade bodies, and of course the public, before the manifesto is finalised at the Clause V meeting just before the General Election.
3. It’s the economy, stupid
This may not be the manifesto, but it’s still important. And the 50 most important words in this document are found on Page 7 and are worth repeating:
Labour’s fiscal rules, as set out by Shadow Chancellor Rachel Reeves, are non-negotiable. They will apply to every decision taken by a Labour government, with no exceptions. That means that Labour will not borrow to fund day-to-day spending, and we will reduce national debt as a share of the economy.”
Confirmation, if it were needed, that Labour believes the path to No.10 lies in demonstrating that it is they, not the Conservatives, who can be trusted with the economy. This will mean battles with their own supporters about how much change Labour can promise, but Starmer and Reeves have made the calculation that it is the public who determine election results, not Labour members.
4. Labour is walking a tightrope with the Unions
Thirteen years of Conservative government have left most Unions focused on getting Labour over the line at the next election. But relations could be seriously tested if Labour wins. The NPF document contains many policies that Unions will like in the ‘A New Deal for Working People’ section (page 35), such as commitments to repeal anti-union legislation. Unions will expect action on those in the first 100 days of a Labour government – and Starmer will be criticised, as Blair was, if he doesn’t repeal Conservative Trade Union legislation. Greater pressure still may come from elsewhere – re-read the Reeves 50 words on the economy, then consider that some public sector unions have been asking for 18% pay rises. Tough negotiations lie ahead for Labour and the Unions.
5. Labour still has plenty of decisions to make
The NPF document and the Five Missions tell us Labour’s priorities, the direction they want to take the country in, and some of the policies they want to enact in government. But they can’t do much of it without the private sector. Starmer has been in listening mode with businesses since day one of becoming leader. He wants to present Labour as the party of business at the next election so that voters will believe his targets on growth and the economy. If you have something to contribute to that conversation, Labour will want to hear from you.
If there was ever a time to engage with the Labour Party, the time is now.
Sir Keir Starmer’s long awaited reshuffle took place yesterday. It had been widely briefed as an opportunity for Starmer to get his top team in place for the general election – promoting Shadow Ministers who have impressed and ensuring Labour’s most experienced and recognised faces are in place. Scroll down for the full Shadow Cabinet list.
Rise of the centrists
Labour’s centrists are unquestionably the winners. Rising stars Wes Streeting and Bridget Phillipson never looked in danger of losing their posts, and Peter Kyle, Liz Kendall and Darren Jones have all been elevated to the Shadow Cabinet. Starmer loyalists Shabana Mahmood and Steve Reed remain in the Shadow Cabinet. Meanwhile soft left MPs including Lucy Powell and Lisa Nandy were demoted to more junior roles and Angela Rayner, the powerful Deputy Leader, has been given the Levelling Up role in a move described by many as ‘the John Prescott role’.
Also significant is the promotion of senior Blairite Pat McFadden to the Shadow Chancellor of the Duchy of Lancaster and the National Campaign Coordinator – in plain English, he is tasked with running the general election campaign and if Labour wins the election, the machinery of government. McFadden is as Blairite as they get – he was in Tony Blair’s inner circle from when Blair became Labour leader in 1994 and was his Political Secretary in No.10.
The party HQ team McFadden will be working with are similarly minded – Morgan McSweeney, Marianna McFadden and Matt Pound all come from the new Labour school of politics. And his deputies – Jonathan Ashworth and Ellie Reeves – are thoroughly steeped in the moderate wing of the party. These appointments tell us that Labour’s approach will continue to be ruthlessly focused on winning the election and resisting voices that wish to pull the party leftwards.
Government experience clearly counts for Starmer, who knows that the Parliamentary Labour Party is light on MPs elected before 2010. Rachel Reeves, Ed Miliband, John Healey, Yvette Cooper, and David Lammy all kept their roles, and there is a return to the frontbench for the roundly respected Hilary Benn, who has been appointed Shadow Northern Ireland Secretary.
Keir Starmer’s reshuffle has taken many by surprise by the extent of its appointments. With his newly appointed Chief of Staff, Sue Gray, by his side, Starmer’s grip over the Labour Party is the strongest it has ever been. It demonstrates an unflinching commitment to building the best possible serious team to win the next election and his own determination to become Prime Minister. It is in sharp contrast to the government’s latest problems, which sees them under attack for the schools crisis.
Starmer’s Labour Party has a refreshed team of top talent including the much-lauded Darren Jones MP who has impressed many as Chair of the Business and Trade Select Committee. Keir Starmer is a serious leader with a ruthless streak to do what it takes to win. This latest shuffle puts Labour poised with ideas and a skilled team eagerly awaiting the opportunity to serve in a future Labour government.
James Frith Labour Candidate in Bury North
Full Shadow Cabinet
Sir Keir Starmer: Leader of the Opposition
Angela Rayner: Shadow deputy prime minister and shadow levelling up secretary
Rachel Reeves: Shadow chancellor
Bridget Phillipson: Shadow education secretary
Yvette Cooper: Shadow home secretary
Wes Streeting: Shadow health secretary
Ed Miliband: Shadow energy security and net zero secretary
David Lammy: Shadow foreign secretary
Pat McFadden: Shadow Chancellor of the Duchy of Lancaster and National Campaign Coordinator
Nick Thomas-Symonds: Shadow minister without portfolio
Jonathan Ashworth: Shadow paymaster general
Shabana Mahmood: Shadow justice secretary
Jonathan Reynolds: Shadow business and trade secretary
Liz Kendall: Shadow work and pensions secretary
John Healey: Shadow defence secretary
Louise Haigh: Shadow transport secretary
Thangam Debbonaire: Shadow culture secretary
Anneliese Dodds: Shadow women and equalities minister and Labour chair
Steve Reed: Shadow environment secretary
Peter Kyle: Shadow science secretary
Hilary Benn: Shadow Northern Ireland secretary
Ian Murray: Shadow Scottish secretary
Jo Stevens: Shadow Welsh secretary
Emily Thornberry: Shadow attorney general
Lisa Nandy: Shadow cabinet minister for international development
Darren Jones: Shadow chief secretary to the Treasury
Ellie Reeves: Deputy national campaign coordinator
“We are on the side of economic growth”, Labour leader Sir Keir Starmer responded to climate activists as they attempted to disrupt the announcement of policies linked to Labour’s fifth mission: breaking down barriers to opportunities. With a difficult economic backdrop and more tightening to come, it was telling that Sir Keir used the campaigners’ interruption not to address their agenda, but to highlight Labour’s support for business and investment.
In a room packed with students, teachers, union heads, and climate activists, Starmer revealed the fifth and final of the party’s “missions” which, he says, are the building blocks upon which an incoming Labour government would legislate. I was invited to the official launch held at Mid Kent College in Gillingham yesterday morning and stood behind the podium as he delivered his speech.
Over the last few weeks, Starmer and the Shadow Cabinet team have travelled across the country laying out the case for each of these missions. They are (in order of announcement):
Secure the highest sustained growth in the G7.
Make Britain a green energy superpower.
Build an NHS fit for the future.
Make Britain’s street safe.
Break down barriers to opportunity at every stage.
The Guardian’s Peter Walker suggested that yesterday’s announcement, along with the other missions, represent what are in fact some “radical” policies, but carried out in a sensible and reliable manner. Indeed, they are the culmination of Labour’s continued efforts to present themselves as a government in waiting. Starmer’s comment to the climate activists was arguably no surprise. His mission speeches have been littered with references to the importance of business and investment. For business, they provide a variety of avenues through which to engage.
The fifth mission, branded as “opportunity”, contains Labour’s key principles for education policy. Starmer’s speech focused heavily on what he termed the “class ceiling”: the barriers to opportunity which Labour suggest the Conservatives have done little to address. After saying that the Conservatives have “given up” on education policy, Starmer announced that an incoming Labour government would review the national curriculum and include creative arts or sports education until students are sixteen with a review of the way that digital skills are taught.
We are on the side of economic growth
Keir Starmer Labour leader
His pledge that Labour would form a new national body – “Skills England” – to provide more access to post-19 training and introduce a National Skills Plan will be welcomed by businesses who have voiced frustrations at the current government’s apprenticeship levy, the terms of which they have argued in fact prevents them from investing in vocational careers. Starmer’s speech also contained a promise to reform Ofsted and re-iterated the flagship policy of removing tax breaks for private schools to unlock new funding to invest in speech and language classes and hire 6,500 more teachers in shortage subjects.
These are, to many, uncontroversial policies. Starmer avoided making any announcements on tuition fees, high education funding, and teacher’s pay and refused to be drawn into a discussion about the ongoing strikes. Though they do represent the tightrope that Labour is walking – at once attempting to be the party of business and innovation, and also the party of its roots. The policy announcements show Starmer’s attempt to marry the two.
But this has become a hallmark of the Starmerite style. Only intervening where necessary, being exceedingly realistic about the challenges that lie ahead, and managing expectations. He matches the Prime Minister’s steady, quiet progress, not seeking dramatic flair. If the intention from both leaders is to stick to the slow lane, they must out-do one another on policy. While standing on the podium as he gave his speech, it struck me that Labour might have that edge.
Artificial Intelligence (AI) has emerged as a prominent topic of discussion in various spheres, including board rooms, government departments, and regulatory offices.
Yesterday, Hawthorn organised a private breakfast panel, moderated by Emily Sheffield, that brought together leaders from the media and creative industries, government officials, and regulators. The objective of the event was to explore effective strategies for harnessing the advantages of AI while addressing potential risks.
We’re particularly grateful to our esteemed panellists who contributed their valuable insights: Stephan Pretorius, Global Chief Technology Officer for WPP plc; Sophie Jones, Chief Executive Officer at British Phonographic Industry (BPI); and Baroness Tina Stowell, Chair of the Lords Communications & Digital Committee.
Humza Yousaf was elected the leader of the Scottish National Party (SNP) and First Minister of Scotland on 27th March 2023. Following Nicola Sturgeon’s shock resignation and an often rancorous race, Yousaf, the Health Secretary, defeated Finance Secretary Kate Forbes 52% to 48% in the final round of voting, becoming the first person of colour and the first Muslim to lead the SNP and the Scottish government.
For the SNP, Yousaf’s win is the easiest result in the short-term. Yousaf’s offer of continuity won the support of the SNP establishment. At Holyrood, the pro-independence Scottish Greens have laid aside their threat to discontinue their de facto coalition with the SNP.
Though long a reliable ally of Nicola Sturgeon, Forbes distinguished herself in her unapologetic social conservatism and her belief that “continuity won’t cut it”. Regan – always an outside bet – represented a diminished old guard of hardliners.
After 16 years of SNP government, it’s hard to know how far the offer of continuity can take Yousaf. In the public mind, he is lumped with the struggles of Scotland’s health service. In polling from last week, Yousaf enjoyed net favourability of -20 relative to -8 for Forbes and -24 for Regan.
Forbes has been outwardly supportive of Yousaf. Her decision to leave government rather than accept a demotion, however, strengthens the potentially awkward cluster of conservative SNP backbenchers. The loss of Deputy First Minister John Swinney and Business Minister Ivan McKee could also undermine SNP efforts to build trust among Scotland’s business community. Otherwise, every member of Yousaf’s cabinet served in government under his predecessor.
During the campaign, Yousaf appeared to cool on Sturgeon’s plan to make the next general election a “de facto referendum” on independence. Instead, he insisted on the need to widen support for independence. At the announcement, however, neither Yousaf himself nor any party officials portrayed the incoming leader as the one who would deliver independence.
Yousaf has promised to be the “First Activist”. Unless, though, he makes striking electoral progress for both ‘Yes’ and the SNP, his co-partisans will grow even more restless than under his predecessor.
Following a policy-light campaign, business should keep an eye on proposals from the new government. The Scottish Government’s Programme for Government (the Holyrood equivalent of a King’s Speech) usually comes in September. Reports have, however, suggested civil servants were preparing for an earlier Programme for Government even before the leadership result.
The Programme for Government will provide an important update on cross-border policies such as the deposit return scheme, from which Yousaf promised to exempt small businesses. Yousaf also promised to work with the UK government and other devolved administrations “constructively where I can”. He seems likelier to continue Sturgeon’s approach, treating the UK government with the detachment due a “foreign” government and combativeness due a political opponent.
Scotland’s pro-Union parties appear relieved at Yousaf’s win. Scottish Labour will hope Yousaf’s reputation will help them regain ground in Scotland and, in time, look like a fresh, competent government in waiting. For Conservatives at Westminster and Holyrood, Yousaf’s bullishness provides a ready foil to a robust unionism.
In spite of challenges, the SNP looks set to remain Scotland’s dominant party in the immediate term. The long-term threat to the Union has by no means vanished. In this sense, Yousaf truly is a continuity candidate.
Policy preview: Uranium’s return? In September, uranium spot prices returned to levels last witnessed in 2012, spurred by hopes that Japan would be restarting its investment in the sector a decade after shutting it down following the March 2011 Fukushima Daiichi nuclear power plant disaster. Nuclear power has been on the lips of politicians elsewhere as well, with many proposing renewed nuclear investment as a key component to the climate crisis. The UK’s Boris Johnson has been a keen proponent, and since assuming office in 2019 has repeatedly floated a plan for a dozen or more ‘miniature’ nuclear reactors.
The past decade has been brutal for the sector. Westinghouse, once America’s flagship nuclear firm, filed for bankruptcy in March 2017 and was later purchased by investor Brookfield Business Partners, though it has been accused of failing to reinvest in the business and dithering on whether to seek an exit. The UK’s pre-Boris nuclear strategy is broadly seen as a failure, with Hinkley Point C beset by repeated delays, knock-on effects for its French state-owned parent EDF’s other projects as well. Russia’s Rosatom has had more success, but its flagship project – near the Lithuanian border in Belarus – has caused the Baltics to limit electricity trading with Russia and Belarus over security concerns. China is the sole outlier, having invested heavily in building new reactors over the last decade, though its efforts to export its building technology have not met success.
Japan restarting its nuclear reactors would provide a new breath of life to the sector but would hardly prove sufficient. The crash in uranium prices that began in 2012 was also driven by Germany’s abandonment of nuclear power, one of outgoing Chancellor Angela Merkel’s most controversial legacies. There have been some hopes that a coalition without her Christian Democrats (CDU) could revisit the decision, but this should be dismissed – the result of the September election means that the Greens are all but assured a role in any government. The party traces its origins to the anti-nuclear movement that inspired much of mainstream student and youth politics in the 1970s. They are more likely to agitate for an EU ban on nuclear power – something the party’s representatives in the European Parliament have previously called for – than allow the resumption of nuclear power plants in Germany.
Uranium is not dead yet, and nuclear power investments may ultimately form a key part of the climate crisis response. But headwinds remain – just look to Japan where the opposition has campaigned on the nuclear power plant restart ahead of the 31 October election, seeking to cast the government as irresponsible.
“Following Fukushima we had to acknowledge that even in a highly technologically-developed country like Japan the risks of nuclear power cannot be safely mastered”. Chancellor Angela Merkel
Power play: Dier’s Day Eric Zemmour has seeped through French politics this autumn like water from a burst dam, dominating conversation even, and often especially, amongst those most opposed to his right-wing nationalist vision for France. Perhaps the only major political force in the country to successfully ignore him thus far is his right-wing rival, Marine Le Pen and her National Rally (formerly the Front National) party, though this has not proven effective in terms of maintaining Le Pen’s spot in the polls. All this before Zemmour has even formally declared his candidacy. A mix of quasi-literary invectives, national pride, culture war invectives and the effectively-timed leaking of an affair with his assistant have proven irresistible to French media. Zemmour is certainly his own man, but at the genesis of this media frenzy stands one of his closest political advisors: Antoine Diers.
Diers is, like Zemmour, not an elected politician. He also formally does not work for the non-candidate, at least not yet, and serves as chief of staff to the mayor of the upscale Paris suburb Le Plessis-Robinson. He has served as a counsellor himself, in Dunkirk, for the various iterations of France’s traditional main right-wing party, now known as the Republicans, amid the heydays of Nicolas Sarkozy’s presidency. Diers combined this work with a simultaneous stint in student politics (which in France still includes a fair number of right-leaning associations, and neo-Gaullist movements, contrary to popular perception).
Diers, however, quickly moved to the right, becoming a follower of Philippe de Villiers, a former Republican who had broken with the party over what he saw as its insufficient criticism of the influence of Islam in France and Euroscepticism. He was also associated with the right-wing activist Pierre Meurin go on to be director of the academy set up by Marion Marechal after she broke with her aunt Marine Le Pen amid Le Pen’s attempts to detoxify the Front National. Bluntly, he studied with many of France’s most polemic and assertive figures, with experience in new form media and more accustomed to raucous debate than the formal-yet-acerbic debates of the old French intellectual right-wing from which Zemmour hails.
Diers has forced Zemmour into the centre of the national conversation, appearing more often on critical television and radio stations that more established right-wing figures have long considered unworthy of their time. Diers is widely tipped to become Zemmour’s spokesperson once his candidacy is formalised. Even if Zemmour’s candidacy ultimately does fail to win the presidency, Diers has set an example for how the right can seize the French national conversation – experience that will keep him in high demand.
“I have come to the conclusion that politics are too serious a matter to be left to the politicians.”
Charles de Gaulle
Dollars and sense: Emirati geo-economics The United Arab Emirates (UAE) has recalibrated its foreign policy in recent years to ensure a greater focus on economic diplomacy, all the while assisting its endeavour to diversify its economy away from dependence on oil.
We have already seen the effects begin to play out with the recently-announced partnership and investment relationship between the UAE and the UK. This is to include Emirati investment in the UK’s green energy and life sciences sectors, but also a tie-up to invest in and expand ports in Senegal, Egypt and Somaliland. The UAE has long had a strategy of investing in African ports, but the partnership with the UK’s Commonwealth Development Corporation helps put it at the centre of Britain’s own ability to project power in the region.
There is precedent for the UAE to use economic ties as a bridgehead for deepening its political links. Last October, it was the flagship Gulf signatory of the Abraham Accords – an agreement between Israel and a number of Arab states to normalise diplomatic relations. This had been preceded by substantial Emirati investment into Israeli business and in particular its services sector. Once unthinkable, UAE and Israeli embassies have opened up alongside formal channels of communication and cooperation.
This diplomatic cooperation paves the way for further partnership in strategically-important sectors. The two countries have proposed cooperation on security matters, and though progress will likely fall short of a full defence pact, Israel’s decision not to intervene to oppose the US’ recent sale of weapons to the UAE points toward further cooperation.
The Abraham Accords also gives further political space for the UAE to promote business ventures with Israel and other international partners. Just last week Israel, India, the US and UAE formed a quadrilateral forum for economic integration, helping them work together on sectors including infrastructure, digital infrastructure and transportation.
Indeed, a joint article by Abdullah bin Zayed Al Nahyan and Yair Lapid, the UAE’s minister of foreign affairs and international co-operation and the foreign minister of Israel, respectively, highlighted the extent of these bilateral partnerships. The pair noted they ranged from an association between the Israeli D’Vaish health food company and the UAE-based Al Barakah Dates Factory, as well as a $1bn investment by Emirati sovereign wealth fund Mubadala into Israel’s Tamar gas field.
UK-UAE economic partnership is following a similar course, with the Emirati state pledging to invest £10bn in the UK’s strategically important clean energy, tech and infrastructure. The UAE has already invested £1.1bn in British companies and funds, including £500m in telecoms infrastructure firm CityFibre. Meanwhile, Mohamed bin Zayed, the UAE’s de facto leader, plans to sign an agreement with the Prime Minister to strengthen trade and collaboration across a wider range of sectors including climate change and regional stability (read: defence and security).
The UAE’s increasing appetite for collaboration and strategic partnerships between the UK and the UAE is only set to increase, providing opportunities for British firms in key sectors both in the UK and internationally.
“As two of the world’s most dynamic and advanced countries, the UAE and Israel together can help turbocharge economic opportunity by pushing for deeper regional integration.” UAE and Israeli Foreign Ministers Abdulla bin Zayed and Yair Lapid
Policy preview: referanda to the rescue? Planning reform has long been seen as a bugbear for the Conservative Party. Even the current government, with its 80-seat majority, has faced calls to water-down its proposals in the aftermath of June’s Chesham & Amersham by-election attenuated concerns that housing reform could erode support from the traditional Conservative base, homeowners.
The Labour Party has attempted to seize on this, arguing that Prime Minister Boris Johnson’s tax increase puts the burden to fund social care on workers rather than on homeowners. Nonetheless, we noted in our 23 June Horizons newsletter that we expected Johnson to push ahead with the core of these reforms despite that shock result with the Liberal Democrats overturning a 16,000 majority.
Johnson and Housing Secretary Robert Jenrick, however, have faced grumbling from the backbenches, including from former prime minister Theresa May over the planning reforms. Yet some of these same backbenchers may have picked up on a solution that allows Johnson to avoid risking a major rebellion. MPs are expected to introduce a private members bill that would give local communities a vote on housing in their area, including approving density plans and style guides.
The policy, known as ‘Street Votes,’ is the brainchild of the Policy Exchange and Create Streets think tanks and aims to challenge the perception that new developments are aesthetically, and economically, unpleasing to suburban residents while also enabling those rural residents to protect green spaces even when their local authorities aim to increase the housing stock.
Whether such a policy could be successful remains to be seen. Advocates such as Sam Bowman of the US’ International Center for Law and Economics argue that it provides the optionality necessary to have a ‘bottom-up’ approach while allowing the political hurdles, at both a parliamentary and local level, to be overcome by residents keen on raising the value of their neighbourhood. They point to similar proposals in Seoul and Tel Aviv that saw new housing approvals jump by as much as 50%.
Incorporating the Street Votes proposals into the government’s own legislation may well bring it sufficient votes to avoid a substantial rebellion. It may also bring in some Labour votes for Johnson’s housing plans and planning reforms, a situation Johnson has thus far been keen to avoid least he be seen to be dependent on Labour votes to pass them.
The Smart Votes system remains untested, and it will seem unnatural to many UK political observers that referenda, even of the hyper-localised variety, could be the panacea to some of its mot lasting political disputes. Politically, however, it offers the Johnson government the potential to declare victory on passing its reforms while deflecting responsibility for any eventual housing -target shortfall.
“Maybe this referendum will be the beginning of a trend” Former UKIP and Brexit Party leader Nigel Farage
Power play: waiting for Whately
The UK government is staking a great deal of political capital on its recently announced reforms for adult social care. Prime Minister Boris Johnson has gripped the ‘third rail of British politics’ by trying to tackle the issue, but the government could be damaged if the controversial policy is a damp squib.
Helen Whately, Minister for Social Care, will be responsible for driving and delivering the reforms. Funded by a rise in national insurance contributions and dividend taxes raising £12bn annually, the government will initially attempt to clear the pandemic-induced NHS backlog.
After three years of increased funding for the NHS, the extra cash will supposedly be diverted from the NHS and re-allocated to the social care system. If, of course, reducing funds to the NHS doesn’t prove too politically challenging.
With a political bid to prevent care users needing to sell their homes or other financial assets to fund their social care, the government has proposed a (means-tested) cap on the lifetime costs of social care of £86,000 from October 2023.
However, it is not yet clear exactly how or why the reforms will make the social care system. The political difficulty that has surrounded the issue for decades has largely been a matter of funding, and it is this area that was covered in most detail by last week’s announcement
There is still more to come in the way of solutions for how the government plans to tackle some of the underlying problems that the social care sector faces. Identified in Department for Health & Social Care’s white paper this February, these issues include insufficient integration with the NHS, too much bureaucracy and a need for more accountability in the system.
The government’s new plan includes provisions for more training and support for care workers, but detail on how it will address these issues is thin on the ground, with another white paper setting out further detail promised in due course. Social care providers such as Four Seasons Health Care have already criticised the plan as being too little too late, calling on the government to make the necessary reforms to help support staff as soon as possible.
Though the reforms have not been universally popular, they have not torpedoed the Conservative’s polling in the manner that Theresa May’s social care proposals did in 2017. Once the impact of NIC increase starts to bite, pressure will be on for the government and for Whately to show that their reforms are having a real effect.
“We have a social care crisis right now, and it can’t wait to for people to draft [a promised white paper], and then delay any funding and any staffing changes for another two years.”
Jeremy Richardson, Four Seasons Health Care CEO
Dollars and sense: actioning ESG It is not too often that international bond markets have to think about NGO’s. That is not to say it is unprecedented for them to do so – 25 years ago the International Monetary Fund and World Bank launched the Highly Indebted Poor Countries (HIPC) initiative following sustained pressure from the Jubilee Debt campaign and associated activist groups. HIPC today remains a key structure of emerging market debt markets, enabling many more countries, including debuts well into the bottom rungs of the credit rating spectrum, to issue international debt.
The sale of so much debt by low-income countries and companies in poorly regulated markets has often raised concerns about how they should be treated for investors seeking to put climate change concerns and environmental, social and governance (ESG) principles at the heart of their investing strategy. The credit investment industry is being slowly transformed by ESG investing, with so-called ‘green bonds’ now often trading at a premium. This makes green debt in theory cheaper, and therefore a market structure to promote the very ESG principles they encompass.
However, concerns about ‘greenwashing’ remain. If the recent trend for ESG investing does translate to a sustained premium, this risks major losses for creditors holding debts that are later revealed not to be as rooted in ESG as initially premised.
Given that similar concerns about morality in investing and the potential for economic growth to be more equitable globally prompted the HIPC initiative – which enables countries below a certain income level to receive special assistance from the IMF and World Bank – it is not too surprising that once again the voices of NGO’s are being heard on ESG investing.
Already there is evidence that they may be having an impact. In March of this year, the Nature Conservancy announced it was launching a programme to work with coastal nations to protect their waters, ‘Blue Bonds for Ocean Conservation’. The effort attempts to combine the twin realities that it is difficult for maritime nations to resist exploiting their waters’ wealth with the reality that debt countenancing ESG principles is cheaper for issuers.
The Nature Conservancy said that it was inspired to launch the programme by work it had done with the Seychelles government to restructure $22 million in its debts in 2016, but it is now set to face its first major market test. The government of Belize has announced its intent to restructure its debt – following two defaults in recent years – in a deal backed by the Nature Conservancy and its key creditors. Under the Blue Bonds programme, Belize will repurchase $530 million in dollar bonds for just over US$290 million. Investors see a gain to the 60% discount the debts had been trading at, while Belize reduces its debt burden substantially. In exchange it agreed to fund a $23.4 marine preservation endowment and the new debt provided by Credit Suisse to finance the repurchase will be subject to Belize continuing to honour certain ESG commitments. The deal has until 19 November to be approved by 75% of bondholders.
Bringing together international institutions, NGOs and bond markets proved an effective way to fund emerging markets growth with the HIPC initiative. The Nature Conservancy programme may just have established a template for ensuring that ESG principles remain a sustained, not fleeting, feature of funding this growth.
“A debt is just the preservation of a promise” David Graeber, Author of Debt: The First 5,000 Years
Policy preview: defence’s defence UK Defence Secretary Ben Wallace has made plenty of headlines in recent weeks amid the emotional withdrawal from Afghanistan. Foreign Secretary Dominic Raab has as well, albeit suffering from more critical coverage amid reports regarding his holiday during the frantic fall of Kabul in early August. However, it is business secretary Kwasi Kwarteng whose actions this month most clearly illuminate the government’s defence agenda.
On 18 August, Kwarteng issued an “intervention notice on the grounds of national security” regarding US private equity firm Advent International take over UK defence manufacturer Ultra Electronics. Just last year, Advent acquired another British defence firm, Cobham, with UK government approval granted in November 2019 under following reviews by former business secretaries Greg Clark and Andrea Leadsom,despite public opposition from Cobham’s founder.
Cobham is more than double the size of Ultra Electronics by revenue and differentiating between their contribution to national security is not so easy. Both provide crucial services such as Cobham’s aerial refuelling and Ultra’s positioning, location and communications technologies, used in many of the UK military’s most advanced components.
The government had telegraphed for weeks that it was likely to make such a move regarding Ultra. Blocking US private equity firms from investing in the UK, even in the defence sector, risks upsetting the UK’s reputation among an investor class that could be key to the UK’s post-Brexit prospects. The review Kwarteng’s notice ushers in will be reported in January, the same time as the UK’s new National Security and Investment Act comes into force.
The action has two motivations – first a desire to ensure that UK manufacturing and engineering of such high-value technology continues. There have been complaints regarding Cobham’s offshoring and Advent’s apparent prioritising of US development sites in the 18 months since its takeover. The second comes amid a push to ensure the UK’s defence sector, and defence strategy, is not wholly dependent on the US, something various Conservative MPs have harked on amid the Afghanistan withdrawal.
This is not a position limited to the Tory backbenches; even the -Blairite New Statesman has warned against the UK becoming dependent on US foreign policy decision making, while politicians such as Rory Stewart have sought to resurrect their careers by calling for a limited UK force to remain in Afghanistan, knowing they won’t be held to account for a policy that will never come to pass.
Boris Johnson and Biden’s lacklustre relationship, and the UK’s search for a new post-Brexit foreign policy mean that such rumblings will continue. However, upon a review of costs, it is likely to become quite clear to Johnson that it will be far too expensive to keep US investment out, let alone invest sufficiently to give the UK independent defence capabilities again.
Where there is smoke, there is not always fire.
“Tony Blair made decisions on what he thought was best for the people of Great Britain, and I made decisions on what I thought was best for Americans” Former president George W. Bush
Power play: a big dail Sinn Féin won the most votes in Ireland’s February 2020 elections for the first time, with 25% of votes. As the coalition between Fine Gael and Fianna Fáil, traditionally the two main political competitors, faces low public approval and continued strong polling for Sinn Féin, what chance does the leftist radical Republican party have of entering a future government?
Sinn Féin candidates won comprehensively across the country in 2020, with many of the party’s incumbent members, Teachtai Dala (TDs), re-elected on the first count, a rarity in Ireland’s ranked-preference system of constituency proportional representation.
However, Sinn Féin won fewer seats than Fianna Fáil – 37 to 38 – as the party did not run multiple candidates in every constituency. The party has spent the last 16 months preparing for the potential for another election, and to ensure it does not leave ‘seats on the table’ once again – had they more candidates in the last election, it is estimated the party would have received 41 seats. 80 are needed to form a government.
Despite Fine Gael and Fianna Fáil’s opposition – they hold a combined 73 seats – as a result, Sinn Féin is very likely to become a party of government in the medium term.
In recent years the party has sought to broaden its appeal beyond radical Republicanism by embracing left-liberal progressivism in the mould of Greece’s SYRIZA or Spain’s Podemos. This has proved popular amongst Ireland’s younger voters, who form the backbone of Sinn Féin’s electoral success and are driving historic success in the polls, which it has been leading since before Christmas.
Based on the latest polls, Sinn Fein might win as many as 50 seats in the next general election. The Dáil has a sizeable proportion of around 20 independents, predominantly local and leftist candidates, and TDs belonging to smaller left parties such as the Labour Party or Social Democrats. Should Sinn Féin prove successful at the next election, a broad left coalition with Sinn Féin as the largest party could be its route to power.
Aside from strengthening calls for Irish reunification, with Sinn Féin also leading polls in Northern Ireland, a Sinn Féin victory in the Republic of Ireland would prove significant on a number of fronts.
Though its policies may be altered should the party form a coalition, Sinn Féin have pledged to deliver ‘the largest public housing program in the history of the state’ as well as to implement a 3-year rent freeze.
Though it seeks to maintain Ireland’s famously low 12.5% rate of corporation tax, multinational companies should note Sinn Féin’s intentions to tighten the tax environment by closing tax loopholes, as well as their demands on firms to be more transparent about their tax affairs.
Sinn Féin entering government would be a significant landmark in Irish politics, and is a real possibility in the medium term. A radical progressive program would include ramped up social spending on housing and a more sceptical approach to Ireland’s position as low-tax business environment.
“To go for a drink is one thing. To be driven to it is another.”
Dollars and sense: aiding ailing airlines It is no surprise that aviation has been among the sectors most battered by the pandemic, and which continues to face significant uncertainty about its prospects given the ongoing threat of further viral mutations. The UK government has come under considerable public pressure to do more to respond, with calls from airliners, airports, and the communities that house them for the government furlough scheme to be extended for the sector past the end of September.
So far, however, there has been little reaction to such pleas. Chancellor Rishi Sunak appears to have ruled out furlough extensions in response to a letter signed by 67 MPs from across Parliament calling for such action.
The future of the UK’s aviation sector is not merely a matter for the Treasury, however. Extending furlough would be expensive, but failure to support aviation amid the ongoing uncertainty risks Britain losing out to European competitors, and for London’s status as an international transit hub diminished. One individual unlikely to countenance such a loss is Business Secretary Kwasi Kwarteng, who represents the constituency of Spelthorne, a hub for employees of Heathrow Airport and related industries.
A number of leading lights in the aviation industry have appealed to Kwarteng, and the government more broadly, for support. Aside from extensions to the furlough scheme, their primary ask has been to seek a reduction in airline passenger duty (APD), the variable tax (depending on class of travel and distance) that passengers pay when booking a ticket.
Numerous APD increases were pushed through Parliament under the Conservative-Liberal Democrat coalition from 2010 to 2015, to help pay for government spending as mandated by the era’s dedication to austerity. Shockingly, APD for long-haul flights was again increased in the March 2021 budget. Yet with so many flights still grounded as travels has yet to recover to 2019 levels, receipts have fallen off a cliff. Properly communicated, a campaign for the temporary reduction or suspension of certain APD charges may prove the most effective way to guarantee government support for the sector.
Exemptions to APD already exist – passengers on long-haul flights departing Northern Ireland do not pay the fee. Regional and smaller airports can argue for such an exemption to ensure they survive the pandemic, and help with the government’s ‘levelling up’ agenda. Heathrow and other large airports similarly should position the potential for exemptions as one of the benefits of Brexit to the sector, not normally seen as a winner of the recast EU-UK relationship.
The same March 2021 budget that raised the long-haul APD merely froze it for short-haul flights but Prime Minister Boris Johnson opened the door to a cut for domestic flights only. A consultation is ongoing, but pressure for the government to act should come now – especially as it will become hesitant to do so as the COP26 climate change conference’s 1 November launch approaches.
“Heathrow expansion is supported by businesses, unions, trade bodies, airlines and airports across the country, as well as many local communities whose economic livelihood depends on the airport’s continuing success” Secretary of State for Business, Energy and Industrial Strategy Kwasi Kwarteng
Policy Preview: London Listings “The world clings to its old mental picture of the stock market because it’s comforting; because it’s so hard to draw a picture of what has replaced it; and because the few people able to draw it for you have no interest in doing so.” Michael Lewis
The London Stock Exchange (LSE) has had a turbulent past few years. European regulators blocked its merger with Deutsche Börse in 2017 for the third time, and though it pivoted to a data provider model with the purchase of Refinitiv in January, the LSE’s own share price has struggled.
While the business model of competing with other data providers will likely prove significant to the LSE’s long-term prospects, some of the poor performance the exchange has seen in recent years is due to a slowdown in new listings, partially due to Brexit uncertainty and partially due to the LSE lagging other major exchanges in innovation. 2021, however, has shown the signs of a turnaround are already in place – with more 50% listings in the first six months of 2021 than in all of 2020.
Arguably the most significant LSE listing this year – in terms of its own business model – was the July trading debut of the fintech firm Wise, which specialises in international monetary transfers. Notably, the listing was not an IPO but rather a direct listing in which existing shares are entered into the market rather than new issuance as typically occurs in the former. Such listings, which typically enable existing investors to cash out more quickly, have grown in popularity in the US tech sector in recent years but the LSE had heretofore largely been reticent.
Wise’s debut was seen as a success and the firm is now the largest in the UK tech space by market capitalisation. London has prided itself on developing a wider fintech scene in recent years and there are a number of other expected listings, such as those of challenger bank Revolut or payments firm Klarna, that the LSE will be keen to secure.
To that end, last November the UK government launched a review of its listing regime, with a split emerging between advocates of continued high regulatory standards and those in favour of loosening listing rules, in particular to attract fintech listings. The LSE seems to have firmly come down on the side of the latter, most emphatically the requirement that a minimum of 25% of a firm’s shares be sold in an initial listing. It also gave softer backing to calls to allow firms with dual class shares to be treated as ‘premium listings’ and thus eligible for the FTSE 100 index. For example, Wise’s CEO Kristo Käärmann has enhanced voting rights shares, meaning Wise will not enter the FTSE 100.
These rules are overseen by the Financial Conduct Authority (FCA), which is conducting its own review, off of which it has proposed reducing the free float requirement to as little as 10%, and to allow certain forms of dual class share structures to be included as ‘premium listings’. An overhaul of listing rules along these lines is likely to be signed off by year’s end.
Power Play: Rayner’s Labour “Finding the right alchemy that will woo the older and socially conservative voters of the Red Wall whilst keeping on board the younger, more educated, and socially liberal voters elsewhere has become Labour’s quest for the Holy Grail.” Professor Eunice Goes
Angela Rayner’s position of prominence is secure within the Labour Party. Following its disappointing results in the early May elections, Keir Starmer and his allies attempted to side-line her, failing when Rayner refused to accept what she regarded as a significant demotion. Instead, with backing from party allies, she negotiated retaining her position as Deputy Leader and exchanging her roles as party chair and national campaign coordinator for positions as Shadow Chancellor of the Duchy of Lancaster and a newly-created post of Shadow Secretary of State for the Future of Work.
This is symptomatic of two things – firstly, Keir Starmer’s weakness at the head of the party, unable to reshape his frontbench to his liking. Secondly, it demonstrates that the left-of-centre, though less radical than the left under Jeremy Corbyn, still has some residual strength within Labour. For the time being, Rayner is able to stay in position as Deputy Leader, consolidating her own power base.
What does this mean for Labour? The party’s attention will soon be turning to the next general election, which could come as soon as May 2023. Labour will be keen to stem the flow of so-called ‘red wall’ voters deserting Labour. Some within the party may feel that as a Stockport-born former trade unionist, Angela Rayner may be better able to connect with voters across the North of England and the Midlands than Sir Keir Starmer QC.
There may not be much time for Labour to effectively set out their message, if the election is just two years away. A non-trivial proportion of that time will still be politically dominated by the pandemic, and Labour will need to offer a positive vision of the future, rather than criticise the government’s perceived failings during the pandemic.
The party will continue to position itself as tough on crime and social issues, playing to Starmer’s prosecutorial experience. The Conservatives will always be more credible on law-and-order issues, however, and Labour will need to seek to shift the economic debate onto terms in which it is most comfortable.
Rather than being painted as the party of fiscally irresponsible tax-and-spend, in her newly appointed brief handling the Future of Work Rayner will seek to frame the nature of the post-pandemic recovery as being an opportunity for more socially-just economy rebalanced towards workers. We have already seen the beginnings of this with pledges for a ‘new deal for workers’, with Rayner calling for an enshrined right for workers to work from home.
Although the Opposition’s policy influence is necessarily limited, we can expect Labour to continue to influence policy debates by positioning itself as more socially conservative yet with an economic policy characterised by more targeted interventions in the interests of workers.
Dollars and Sense: VAT’s Back
“Happiness is not in money but in shopping”
Since the start of 2021, the United Kingdom no longer offers tourists and visitors refunds to the value added tax (VAT) that they pay on UK bought goods. Formerly known as the Retail Export Scheme, similar VAT refunds are available across the European Union and they have proved a boon to growth for big retailers.
Such refunds not only bring in tourist spending – helping drive the development of commercial shopping centres such as the UK’s Bicester Village – but also have provided a fresh income stream to retailers and logistics businesses, who typically take a small portion of the refund in exchange for handling the relevant paperwork. The end of the Retail Export Scheme will not totally end this business, as UK exports shipped directly abroad will still be VAT-free.
Yet certain retailers are likely to be particularly impacted, from famous London outlets that have long been magnets for tourism to the smaller luxury stores and shopping centres in Manchester that have seen high-end spending driven by VAT-free purchases from tourists largely from India, the Middle East and China, in recent years.
The COVID-19 pandemic, resulting lockdowns, and travel limitations have far overridden the impact of the VAT refund’s abolition on retail. However, as the post-pandemic recovery continues and travel slowly opens up with the rollout of global vaccinations efforts, the VAT refund scheme’s abolition risks seeing the UK retail recovery lag behind that of other sectors and even retail in Europe.
Yet the government has so far shown no signs that it plans to reinstate the Retail Export Scheme, or some variety thereof. Simply put, foreign tourists are not a particularly politically salient constituency and the government is wary of being seen as handing valuable tax receipts to retailers in a post-pandemic environment.
Nonetheless, a potential middle ground with benefits to all exists – the digitisation of tax receipts raises the possibility of reinstating at least certain refunds for goods whose export status can thereby more easily be verified. The government has put tech at the forefront of other customs arguments – recently raising the idea again in relation to policing the Irish border – similar arguments about the future of UK retail recovery follow naturally.
Dollars and sense: Much ado about Chesham and Amersham “Like one that draws the model of a house, beyond his power to build it; who, half through,, gives o’er and leaves his part-created cost, a naked subject to the weeping clouds, and waste for churlish winter’s tyranny” William Shakespeare
The Chesham and Amersham by-election raises serious questions for the future of the Conservative Party’s planning and homebuilding policy. The Liberal Democrats’ overturning of a 16,233-vote majority on a campaign built off of local opposition to new house construction and the HS2 high-speed rail line (despite the party backing both on a national level) highlights just how salient such issues are in the Conservatives’ ‘Blue Wall’. British by-elections are renowned for producing shock results, but they often belie the state of national politics.
The Chesham and Amersham vote is one such result. While suburban London and much of the home counties are undoubtedly fertile ground for Liberal Democrats, tactical voting – which saw the main opposition Labour Party win just 600 votes – is far less common during general elections. A so-called ‘Lib-Lab’ coalition has never seriously manifested itself, least of all at election time, despite repeated efforts.
As a result, papers are aflutter with talk of whether Prime Minister Boris Johnson will reverse his proposed planning bill and other manifesto commitments aimed at increasing the number of new homes built by 300,000 a year. Many Conservative party stalwarts have proposed just that, and some MPs such as Theresa May, Johnson’s predecessor as prime minister have been pushing for such a reversal since well before the by-election was called.
The crux of the matter is the fact that Britain’s strict planning permission requirements – while ostensibly aimed at sustaining greenbelts, protecting architectural heritage, and providing local communities with democratic input over their own development – are also a key driver of house price appreciation. The Conservatives traditionally do far better in areas with high home ownership, with Labour’s strength historically in urban areas with high rent share.
However, the fate of the ‘Red Wall’ should cast doubt upon these assumptions. Home ownership rates are fairly high in the north-east seats where the Conservatives saw such success in 2019. House prices are crucially far lower than in the area around London, but the price differential was far smaller during Labour’s heyday under Tony Blair even as home ownership rates were broadly similar to their present levels. House price decreases in northeast can in part be attributed to low population growth compared to the rest of the country, driven by employment decreases.
New home construction in areas where population has increased may decrease the rate of house price appreciation, but the north-east demonstrates this does not spell doom for Conservative hopes. As the population grows elsewhere, new homes will have to be constructed to eventually bring more voters onto the property rolls. Expect Johnson to continue with his planning reforms – it would not be the first time he has discarded the advice of May and her ilk.
Policy Preview: Poll tax, redux? “The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title” John Stuart Mill
Planning policy is not the only significant change to the UK’s housing and property market that has been in the public debate in recent months. Property tax change proposals have been bandied about at a rate not witnessed since 1991, when the ‘poll tax’ was withdrawn in the face of significant public opposition just a year after its introduction, helping to end Margaret Thatcher’s prime ministership along the way.
The 2019 Conservative manifesto raised the spectre of such a change in its call to “redesign the tax system so that it boosts growth, wages and investment and limits arbitrary tax advantages for the wealthiest in society”. Council tax are among the most tangible example of such policy to many voters: the four lowest council tax rates are all found in central London while the highest rates are found in far less wealthy, and even relatively impoverished, areas. For example, Hartlepool, which the Conservatives won in a by-election in May for the first time, has the fourth highest council tax rate despite being the 11th most deprived area in England.
Given the Conservative shift to the north, and the aim to solidify the former Red Wall as a new Tory heartland, it is therefore no surprise that Bright Blue, an independent think tank advocating an agenda of liberal conservatism, in late May published a report declaring an ‘annual proportional property tax (is) the best system for levelling up the country,” employing Downing Street’s favoured phrase for its Northern-friendly policies.
Bright Blue is by no means alone in calling for such a system, which will be familiar to American readers, in which property taxes are directly tied to the value of a home. The present council tax system was also meant to partially take home value into consideration, hence its ‘bands’ but the valuations were set in 1991, where they remain frozen (except in Wales), and rates for bands are directly tied to one another.
Numerous Labour MPs have called for a proportional property tax, and even making the tax payable by the home owner (council tax is paid by residents, including renters, rather than home owners) as has former Liberal Democrat leader Sir Vince Cable.
While the government sets thresholds for council tax increases, policy is otherwise left largely to the councils themselves. Recent Conservative governments have increased local tax authorities’ powers by also expanding the ability of local councils to retain tax on local businesses for local spending, part of its devolution agenda.
It is this policy that one should expect to be reversed. Johnson may well look to have the government redirect funds raised from business rates tax to fund his levelling up agenda. A tax on commercial land tied to its value is also a serious possibility. But the backlash that would result from a proportional residential property tax in the ‘Blue Wall’ would provoke a backlash that would risk escalating the post-Chesham and Amersham Conservative squabbles into a potential re-run of the party’s poll tax crisis. It shall not pass.
Power play: a Swiss family affair
“The best inheritance a father can leave his children is a good example”
John Walter Bratton
The Swiss Federal Council’s decision in late May to abandon negotiations with the European Union over a new framework agreement to replace the dozens of treaties that currently facilitate Swiss access to the single market, and EU citizens’ right to seek employment in Switzerland among other matters, was the result of years of strained negotiations. Yet it marks the crowning achievement of one man, long the eminence grise of Swiss politics, Christoph Blocher.
Blocher is a unique political figure, in a unique political system. While UK audiences may see commonality between his Euroscepticism and his right-wing Swiss People’s Party’s rhetoric and the role that Nigel Farage has played in UK politics over the last 20 years, Blocher’s role in reshaping Swiss politics goes far beyond. Although he only ever sat on Switzerland’s seven-member Federal Council, the executive government body in the country, for one four-year term from 2003 to 2007, in Europe only Germany’s Angela Merkel and Hungary’s Viktor Orban have spent a comparable amount of time at the pinnacle of national politics.
Blocher is arguably even more controversial than Farage. His narrow 2003 election to the Federal Council over incumbent Ruth Metzler marked the first time an incumbent member was not re-elected since the 19th century, breaking Switzerland’s tradition of amicable cross-party politics. The second, and final time, a councillor has failed to secure election came when Blocher himself was ousted four years later when other parties placed a cordon sanitaire over his candidacy although his Swiss People’s Party (SVP) won a record number of seats in the National Council, the lower house of the Swiss parliament.
Notably, Blocher has never formally headed the SVP. Though it split in 2007 when another party member accepted a seat on the council in Blocher’s stead, and again a few years later, the SVP has remained the largest party in Swiss politics by some margin ever since.
At 80, with the idea Switzerland would inevitably be drawn closer to the EU now firmly in the rear-view mirror, Blocher has indicated he may be ready to give over the reigns of the party he has never officially led. The party’s current president, Marco Chiesa, is another figurehead and not the likely heir.
Instead, his daughter Magdalena Martullo-Blocher, a SVP representative in Parliament, is his heir apparent. There is already precedent for such a succession, she took ownership of chemicals firm Ems-Chemie decades ago as her father entered politics, and formally succeeded him in 2008. She has clearly had success, with Bloomberg estimating her to be worth $8.6 billion, a gargantuan fortune even by Swiss standards. Despite unconvincing denials of any such interest by father and daughter, Martullo-Blocher will seek an even more commanding role atop Swiss politics than her father ever held.
Policy preview: Boris’ social test “Providing better social care for older people who need it is a cause worth fighting for” Ex-prime minister Gordon Brown
Prime Minister Boris Johnson marks two years in office come 24 July – regardless of potentially partisan views on how he performed on them, there is little disputing that he has faced a series of serious tests to his leadership: Brexit and the COVID-19 pandemic foremost among them. However, seems to have yet another test. As laid out in the Queen’s Speech this May, the government plans to lay out proposals on social care reform in this Parliament.
It will be the first time the Conservatives have seriously put forward such proposals since then-prime minister Theresa May included in the party manifesto a policy that would see the government claw back some spending on elderly care from the value of the home. It was stingingly, and lastingly, labelled a ‘dementia tax’. The policy – or at least the attention it received, its justification by critics to label May as ‘cold,’ and, perhaps most importantly, the unease it caused with homeowners, arguably the key Conservative constituency – was seen as critical in the loss of the Conservative majority in the June 2017 general election.
One can be certain that Johnson will not be reviving May’s policy, from which she was forced to backtrack during the campaign. There has been little attention to just how high a pedestal Johnson has placed on such reform even as he made its priority quite clear by declaring that “We will fix the crisis in social care once and for all” outside Downing Street on his first day as prime minister.
Spending on social care remains well below its 2011 levels, and while the Conservative Party is expected to return to its budget-conscious roots more broadly, this is one area where even libertarian-inclined Conservatives such as Jacob Rees-Mogg have endorsed further investment. Having turned on the spending spigot to fight COVID-19, which has raised the political weight of public health and wellbeing issues significantly, Johnson may well feel justified to do so with regards to elder care. The political push for such action may grow as claims by Johnson’s former advisor, Dominic Cummings, that Health Secretary Matt Hancock saw COVID-19 patients returned to care homes without negative tests are investigated.
Johnson has been cool on a mandatory-contribution scheme to fund such care in the past, and is likely to again hold off now. A blank cheque pledge from the state to meet all social care costs is also unlikely, but Johnson is clearly not afraid of being seen as a statist. Expect his proposals to include substantial investment in state-run social care, and an entitlement to certain levels of in-home support, with the state overseeing a regulated system of insurance-style schemes available to those over a certain age limit. To make them more attractive, tax advantages are likely to be offered to buyers.
Dollars and sense: potash play “Our country has become a conduit for security and stability in the centre of Europe” Belarusian President Alexander Lukashenko
The European Union is going to impose its most serious sanctions yet on Belarus, following a meeting of the bloc’s foreign ministers at the end of May. Outraged by Minsk’s tactics in arresting an opposition journalist – apparently calling in a fake bomb threat to a Ryanair flight from Greece to Lithuania, both EU members, to forced the plane to divert to Minsk – the ministers agreed to punish strongman ruler Alexander Lukashenko by sanctioning key industries in the country, where most businesses are still state run. According to Luxembourg’s foreign minister, this is to include potential sanctions on its exports of potash, a mined fertilizer that is the sole natural resource Minsk produces in abundance.
Washington has been more circumspect, although it typically imports fairly little potash from Belarus, with sizable North American producers such as Canada’s Nutrien and US-based Mosaic rivalling Belarus’ state-run Belaruskali among the world’s largest producers. Washington is concerned such a move could push Minsk into an even more reliance on Russia, its key benefactor, and also increase Europe’s resource dependency on Russia given its largest alternative potash sources are all Russian. Nevertheless, US Secretary of State Tony Blinken has made coordination of sanctions policy with Europe a key policy priority and will not oppose any such move.
There is precedent for sanctions on key commodity producers to rile markets, with the most recent such example the 2018 sanctioning of Russia’s Oleg Deripaska, which risked affecting his metals firm Rusal, causing major tumult on aluminium and bauxite markets as prices spiked overnight. A similar situation is less likely to result if the EU blacklists Belaruskali or otherwise seeks to restrict its ability to sale in the EU market because potash spot markets are not nearly as important to the trade, and pricing outlook, of potash.
Belaruskali, however, itself is very significant in setting potash prices because for much of the last decade it has traditionally agreed annual supply contracts with China and India before any other competitors that are seen as setting the ‘price floor’ for the market. Western sanctions on Belarus could see Minsk accept a bottom barrel price next year. Responding to Minsk in this manner may inadvertently pull out the proverbial rug underpinning the profitability of other potash producers as well.
Power play: raise the roof?
“I always think a debt ceiling is a good tool to carry something”
Senator Mith McConnell, Republican Minority Leader
Fights over the US debt ceiling – a legal limit on how much the federal government can borrow – were a key feature of domestic American politics for much of the Obama presidency. The downgrade of the US’ credit rating in August 2011 set off a round of political fighting that repeated itself every year, with fiscally Conservative Republicans seeking to constrain president Barack Obama’s budgets, and spending on his flagship health care agenda, throughout his term in office. As deficits continued to grow under the Trump Administration – with federal revenues falling due to his flagship legislation, tax cuts – debt fights slowly faded from the agenda. In 2019, Congress passed a mechanism tying the debt ceiling increase to the budget, aiming to settle the matter once and for all.
2020 quickly put paid to that plan, with the massive deficit and in turn debt increase caused by the trillions of dollars in stimulus both the Trump and Biden administrations have put at the core of their response to the pandemic. Congress did agree to suspend the debt ceiling last year, but that suspension expires on 1 August. With the Republicans in opposition in Congress, a renewed debt fight is to be expected. Lawmakers such as Senators Ted Cruz (R-TX) and Lindsay Graham, (R-SC) have already floated potentially policy concessions from the Biden Administration in exchange for their support.
However, the lawmaker most set to benefit from the debt battle is not a Republican, but rather Arizona’s Krysten Sinema, arguably the sole budget-wary Democrat remaining in the Senate. Because debt ceilings can be tied to the budget, the Senate’s ‘Byrd Rule’ applies, which allows a simple majority to pass legislation. With the Democrats holding 50 Senate seats, and Vice President Kamala Harris the tie-breaker, Democrats could adjust the debt ceiling without any Republican votes.
However, centrist Joe Manchin (D-WV) has demonstrated the political rewards on offer by threatening to be the sole holdout. Less than five months into the Biden presidency, he has arguably become the most powerful figure in the Senate. This not only helps him not only secure benefits for West Virginia but also to maintain his political position in the state, which voted overwhelmingly for Trump, given his perceived independence from the Democratic agenda.
Sinema’s home state of Arizona is, in contrast, a key swing state. She will threaten to hold out to seek political benefits there as well, hoping it solidifies her support among centrists ahead of her re-election campaign in 2024 when Arizona is again expected to be among the most contested states. Ultimately, however, she will support such an increase, likely extracting some directed spending towards Arizona in the process.
Following the poor performance of the Labour Party’s recent election results and the subsequent botched reshuffle, the direction of the Party remains very uncertain. Jess Phillips, Labour Party MP and Shadow Minister for Domestic Violence and Safeguarding, spoke to Hawthorn’s Sarah Sands on Tuesday 18th May.
Author of three books, including the Sunday Times Bestseller, ‘Truth to Power’ and the forthcoming ‘Everything you need to know about being an MP’, Jess is known as being one of Westminster’s most outspoken MPs. She spoke about how the party can win back the support of alienated voters as well as discussing the role all businesses can play in protecting and supporting their employees who may be suffering from domestic violence.
Speakers Jess Phillips is a Labour Party politician who became the MP for the constituency of Birmingham Yardley at the 2015 general election. Jess has committed her life to improving the lives of others, especially the most vulnerable. Before becoming an MP, Jess worked for Women’s Aid in the West Midlands developing services for victims of domestic abuse, sexual violence, human trafficking and exploitation. She became a councillor in 2012, in this role she worked tirelessly to support residents, with her work being recognised when she became Birmingham’s first ever Victims Champion. Since becoming an MP, Jess has continued her fight to support those who need it the most and has earned a reputation for plain speaking since being elected, unfazed by threats and calling out sexist attitudes as she promotes women’s rights. Jess has written two bestselling books ‘Everywoman: One Woman’s Truth About Speaking The Truth’ and ‘Truth to Power: 7 Ways to Call Time on BS’.
Sarah Sands, Board Director at Hawthorn. Sarah joined Hawthorn from the BBC, where she was editor of the Today programme, Radio 4’s flagship news and current affairs programme. She was previously editor of the London Evening Standard, the first woman to edit The Sunday Telegraph and deputy editor of The Daily Telegraph. Sarah is Chair of the Gender Equality Advisory Council for G7 for 2021 and of the political think tank Bright Blue. She is also a Board Member of London First and Index on Censorship and is a Patron of the National Citizen Service.
Policy preview: crypto, leverage and regulation “Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve” Bitcoin founder Satoshi Nakomoto
The age of cryptocurrencies appears to be well and truly upon us: 2021 has seen crypto-exchange Coinbase enter public markets at a market cap of roughly US$85 billion, in line with the market cap of HSBC; the cryptocurrency Ethereum which is positioned as building bloc for a host of digital applications is up some 450% year-to-date as of 12 May, and even the Bank of England Governor, Andrew Bailey, has been forced to discuss their value in a recent press conference. Bailey warned that cryptocurrencies “have no intrinsic value” and said punters should “buy them only if you’re prepared to lose all your money”.
Crypto-evangelists would surely disagree, but Bailey’s comments raise an important consideration for the market that must be considered – who assumes its liquidity risk – as crypto-currencies increasingly enter the main stream. Most crypto-currencies – and certainly the most prominent pair, Ethereum and Bitcoin – are marketed as decentralised and outside of financial regulators’ control . Many supporters argue that central bank officials like Bailey are so critical of cryptocurrencies precisely because of this, and passionately believe that the fact cryptocurrencies exist outside the traditional monetary system is a feature, not a bug.
While it is outside the scope of this column to argue the merits and criticisms of the arguments for cryptocurrencies, their recent stratospheric growth means that it behooves investors, regulators, and market participants to consider the risks of a cryptocurrency collapse. Bitcoin notched a market capitalisation of some US$1.12 trillion this April, up from $160 billion last April, growth of 700% – if it experiences a similar spurt of growth at any stage, it would reach a market cap of nearly US$8 trillion – larger than all of the US stimulus spending since the onset of the COVID-19 pandemic by a considerable margin – and nearly 10 times the US’ 2008 bailout.
Cryptocurrencies’ volatility is well known; and the amount of liquidity available to even the least practiced of traders has received increasing attention in recent months, particularly in light of the market activity around GameStop, which even resulted in a Congressional hearing in mid-February. Whether or not cryptocurrencies are truly independent of other monetary regulation, at their current levels of growth – and given the traditional financial institutions involved in enabling the leverage supporting this – they are becoming systemic.
Regulators may not like crypto-currencies and crypto-enthusiasts may not like regulators, but if they continue to ignore one another, the level of systemic risk will only continue to grow. If it does, and central bankers like Bailey are ultimately proven correct – or even if there is a market crash again as witnessed in 2018 – the pain will be felt far beyond the crypto corner of the financial markets.
Dollars and sense: Paris’ role in China’s lending “Paris isn’t a city, it’s a world” King Francis I
At the end of March, the College of William & Mary’s AidData research lab, the Kiel Institute for World Economy and the Peterson Institute for International Economics published what is arguably the most extensive examination of Chinse loan contracts with foreign governments around the world, simply titled “How China Lends”. Beijing’s use of credit to drive investment into markets ranging from the frontiers of Zambia to central European infrastructure to Chilean mines has garnered significant attention in recent years, particularly after the formal launch of its ‘Belt and Road’ policy in 2017, though Beijing has itself largely ceased to use the phrase. This has increasingly led to accusations of ‘debt trap diplomacy’ in Western coverage, amplified by concerns over Beijing’s own holdings of Western debt.
Yet Beijing is too often described as an emerging player when the reality is that it has now been the key global creditor for over a decade. Already by 2010, China’s official government lending was well in excess of the World Bank’s lending, and Chinese lenders demonstrated a willingness to lend to frontier markets well before Western investors got comfortable with them. While this has led to a number of headaches for Beijing, particularly in Angola and Venezuela, it is only in the aftermath of COVID-19 that China’s lending policies have the potential to upend international capital systems.
Among the most striking revelation in the AidData report is the fact that China’s loans to many emerging markets include clauses requiring them to refuse requests to take the loans to the Paris Club, an informal international institution that includes every major Western government and which aims to facilitate sovereign debt restructurings by working together to agree terms. Its key stipulation is that all government loans be restructured on the same terms.
The clause in Chinese debt contracts therefore runs counter to the Paris Club’s attempt to address the collective action problem of sovereign debt. Beijing has argued that many of these loans are not subject to the same terms because they are commercial, not intergovernmental, in nature – a position opposed both by Western commercial and intergovernmental creditors.
For all the damage wrought by the US-China trade wars in recent years, a major spat between China and the West over how to prioritise emerging markets’ loans in the aftermath of the pandemic would risk even more significant economic and geopolitical disruption.
Power play: a red star rising?
“You don’t have to live the blues to play the blues”
The Labour Party has not been on the receiving end of many uplifting headlines in the aftermath of the UK’s May local elections, a familiar turn of events for a party that has been out of Westminster government since 2010. Silver linings have been found in some local races – for example in the Cambridge and Peterborough mayoralties – which will give some hope to those arguing that Labour must expand into the suburbs and commuter belt if it is to halt the impact of Conservative gains in northern England’s former Labour heartlands.
Labour’s other relative bright spot was the re-election of London mayor Sadiq Khan, though his share of first-preference votes fell slightly from 44.2% to 40.0%, far more votes first-round votes were lost to the left-leaning Greens than the Conservative candidate Shaun Bailey. Khan had a turbulent campaign and a series of senior aides resigned in the aftermath of the vote, with Khan set to bring in a new cadre of advisors that could position him as a future Labour leader, particularly if incumbent Keir Starmer’s authority continues to be questioned.
Khan’s first hire was Richard Watts, who has served as leader of the Islington Council since 2014. The council has been (in)famous in the past for its far-left leanings – famously flying a red flag in the 1980s and even through the mid-1990s – and he appears to have his pulse on the matter of voter-relevant issues: he lead a 2014 paper calling for free school meals for students to be expanded long before famous international footballer Marcus Rashford made the issue a prominent one amid the COVID-19 pandemic last year. Watts’ appointment should be seen as an effort to put a London jobs policy at the forefront of the COVID-19 pandemic recovery.
While hardly a household name, Watts is perhaps best known within political circles for his instrumental role in formulating the “Workforce Focus” paper on upskilling residents published by the Local Government Association. His new appointment, as Khan’s deputy chief of staff, will very much be in this vein, as he will chair the newly-announced ‘London Recovery Task Force’.
Watts’ profile may be unlikely to give him a national profile, but the fate of his policies may well be at the core of Labour’s electoral success in the coming years. If his agenda succeeds in putting London at the fore of the economic recovery – a particularly challenging brief given expectations the ‘work from home’ trend will continue beyond the pandemic – it might just help to convince increasingly socially-liberal voters in the country’s suburbs and commuter belts to put their faith in Labour’s economic policies as well.
Policy preview: mutually assured construction “Gentlemen, you can’t fight in here! This is the War Room!” Dr. Strangelove, or How I Learned To Stop Worrying And Love The Bomb
The Trump Administration formally named China as a ‘currency manipulator’ in January 2019, but withdrew the designation January 2020 after striking the ‘Phase 1 Trade Agreement’. As part of the deal, both sides also agreed to honour currency related commitments undertaken through their G20 membership – effectively a pledge not to seek to interfere in the market to adjust the value of the renminbi, or the US dollar, to the advantage of one side over the other. The trade pact’s purchase agreements have effectively gone by the wayside due to the COVID-19 pandemic.
Despite the trade agreement’s fragile state, and the Biden Administration’s continuation of an openly confrontational stance vis-a-vis Beijing, the Treasury Department under its new Secretary Janet Yellen has not re-applied the currency manipulator label to Beijing.
Even if Chinese-US relations further deteriorate, however, one should not expect the Biden Administration to re-impose the designation even amid escalating claims that Beijing’s intervention in currency markets is stepping up as demand from Beijing plays a key role in driving the recovery from the pandemic.
The reason is straightforward, if counterintuitive. The Biden Administration sees Beijing’s intervention in currency markets as evidence of China’s continued dependence on US capital markets. This is where the ‘new Cold War’ differs significantly from the Soviet-Western Cold War to which it is so often compared. The Soviet Union was not integrated into Western capital markets, and while its trading relationship with the West grew steadily from the 1970’s until its collapse, it was primarily in raw materials, never reached even a fraction of the supply-chain integration that has developed between China and the US.
The diversification of US supply chains away from China will likely continue, the Biden Administration has effectively called for it to do so even if in a less direct manner than Trump did. Continuing to maintain Beijing’s integration into US-led Western capital markets under such circumstances, however, can be seen as one of Biden Administration’s policy goals as well, and one where it differs significantly from its predecessor.
Labelling China as a currency manipulator authorised the Trump Administration to take punitive measures in response, but it never seriously did so – using other frameworks to justify its tariffs regime. That may have been at least in part because of the long-held belief China could respond by selling off its US Treasury stock. However, the capital markets integration discussed above means that this would be all-but certain to collapse key Chinese markets as well.
Under Biden, Washington appears to believe the status quo – of China needing to keep the renminbi at a relatively low value, buying foreign exchange in the process – leads to an effective form of economic deterrence.
Dollars and sense: supply chain finance after Greensill
“Sooner or later, everything old is new again.”
The collapse of Greensill Capital in recent weeks had political, reputational and economic implications for a wide swathe of the United Kingdom. The future of some of its largest steel plants has once again been thrown into doubt, its employment of a host of civil servants and former prime minister David Cameron has led to a series of embarrassing revelations, and questions are being raised about the process in which it became involved in managing certain National Health Service (NHS) payments to staff and pharmacies. Additionally, a misunderstanding of Greensill’s business, or at least its purported business, risks having a further negative affect on the supply chain finance industry – and in this case it is very much not deserved.
Supply chain finance rarely makes it into the public forum but is a bedrock of the modern global trading system. It is best understood as payments ahead of delivery of a product – think of a farmer borrowing to pay for seed and repaying with the crop – and is arguably the oldest form of finance. Its expansion helped fuel the mercantilist era beginning in the 16th century and the industrial revolution thereafter.
This is precisely why Greensill’s proposition of ‘disrupting and growing the supply chain finance sector’ failed to pass the sniff test amongst many critical journalists – the fact that it is such an established legacy form of financing means that it has effectively been a shrinking market for decades, potentially more.
As global financial markets have become more complex, derivatives markets have grown, and all manners of financing have become available, they effectively have squeezed the space for supply chain finance. This is not to be bemoaned but combined with the thin margins resulting from the short-term nature of most supply chain loans and the record low interest rate margins means the sector was an unlikely place to find a firm selling itself as a tech unicorn as Greensill did.
Greensill’s collapse was precipitated by revelations that it was not really a supply chain financier. It was effectively offering long-term unsecured loans mislabelled as supply chain financing. No other significant lenders have been implicated in the scandal.
In fact, the Greensill revelations come exactly at a moment when supply chain finance has the potential to expand. The trend against globalisation may seem an unlikely driver of growth but with the US remaining hostile to China despite the presidential transition, the post-Brexit ‘global Britain’ agenda, and the pandemic-induced realisation that diversification of supply sources can add significant resiliency, supply chain finance will play a key role.
It would be unwise to tar the entire sector with the black brush that has painted over Greensill – doing so could limit the post-pandemic recovery and the effort to make supply chains more resilient to another bout of trade wars or in the face of future global health concerns.
Power play: breaking the iron plate? “Hillary used the word ‘glass ceiling’ … but in Japan, it isn’t glass, it’s an iron plate” Tokyo Governor Yuriko Koike
Japan faces a key test in hosting the rescheduled 2020 Olympics this summer, after a year’s delay to the COVID-19 pandemic, yet it lags similarly-developed nations in its immunisation programme by some distance, with just 1% of the population inoculated as of the time of writing. It is a potential make-or-break moment for the ruling Liberal Democratic Party (LDP) and its relatively new prime minister, Yoshihide Shuga, who took office last September when predecessor Shinzo Abe stood down citing health concerns.
Abe’s eight years as prime minister broke a trend of short-lived premierships but the present challenges may re-ignite the trend. Japan is scheduled to host elections for its key lower house this October and Shuga’s popularity has fallen from near 70% during the handover from Abe, which came as Japan was relatively unaffected by COVID-19, to closer to 30% for much of 2021 as COVID-19 infection numbers rose and the vaccination programme lagged. These were compounded by a series of corruption scandals involving LDP parliamentarians and officials, although it should be noted that Abe himself brushed off a number of similar revelations.
Shuga, in contrast, does not have the reputation as a solid economic manager that Abe had garnered. His greatest challenge may not be at the ballot box, however.
The LDP has governed Japan almost unbroken since 1955, only falling out of government between 1993-1994 and in 2009-2012. Although the party is generally conservative and right-leaning, it has accomplished this impressive feat in no small measure due to its sense of political opportunism and ability to read the prevailing political winds. Shuga is up for re-election as party leader on 30 September.
Shuga may find some comfort in the fact his party is bereft of other major political challengers, or at least ones not affected by the same issues he faces. However, this provides a key opening from a position adjacent to the party, that of Tokyo Governor Yuriko Koike.
A former LDP MP, she ran to become the party’s leader in 2008, finishing in third. Citing then-US presidential candidate Hillary Clinton’s reference to the ‘glass ceiling,’ she said she aimed to break the ‘iron plate’ for female politicians in Japan. This comment appeared to be reinforced by the fact the LDP withheld its approval of her ultimately-successful candidacy for Tokyo Governorship in 2016.
Koike created her own party to run in the 2017 national election, though did not stand herself, but relations were somewhat healed when the LDP endorsed her re-election in 2020. She retains significant popularity within the LDP, and in contrast to Shuga, has received plaudits domestically for her efforts to combat the pandemic. The Olympics will also offer her an opportunity to grow her international profile. By the time the election comes around, she may well not just be back in the LDP, but sitting atop it.
Speakers Matthew d’Ancona, is an award-winning political columnist for The Sunday Telegraph, Evening Standard and GQ. Previously, he was Editor of The Spectator, steering the magazine to record circulation. In 2007, he was named Editor of the Year (Current Affairs) at the BSME Awards. In 2011, he won the award for ‘Commentariat of the Year’, the highest honour at the Comment Awards.
Sarah Sands is a Board Advisor at Hawthorn. Prior to this she was editor of the Today programme, Radio 4’s flagship news and current affairs programme. She was previously editor of the London Evening Standard, the first woman to edit The Sunday Telegraph and deputy editor of The Daily Telegraph. Sarah is an honorary fellow of Goldsmiths College, University of London, Lucy Cavendish College Cambridge and a visiting fellow to the Reuters Institute. She is chairwoman of the political think tank Bright Blue, a patron of National Citizen Service and was chair of the Women’s Prize for Fiction.
Sarah Sands spoke to The Rt Hon Caroline Flint about managing change in business and politics.
Given her former position as Shadow Secretary of State for Energy and Climate Change and her current role as co-Chair of the “Getting to Zero” project for the “Onward” think tank, Caroline spoke about how businesses formulate and deliver their ESG strategies.
Speakers The Rt Hon Caroline Flint, during twenty-two years as the Labour MP for Don Valley, Caroline Flint served six as a Government Minister and five years in the opposition Shadow Cabinet before joining the Commons Public Accounts Committee and the Intelligence & Security Committee. A familiar voice on news and current affairs programmes, Caroline has made numerous appearances on Question Time and Radio 4 Any Questions and is a regular political and policy commentator. She chairs the Advisory Board of the Institute for Prosperity, is an Advisory Board member for public service think tank Reform and an Associate for Global Partners Governance. Caroline co-chairs the ‘Getting to Zero’ project for the Onward think tank.
Sarah Sands is a Board Advisor at Hawthorn. Prior to this she was editor of the Today programme, Radio 4’s flagship news and current affairs programme. She was previously editor of the London Evening Standard, the first woman to edit The Sunday Telegraph and deputy editor of The Daily Telegraph. Sarah is an honorary fellow of Goldsmiths College, University of London, Lucy Cavendish College Cambridge and a visiting fellow to the Reuters Institute. She is chairwoman of the political think tank Bright Blue, a patron of National Citizen Service and was chair of the Women’s Prize for Fiction.
Policy preview: boundary review blues Britain is overdue for a parliamentary constituency boundary review. Two efforts to do so since 2010 were both ultimately abandoned, following opposition from both sides of the floor and amid the tumult of the 2016 Brexit vote and its aftermath. In 2021, however, the process is due to get off the ground, with potential major implications for the next general election.
The groundwork for the new boundaries has already been laid by the Parliamentary Constituencies Bill 2019-2021, which received Royal Assent last December. It abandoned previous plans to reduce the number of MPs from 650 to 600 and set the boundary review to be completed by mid-2023, on the basis of registered electorates from last December. Constituencies aim to be within 5 per cent of 73,393 voters, meaning that more than half of the current parliamentary constituencies will have to be redrawn.
This work is to be undertaken by the Boundary Commission, which is non-partisan. Nevertheless, the moves are certain to raise opposition from affected MPs and parties. These tensions may play out in relation to the centrifugal sentiment prevailing in parts of the UK, particularly Scotland, which is set to lose at least one, more likely two, of its 59 MPs. Wales may lose as many as eight of its current 40 seats (though the constituency of Ynys Mon / Anglesey was enshrined as a protected constituency in last year’s Parliamentary Constituencies Bill).
The redistribution of seats around urban-rural divides is likely to have the most significant impact on the political fortunes of the Conservative and Labour parties. While the continued trend towards urbanisation and growing population in London and other major cities may help Labour where new seats are created, population shifts in other areas may help the Conservatives. A number of so-called ‘Red Wall’ seats won by Prime Minister Boris Johnson in the 2019 election, in many cases bucking decades of consistent Labour victories, are areas that have seen population decline. While this means some seats may fall by the wayside entirely, the geographical footprint of the remaining constituencies is likely to expand, picking up rural and less-populated areas, where historically voters have been more Conservative-leaning.
Although Johnson has also vowed to do away with the Fixed-Term Parliaments Act, his sizable majority means that it is more likely than not that the next election will only be held after the new seats come into effect.
Dollars and sense : A (r)evolutionary framework In February, Zambia became the first country to request that it be allowed to restructure its debt under the so-called Common Framework. The nation’s fiscal and economic challenges are not new, and it had already fallen into default last November, setting the stage for a clash between its private creditors and China, by far Lusaka’s largest creditor, over how to make Zambia’s debt sustainable. The International Monetary Fund also started talks with the Zambian government last month, further complicating the picture. But it is the test of the Common Framework that will have the most far-reaching implications.
The Common Framework of the Group of 20 Nations is one of the various initiatives that governments have taken over the last year to help one another through the Covid-19 pandemic. The first major such effort – also organised through the G20, with the support of the IMF and World Bank – is the Debt Service Suspension Initiative (DSSI). This was launched last March and has seen debt repayments to the G20 creditors from 45 developing countries suspended, with a further 28 countries eligible for such relief.
The DSSI has been so significant because China has agreed to take part, although it had historically refused to cooperate with the informal grouping of mostly Western creditors known as the Paris Club. There has been significant concern in recent years over Beijing’s use of ‘debt trap diplomacy’ following its assumption of control of the Hambantota port in Sri Lanka, strategically located in the Indian Ocean, in 2017, but fears that the pandemic would see it seek to escalate such efforts have so far proven unfounded.
The Common Framework was announced at last November’s G20 Summit in Saudi Arabia and builds on the DSSI by establishing a unified set of rules for how sovereign nations’ debts such be restructured. Though the summit was held largely virtually due to the pandemic, supporters of the framework have insisted that support for it among G20 members is strong and unified. They will have to be for the framework to succeed. There has never before been lasting international agreement on sovereign debts, despite repeated attempts to set up a sovereign bankruptcy court. is Zambia presents a strong early test case for the Common Framework.
Private holders of Zambia’s bonds have telegraphed that they hold a blocking share of the debt, which could hinder any restructuring. They have demanded the terms of Chinese debt restructuring be disclosed before agreeing to any of their own. The Common Framework should enable this, although Beijing has demurred from publicly stating how its loans to Zambia are even constituted. If the Common Framework can even make moderate progress in bridging this gap, however, it may prove a key tool in government bankruptcies, particularly in the developing world, going forward.
Power play: Dutch days Dutch voters go to the polls on 17 March, following the resignation of Prime Minister Mark Rutte’s government in January, prompted by the revelation that it wrongly accused thousands of families of welfare fraud. However, Rutte’s People’s Party for Freedom (VVD) has only built its lead in polls in subsequent weeks. 35% of voters appear poised to vote for the VVD, up from the 21.3% it received in 2017. Only Geert Wilders’ far-right Party for Freedom (PVV) is also above 20 per cent in the polls, and then just barely, but as with other previous Dutch elections, most other parties have ruled out considering a coalition with the PVV.
Rutte therefore appears set to head another government, almost 11 years after he first became prime minister. With German Chancellor Angela Merkel not standing for re-election as chancellor in Germany’s federal elections, expected on 26 September, Rutte is poised to become the elder statesman of the European Union.
If Rutte’s VVD performs as well as current polls predict, it will have its choice of coalition partners, but the most natural allies would be those with whom he formed the previous government and who have overseen the interim cabinet in the run-up to the current vote. These are the liberal D66. centre-right Christian Democratic Appeal (CDA) and centrist Christian Union. Some polls indicate the CDA will win enough votes to open up the possibility of a two-party coalition between the VVD and CDA. The centre-left and left are unlikely to play a major role at all, with the Dutch Labour Party (PvdA) a shadow of its former self, having never recovered from the global financial crisis and Eurozone crisis.
Heading a unified centre-right government would set the stage for a more conservative agenda, and if past evidence is any indication, Rutte would likely seek to carry this over into his unofficial role as Europe’s elder statesman (and formally on to the European Council, which guides the EU’s policy agenda). Rutte’s governments had traditionally been allies of the British in their opposition to the idea of ‘ever closer union’ while the UK was still an EU member. More recently, he led resistance to the ‘coronabonds’ mutualising EU debt amongst members, and if a government of only his centre-right allies, would further increase support for Dutch leadership of the ‘Frugal Four’ within the EU. With Merkel set to leave the scene, and Rutte set to secure his position, Europe’s leadership itself may soon be changing to a more cautious tack.
Policy preview: monetary policy and the Treasury Indications of government policy do not always come from ministers briefing journalists or from whispers in Whitehall – occasionally they come via the civil service’s job board. To that effect, earlier this month HM Treasury posted a call for applicants for a new role as the department’s Head of Monetary Policy. While the posting may seem anodyne, it in fact raises serious question about how Prime Minister Boris Johnson and Chancellor of the Exchequer Rishi Sunak view the independence of the Bank of England.
Monetary policy is traditionally the remit of central banks. Economic orthodoxy for most of the last century has held that central banks’ ability to set monetary policy independently of the government is crucial to ensuring the long-term economic stability. The thinking has long been that if governments had the ability to set interest rates, they would be motivated to do so in a myopic manner designed to boost their electoral performances, such as by slashing interest rates to stimulate growth ahead of elections.
The breakdown in the relationship between unemployment, interest rates, and inflation – which has failed to run at an average of 2 percent or higher in developed economies despite over a decade of near-zero interest rates – has left many economists scratching their heads. However, so long as serious deflation is avoided, there are not many political opponents of low inflation. Yet concerns abound about how the poorly understood nature of this relationship is impacting monetary policy, most clearly evidenced by the conclusion issued by the Independent Evaluation Office on 13 January that the Bank of England did not have an explanation for how its quantitative easing policy worked, hindering its ability to build “public understanding and trust” in the programme.
Given the centrality of quantitative easing to not only the UK’s response to the COVID-19 pandemic and its economic impact but that of every other major central bank, renewing research efforts regarding monetary policy is indeed something that the Treasury and other Finance Ministries should prioritise. While the QE that followed the global financial crisis failed to result in inflation, the government has a responsibility to not just assume it will continue to have a non-inflationary impact.
The pandemic portends a crisis driven by a downturn in the real economy, whereas the post-2009 economic impact was demonstrative of the financial economy’s ability to precipitate a crisis in the real economy. Modelling how monetary policy may respond – in the face of renewed inflation or if it continues to remain absent – will be central to developing the government’s decision on whether austerity or continued deficit spending is preferable in the pandemic’s aftermath. The Bank of England’s independence will not go away, but with monetary policy to set to remain the driving tool in shaping the economy, the Treasury official tasked with interpreting its impact will prove extremely influential.
Dollars and sense: trust and the Troika The global container shipping industry stands in a remarkably healthy position as the rollout of a number of vaccines means there is an end to the COVID-19 pandemic on the horizon. After being caught up in market turbulence as the virus spread across the world in the first quarter of 2020, shipping rates recovered substantially in the second half of 2020. As an billions faced unprecedented lockdowns, one common theme emerged – they still wanted to consume even if they could not venture out or splurge on services.
The resulting demand has proven a boon to the shipping industry, which had faced a torrid decade in the aftermath of the global financial crisis. Global trade peaked as a share of GDP in 2008 and has not recovered even as the world appeared to have put the worst impacts of the global financial crisis behind it before the pandemic and the industry was hampered by overinvestment on extremely large container ships that proved less adaptable to the new economic paradigms that emerged. Dozens of major businesses filed for bankruptcy, leading to industry-wide consolidation.
Some 85 percent of global container shipping is now controlled by three shipping alliances. Maersk and Mediterranean Shipping operate an alliance responsible for roughly one-third of container shipping. China Ocean Shipping Company, France’s CMA CGM and Taiwan’s Evergreen make up another alliance, responsible for nearly another third. The tie-up between Hapag-Lloyd and Ocean Network Express, Yang Min and Hyundai Merchant Marine controls another 20 percent.
If the promise of vaccines bears fruit, these firms stand to benefit further. Little new investment into container shipping has been made from outside these alliances as financing has proven hard to come by and the capacity glut caused by the long time-horizon of ship-construction has only begun to fade away.
Meanwhile the demand for shipping is likely to grow further as manufacturers seek to prioritise optionality, constructing multiple supply chains to hedge against the risk of further trade wars. While such a scenario should spell a return to boon times for the industry, the sector’s consolidation raises the spectre of renewed scrutiny.
In 2017, the US Department of Justice launched an antitrust probe into the global shipping industry. It quietly dropped the investigation in 2019, a result of political pressure and concerns that action could further strain the impact of trade tensions. While such a new probe is not likely until the pandemic is in the rear-view mirror, expect regulators in Washington and elsewhere to re-examine the industry’s competitiveness over the coming years.
Power play: spotlight on the Senate Parliamentarian
The post of US Senate Parliamentarian rarely garners significant attention. The officeholder’s role is to interpret the Senate’s own standing rules as well as its ethics and practices. Only six people have held the post since it was introduced in 1935. The incumbent, Eizabeth MacDonough, has held the post since 2012 when she replaced Alan Frumin, under whom she had previously served as senior assistant parliamentarian. The 50-50 divide between seats held by Republicans and those held by Democrats in the Senate, however, will see the role take on a significance not seen in the 20 years at least until the 2022 midterm elections.
MacDonough is not seen as party-political. Appointed by then-Senate Majority Leader Harry Reid, a Democrat, she was retained in the post by Mitch McConnell after Republicans took the Senate majority in 2014.
MacDonough may have successfully navigated the increasingly poisonous political environment in the Senate in recent years, but her largest challenges are still to come. Perhaps the parliamentarians’ most influential role relates to the interpretation of the so-called Byrd Rule, a longstanding Senate convention that allows certain bills to be approved by a simple majority rather than the 60-vote threshold required to overcome a single senator’s filibuster. Legislation is only eligible for passage under the simple majority if its primary impact is on government outlays, typically over the next ten years, rather than policy.
MacDonough faced a handful of rebukes from those on the Republican party’s right wing in recent years as they sought to repeal the Affordable Care Act through such a simple majority, which she ruled against. However, the ruling that most portends events in the coming Congress was the approval, then denial, of a motion brought by Republican Senator Josh Hawley last June. She initially ruled in favour of a move that he had brought requiring a Senate vote on withdrawing from the World Trade Organzation last June, although it rested on a technicality. Yet two weeks later she reversed her position, after the senior Republican and Democratic Senators on the Senate Finance Committee shared a new analysis of the move.
Hawley has since become a household name in the past month for his vocal endorsement of attempts to stop the certification of Joe Biden’s win in the November 2020 election. He has refused to apologise for his perceived role in fomenting unrest at the Capitol on 6 January, having welcomed the crowd as it gathered outside Congress. Hawley and his allies are likely to further seek to challenge the Senate’s established practices, and potentially seek to politicise the parliamentarian’s role. The fact Democrats lack a substantive majority, relying on incoming Vice President Kamala Harris, to serve as the tie-breaker will only heighten the importance of MacDonough’s interpretations of the Byrd rule and other Senate procedures.
Policy Preview: Batteries for Britain Batteries are the new diesel, or so the proponents of electric vehicles would have us believe. Governments across the world – from Australia to China to Germany – appear to have embraced this mantra as well. Britain has attempted such a strategy for over three years now, with then-Business Secretary Greg Clark launching the £246m Faraday Challenge and QUANGO Faraday Institution in 2017.The government seeks the development of a domestic battery industry as part of its promised Brexit dividend. Among the many areas of dispute in the ongoing EU-UK trade negotiations talks are ‘rule of origin’ requirements around the battery industry and electric cars. Rules of origin often depend on the value of components, and EU and UK negotiators have apparently acknowledged the reality that neither has sufficient battery-producing capacity at present for the lion’s share of the value of electronic vehicles to be the result of production from either bloc. But leaked documents indicate that the rules would tighten from 2027, when only some 35 per cent of the value could originate outside the EU or UK to qualify for tariff-free trade between the two.
While neither the EU or UK has sufficient capacity at present, both are already in a race to ramp up such production, deal or no deal. Elon Musk’s Tesla has pledged to build batteries at its planned ‘Gigafactory’ in Brandenburg, outside Berlin, while in in May AMTE Power and British Volt signed a memorandum of understanding to build a roughly equivalent battery-producing factory in the UK. Yet no significant progress has followed the MoU, and the government has also faced criticism for failing to join up its policies, for example with the seemingly counterproductive move of raising VAT on home batteries from 5 to 20 percent this October.
The government may, however, have ideas in mind to jump start the sector related to another more prominent area of the Brexit negotiations, namely state aid. Brussels is reportedly willing to make concessions here if media reports are to be believed, in return for Britain’s reported concession that it will include its terms for such support in the final agreement. There is precedent from Brussels for allowing state aid in the sector, with the European Commission having approved last December a joint research effort by Belgium, Finland, France, Germany, Italy, Poland and Sweden, authorising them to spend €3.2bln in supporting such efforts. In 2021, expect a similar package from Westminster.
Dollars and Sense: Deal with Japan hints at Data Plan On 22 October, Trade Secretary Liz Truss inked Britain’s first post-Brexit trade deal, flying to Tokyo for the occasion. Truss dubbed the deal historic and a sign of the benefits that will finally begin to flow from the years-long process of exiting the European Union. The new Japan-United Kingdom trade deal has unsurprisingly become a lightning rod of debate amongst erstwhile Remainers and Brexiteers, with significant debate over the extent to which it is different from the recent EU-Japan Trade Agreement to which Britain would have been party had it not left the bloc. Critics have noted that Britain has already signed agreements with some smaller Eastern European nations to continue trading under the free trade terms they secured from Brussels in years past, and that the minor differences Truss secured from Tokyo in relation to the EU deal will benefit Japanese manufacturers far more than it will benefit UK exporters.
But there is one key element of Truss’ deal that is noteworthy, even if it is perhaps while perhaps a small victory for now. Unlike the EU-Japan deal, British firms operating in Japan will not face data localisation requirements. Such rules are certainly a technical matter but, suffice to say, data is already a key commodity in modern economies, and is only set to grow more significant. In layman’s terms, British firms will be able to sell services, and software-as-a-service subscriptions, without the need to invest in expensive local servers and related staffing and infrastructure in Japan. If this technical detail of the UK-Japan trade deal can be repeated in others, it could set Britain on a path to become a larger tech and startup powerhouse.
Such data localisation rules require other foreign firms to store data locally in Japan. Japan is not the only country to have instituted such requirements. Russia prominently introduced extremely stringent rules on data localisation in 2016, and the global protectionist wave – combined with the realisation of how valuable data has become – means more countries are likely to implement them in the coming years. Brazil has recently advanced legislation imposing such requirements. Yet while Truss’ talk of the deal promoting a ‘Singapore-on-Tyne’ in relation to the video game industry is primarily aimed at garnering positive headlines from friendly media and the concession may not be enough to significantly impact GDP projections, it sets a significant precedent for other talks. If Britain secures similar provisions in other future trade deals, it will secure a key advantage in the data industry and make it a more attractive hub for tech start-ups.
Power Play: The Keys to US Trade Agenda Markets have welcomed the simultaneous election of Joe Biden as the next President the United States and Republicans’ apparent continued hold on the Senate, where they hold 50 seats. Divided government makes it highly unlikely Democrats will be able to reverse the Trump tax cuts, but the partisan split throws up other challenges. Among the most immediate of these is whether Congress will renew the Trade Promotion Authority (TPA) that allows president to negotiate trade deals and for Congress to review them in a straight yes-or-no vote, without amendments. The current authority expires 1 July 2021.
Also known as fast-track trade, the authority requires the President to present a new trade deal to Congress 30 days before it votes on the pact. For Britain, which has seen a bilateral trade deal with Washington as key to its post-Brexit economic regime, that leaves a realistic deadline of 1 June – just 132 days into the Biden Administration to negotiate such a pact without an extension of the TPA. Such a tight deadline is highly unlikely to be met. Although talks with the outgoing Trump Administration formally began this May, the Biden Administration will have different demands – and Biden has said he does not envisage seeking trade deals in his first year in office.
The TPA was last re-authorised in 2015, albeit narrowly in the House, where Democrats initially refused to co-sponsor relevant legislation. Ultimately the move had to be included as part of a bill addressing issues with pensions for federal law enforcement and firefighters – an issue neither party was keen to obstruct. It also preceded the rise of Donald Trump and his challenges to free trade orthodoxy.
Whether the TPA is renewed could come down to the fight for the final two Senate seats, both in Georgia, to be determined in a runoff election to be held on 5 January. Incumbent Republican Senator David Perdue supported the 2015 extension and has expressed some, muted, support for renewed trade deals during the latest campaign. However, the other Republican candidate, Kelly Loeffler, has taken a more Trumpian approach, though this was likely motivated by her need to see off a challenge from her right. Democratic opponents Jon Ossoff and Raphael Warnock, respectively, have little public track record on where they stand on the matter – highlighting just how absent discussion of trade has been in the US election thus far.
Victory for either Perdue or Loeffler would allow Mitch McConnell to retain the bully pulpit of the chamber’s chair. Trade is among the few areas on which he was occasionally willing to rebuke the Trump Administration and the previous TPA one of the few areas he was willing to work with the Obama administration. His stance on the TPA and trade negotiation with Britain will shape the direction of the Republican party on trade for at least the next four years.