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Best of British

By Sarah Sands, Partner

As Platinum Jubilee flags appeared on the streets and the Chelsea Flower Show put native nature on show, Hawthorn Advisors CEO John Evans and Hawthorn partner Sarah Sands welcomed a group of extraordinary talents to our Best of British dinner. They were there to answer a pressing question: what makes Britain great?

Our guests were an eclectic mix. Ten years after delighting the world with the cauldron that provided the climax to the London Olympics, the designer Thomas Heatherwick arrived having created a new talking point, the Tree of Trees sculpture, in celebration of the Jubilee. A royal theme was taken up by Anthony Geffen, whose Atlantic Productions have just made the visually stunning documentary on the crown jewels.

From the world of science and technology we had the leader of the Whittle Laboratory, Rob Miller; Frank Strang, CEO of the SaxaVord Spaceport UK and Daniel Golding, global head of corporate communications at McLaren. Anabel Kindersley, co-owner of Neal’s Yard Remedies and nature campaigner brought insight into sustainability. The entrepreneurial dynamism that Britain is looking was embodied by Trinny Woodall, who has created a multi-million-pound company built on women’s beauty products, Andrew Roberts, senior vice president of corporate relations and engagement at Burberry and Meredith O’Shaughnessy, the brand strategist.

It was terrific to welcome Emma Bridgewater, who has not only created a brilliant brand but also revived the art of pottery in Stoke on Trent, and Mark Cropper, whose commercial paper mill has a global reach, and who is now exploring handmade paper craft in the Lake District.

Antonia Romeo, who used to run the GREAT campaign to promote British exports and investment was there to keep us on our mettle, Elizabeth Adekunle, chaplain to the Queen, to ensure we did not lose sight of our humanity.

To kick us off, Antonia reminded us of the original concept of the GREAT campaign. Soft power. It is business, culture and people that create and innovate, with government playing a facilitative role.

And with that in mind we were away, the conversation flowing between big philosophical questions about the British character and big practical questions about the role of government, such as can the government facilitate business during a period of massive financial constraints?

A consensus emerged, led by Rob Miller and Frank Strang: we need more of a liberating vision, less of a strangling bureaucracy. It was not so much a matter of public funding, but of belief in the innovators.

Rob reminded us that leadership in innovation demands conviction and speed. At Cambridge, the vision of a UK “Bell Lab” nurturing critical early stage technology is ready to break ground. £34 million has been raised and there is £20 million to go. Will leadership come from private companies such as Rolls Royce and James Dyson or government funded bodies?

The hard thing for governments, we agreed, is risk taking. “If only the UK Government could find better ways of funding the gut feelings of its leading innovators then the UK economy would be turbo charged and at a fraction of the current research spend,” said Rob. Frank noted the distinction between governmental and private spend. In the space race it is individuals, such as Elon Musk, supported by government to take big risks, who are leading. And it is Americans who are more likely to visit Shetland at the moment. Where we have a combined advantage of innovative technology and geography – Shetland could not be better placed – we must not falter.

We explored tech, including Anthony Geffen’s belief that immersive virtual reality will soon displace the iPhone and that the metaverse is the next revolution. Trinny Woodall was bewildered that we continue to turn out graduates who can read Milton but do not understand the tech economy. And, talking of economics, puzzled that men seemed so poor to judging businesses run by women.

But before we lost ourselves in the metaverse, Emma Bridgewater and Mark Cropper, united in a Quaker philosophy, reminded us of the dignity of making things and providing jobs in places that needed them. Liz Adekunle reminded us that we have a responsibility towards others and should remember the lesson of the pandemic: those key workers who kept the country running, rather than those who ran the country. Anabel Kindersley also spoke for social purpose, and for doing the right thing. She was dismayed that the government’s decision to lift the ban on use of neonicotinoid pesticides for use on sugar beet is killing bees again and has harnessed a coalition of businesses to find some solutions at a forthcoming Bee Symposium.

Little by little, a consensus emerged. The Best of British is scientific ambition, creative possibilities, a business-friendly environment and…something intangible. Thomas Heatherwick summed it up. When artificial intelligence takes over most tasks, what will be left is imagination. Slogans are not enough. You can’t just say Glorious Great Britain, like Incredible India or Amazing Asia. We have to show what we can do.

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Singapore’s sling, good COP bad COP and Russia and Ukraine’s battle of Britain

Policy preview: Singapore’s sling
The Organisation for Economic Co-operation and Development (OECD) and G20 agreement to implement a global minimum 15% corporate tax faces a long road to implementation, particularly as governance standards for policing adherence remain undefined. Singapore is likely to prove a key test case. It has a 17% corporate tax, but offers an array of incentives that can reduce this significantly for many corporate residents, including those tech giants who operate regional headquarters from the city-state or the investment managers based there.

Prime Minister Lee Hsien Loong acknowledged as much earlier this month, noting that the city state will have to see how its current tax incentives “will have to be modified”. Singapore is not a member of the OECD, unlike many other alleged ‘tax havens,’ or the G20, but has signalled support for the effort for years now, and members of its government have called out the “artificial shifting of profits” to minimise their tax bills in the past, even as others have accused Singapore of profiteering off such practices.

Singapore remains well-positioned as a corporate hub outside tax competition, but it is nonetheless still likely to ensure that its business environment is as attractive as possible for the multinationals and other businesses that make their home there. It is set to benefit from concerns about the political environment in Hong Kong as well as its membership in the Regional Comprehensive Economic Partnership (RCEP), due to come into effect next year.

Singaporean authorities have indicated that they will seek to take action aimed at making Singapore an even friendlier business environment, including by offering incentives to hire locals and lowering requirements for leasing government-owned office space, a considerable portion of Singapore’s commercial property stock.

However, the temptation for tax adjustments may prove too great – particularly as its strident COVID-19 regulations and increased requirements for permanent residency visas have raised concerns about the quality-of-life and employment advantages it has long held.

Singaporean authorities may state they do not intend to continue to compete on a tax basis, but such declarations have been made in the past with little follow-through. The extent to which it is possible to enforce and regulate the OECD-G20 agreements is likely to be evidenced by Singapore’s corporate tax adjustments.

Power play: good COP bad COP
COP26 has set the stage for a new series of measures to stimulate private markets for climate financing.

British Prime Minister Boris Johnson used the conference to renew a longstanding goal, first agreed at the 2009 iteration of the COP conference, to provide US$100bn of climate finance – intended to enable developing countries’ attempts to mitigate and adapt in the face of climate change – annually by 2020.

One year beyond the deadline this target has not been met. Latest OECD estimates show climate finance amounted to some US$80bn in 2019, three-quarters of it provided on a state-to-state basis. Announcements made during COP26 suggest the target will not be met until 2023. Diplomats and negotiators are hard at work trying to pull together enough public and private finance to make the target. Building on Germany and Japan’s positions as the largest providers of climate finance in 2019, we have seen new commitments in recent weeks from the UK, Italy, and Denmark, while US climate envoy John Kerry is confident that the total will be met in 2022. So far, so good?

It is not so simple – what is meant by ‘climate finance’ is itself contested. There are a range of definitions, accounting for the financial instruments used (such as loans or grants), whether contributions are from the private or public sector, and the favourability of interest rates or notice periods. The OECD’s definition of climate finance is broad, encompassing grants, loans and export finance credits from both public and private sectors.

Many developing countries find this definition overly generous, arguing that it obscures how useful and beneficial climate finance might be. For instance, many contributions focus on development projects with only a partial focus on climate goals, and very often governments do not meet their fair share of climate finance contributions.

This contributes to the anger and mistrust felt by developing nations. The founder of a Nairobi-based climate charity, said that the missed US$100bn in 2020 had “hugely damaged” trust in the UN climate summit process, while the Gambia’s energy minister has said that the consequences for developing nations would be grave: “It would be catastrophic because we need those resources”.

This widespread feeling that developed countries cannot be trusted to pull their weight is a challenge to negotiations at COP26, where talks are being held to determine target levels of climate finance beyond 2025. Geopolitical pressure on wealthy countries to deliver is growing. The bulk of climate finance at present is public, but given the political headwinds we can expect to see OECD countries lean on the private sector to find the environmentally and politically necessary levels of finance.

“We [the world’s least-developed countries] bear the biggest brunt of the impact of climate change and we would like to see the commitment that was taken by the developed countries be fulfilled” Lamin B Dibba, The Gambia’s Environment Minister

Dollars and sense: Russia and Ukraine’s battle of Britain

Moscow and Kyiv have been locked in war in eastern Ukraine for some seven years now. Casualties remain a weekly occurrence on the frontlines, even as life goes on largely unaffected in both capitals. The bitter falling out between the erstwhile close allies has had ramifications for international gas markets, NATO, and much more. One front of the conflict has even struck into the heart of Britain, which while not a violent threat, could have major ramifications outside the scope of the conflict.

On 11 November, the UK Supreme Court is due to hold its final hearing in a lawsuit between the two sovereign states, as Kyiv claims that Moscow foisted a US$3bn bond loan on the former, disgraced, government of President Viktor Yanukovych (whose ouster in large part sparked the war) in 2013. Subsequent Ukrainian governments have refused to repay, arguing duress. Russia for its part argues that though the loan was structured under UK laws, that these arguments are not justiciable in the UK.

Ultimately, Kyiv’s bar for a ‘victory’ is lower than Russia’s – if the Supreme Court merely orders a full trial on the merits of any of the various legal arguments Ukraine has made (legal scholars have labelled its approach a ‘kitchen sink strategy) then a series of further appeals by Russia can be expected and the bond will remain outstanding.

The British government has in the past indicated it does not approve of Russia’s approach to the bond, though suggestions that it legislate in support of Kyiv have been dismissed as unworkable – and caused concern this could undermine London’s position as a key market for selling emerging market debt. London and New York have long been the preferred markets for doing so, with their respective legal regimes providing comfort to investors.

Anything other than a ruling in favour of Russia, however, risks affecting London’s attractiveness as a market for such debt – if there is an argument of coercion, this will likely be picked up by activists from groups like the Jubilee Debt Campaign. As is so often the case, much will be determined by the messaging around the ruling and whether Russia seeks to engage in a public relations effort over the judgement. This should be expected; British banks and investors should be prepared for Moscow engaging in its own effort to disparage the standards of English law for such contracts in the event of an adverse ruling.

“Is it really incomprehensible that such an unprecedented policy of double standards could open a Pandora’s box, cause enormous damage to global finances and generally undermine confidence in international financial institutions”

former President of Russia, Dmitry Medvedev
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Defence’s defence, Sinn Féin and aiding ailing airlines

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.”

Michael Collins

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

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Der Kingmaker, the debt ceiling and Lithium in coalition

Policy preview: ending the debt ceiling?
The US’ debt ceiling is among the most despised institutions of US politics, from the perspective of the Democratic Party. The ceiling formally institutes a limit on how much the US government can borrow – but in practice it has never done so, having been consistently raised since its introduction just over 100 years ag, even in the 1990’s when then-president Bill Clinton managed to run a rare surplus.

The ceiling is once again in the news after the Republican Party refused to support raising it in a procedural vote on 27 September. The ceiling was of course consistently raised under former president Trump, when Republicans controlled the Senate, and it was formally suspended for two years in August 2019. While this may well have avoided its politicisation during the COVID-19 pandemic, the vast government spending rapidly required by the initial response to the virus highlighted the potential risks in retaining such a limit.

Democrats argue that the Republican Party politicises the limit every time that it is out of power, pointing to the government shutdowns that resulted from refusals to raise the limit when Barack Obama was president and former Republican House Speaker Newt Gingrich’s 1995 move to separate the increase from the annual budgetary process. But at the same time the Democrats have been wary of publicly calling for its elimination, which could be perceived by voters as embracing fiscal irresponsibility.

Treasury Secretary Janet Yellen has warned that failure to raise the ceiling could lead to a formal default, declaring this would push the US back into recession. Federal Reserve Chair Jerome Powell – who former president Donald Trump nominated to replace Yellen in that post – has made the same point.

Republican Senate Majority leader Mitch McConnell has used the latest standoff to say that the buck stops with the Democratic Party this time, given the party’s control of both houses of Congress and the presidency. He is correct in that the Democrats can use the budget reconciliation process – which would override the Republican ability to filibuster such a vote – to eliminate the debt ceiling. Yet the Democrats are seemingly unwilling to open the 2022 budget resolution to do so, which could galvanise opposition to increased spending from centrist Democratic Senators Joe Manchin and Kirsten Cinema, already engaged in a standoff with their own party over a US$3.5 trillion social policy and US$1 trillion infrastructure bill.

The Democratic Party may therefore have an interest in allowing a brief crisis over the debt ceiling even as they control all branches of government. Previous shutdowns have failed to significantly affect domestic political trends. McConnell’s relationship with Trump and the less fiscally cautious wing of the party that has been so ascendant since his 2016 election victory is strained, with Trump reportedly seeking to stoke a leadership challenge among Republican Senators. Despite McConnell’s declarations, the intricacies of Senate parliamentary process are not of interest to most American voters.

Strange as it may seem, if Democrats are hoping to lay the blame for any fallout at McConnell’s feat, in hopes it will engender an environment in which they can finally push through the debt ceiling’s abolition in 2022.

“Democrats have every tool they need to raise the debt limit. It is their sole responsibility”. Senate Minority Leader Mitch McConnell

Power play: Der Kingmaker
Germans went to the polls on Sunday, and the election appears to already have a likely winner. The leader of the Social Democratic Party (SDP), Olaf Scholz, is look set to be the next Chancellor. However, the two smaller parties he will need to support his governing coalition will have to find a lot of compromise.

The SDP won the most seats in the election in a disappointing night for the Angela Merkel’s governing Christian Democratic Union (CDU).

The party sitting closest politically to the two largest parties, the SDP and the CDU, and thus natural coalition partners in the next government is the FDP, whose leader Lindner has been described as a ‘kingmaker’ who must choose the next leader of the Republic.

However, a coalition made up of the CDU, FDP and Greens, is politically implausible. The CDU suffered a heavy defeat on Sunday, losing a quarter of its support compared to the last election in 2017. Their leader is already facing calls to resign from within his own party, and is no longer a serious contender for the Chancellery.

The most likely outcome is a ‘traffic-light’ coalition between the Greens, the SDP, and the FDP. The SDP will need to form a coalition with these parties in order to form a government. But while the Greens favour statist intervention, the FDP is more aligned to a laissez-fair economic doctrine, preaching faith in markets to solve the climate crisis.

So while Lindner may no longer the ‘kingmaker’ – with little tangible choice over who will be the next Chancellor – more significant may be areas where the Greens and the FDP can find common ground. Whereas the Greens and SDP largely align on economic policy, the FDP support significant tax cuts and adherence to the debt brake. Division over climate issues such as the future of the car sector, Nord Stream 2 gas pipeline, and how to best protect households from the impact of climate policies, may prove to be sticking points.

However, early signs suggest compromise is possible – the Greens and FDP already have entered negotiations between themselves to better enable them to present a united front. To give just one example, Lindner has called for a state investment fund, separate from the federal budget, borrowing and invest with higher returns. The Greens may well see this as the route to climate infrastructure investment without having to increase national debt to unacceptable levels.

Perhaps Lindner will not be kingmaker, with Scholz apparently already Chancellor-in-waiting. But the success of Germany’s next government will depend on how much compromise can be reached by the FDP and the Greens – and early signs are promising.

“For me, it is always important that I go through all the possible options for a decision”.

Chancellor Angela Merkel

Dollars and sense: Lithium in coalition
Germany’s Green Party is all but certain to enter its next government after the 26 October elections – having come in third, both the first-place Social Democrats (SPD) and the runner-up Christian Democratic Union (CDU) have they want to discuss forming a coalition with the party. Any realistic coalition other than a renewed CDU-SPD grand coalition, which both have said they wish to avoid, would require the Green’s participation. The Green’s environmental agenda has been embraced by both as well, but one major question facing any new coalition will be how they balance environmentalism and NIMBYism.

Pollsters reported that more Germans identified climate change as their primary concern going into the elections, rapidly overtaking COVID-19 as the summer progressed. The German auto industry has also undergone a rapid shift to supporting the electric transition for the sector as well, spurred on by Tesla’s development of a ‘gigafactory’ outside Berlin – something the outgoing grand coalition pushed for. The CDU’s chancellor candidate, Armin Laschet, even met with Elon Musk in mid-August, seeking to brandish his parties green credentials.

Incidentally, Laschet posed a question to Musk that said gets to the heart of Germany’s green agenda: “hydrogen, or electric?”. Musk laughed it off, endorsing the later (on which he has staked his company) wholeheartedly but that such a question could still be posed in German politics highlights the quiet discomfort many at its peak express with regards to a core aspect of the transition: the supply of lithium batteries.

Demand for lithium has grown exponentially over the past decade, but Europe has repeatedly failed to develop its own sources. Plans for lithium mining in Portugal collapsed in April, and while the UK has made some very early tentative progress towards exploiting its own lithium, post-Brexit competition and EU rule-of-origin and tariffs mean that integrating European auto manufacturing with UK battery production is unrealistic at present.

Despite the enthusiasm for the green agenda, the Green Party has been at the forefront of opposition to lithium mining. At the European level, the party has fiercely opposed the US$2.4 billion Rio Tinto led Jadar mine project in Serbia over concerns it will degrade the local biodiversity and agricultural fertility and in solidarity with local protests.

Whatever coalition is formed in Germany, it will have to deal with the reality that Berlin risks being left behind if Europe remains without a significant local lithium supply. Otherwise, its auto industry risks being left behind.

“We have to think of where the raw materials come from… but we want to further develop and expand electro-mobility here in Germany, particularly with the production of batteries”. Annalena Baerbock, co-leader of the Green Party

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Jess Phillips, Labour Party MP on support of alienated voters and the role all businesses can play in supporting their employees who may be suffering from domestic violence

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.

Listen to the replay of Sarah Sands in conversation with Jess Phillips, MP.

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.

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Washington’s weapons in tax treaty fight; Tobin tax’s latest turn and Madrid’s Diaz Ayuso

Policy preview: Washington’s weapons in tax treaty fight
“If the U.S. came down on tax havens in the same way they come down on countries that trade with Iran and Cuba, we’d have no tax havens in the world.” Professor Ha-Joon Chang, University of Cambridge.

US Treasury Secretary Janet Yellen is looking to work with finance ministers from around the world to agree on a global minimum tax rate for multinational corporations. This quiet effort has only just begun, but if successful it could prove among the most significant foreign policy and regulatory moves since the end of the Cold War.

This move is not without its challenges, and comes on the back of a round of recent competition by states to lower their corporate tax rates, which surprisingly saw France cut such levies under President Emmanuel Macron. Yet Britain has announced plans to buck this trend. The European Union has sought to restrict its own internal tax havens, and ensuring that technological multinationals pay their ‘fair share’ is a policy popular with all flavours of government from Canberra to Ottawa.

Perhaps the most underappreciated feature of the discussion thus far, however, is the carrots that the US can offer to other countries for their support for such an effort. The potential sticks – sanctions, tariffs and regulatory restrictions – are far better known, though at least until recently Washington has been hesitant to use these tools to target those it accuses of violating international business norms. It is unlikely that the Biden Administration will use such threats at this stage, though the precedent set by Trump’s actions on China means it cannot be ruled out that Washington will eventually use these tools for such purposes.

The key carrot also results from the US’ central role in international trade and financial markets. More significantly, Washington has already made ample, but quiet, use of the carrot over the last year. Specifically, the US Federal Reserve has offered ‘swap lines’ to key allies since last April, initially an effort to mitigate against the risk that the COVID-19 pandemic would cause a global debt crisis.

Historically, only very few countries – such as the UK – had access to such swap lines and they were only used to respond to the 2008 financial crisis. Today South Korea, Mexico, Singapore, and Brazil are among the biggest beneficiaries. If the US were to withdraw these lines, which would essentially mean that the Fed would treat local currency state debts as fungible with US debts, it would risk prompting a debt crisis. As a former Fed chair herself, Yellen is keenly aware of this.

Expect the US to offer making such swap lines permanent, in exchange for a global tax treaty.

Dollars and sense: Tobin tax’s latest turn
“This idea (of a financial transaction tax) has been around for a long time…I think frankly the experiences are mixed”. Former US Treasury Secretary Timothy Geithner, 2009

Discussions of so-called Tobin taxes once dominated considerations of how states should respond to the Global Financial Crisis and Eurozone Crisis. A few years later, they again turned heads in response to the rise of high-frequency traders, which entered the mainstream with Michael Lewis’ 2014 book Flash Boys. The Tobin tax is also known as a financial transactions tax (FTT) and is essentially a levy charged on a securities trade, either a fixed charge or as a percent of the value of the security. The debate appears to be returning again.

Although France did enact such a tax in 2012 – charging 0.3% of the value of certain stock trades, and some high-frequency trades at the lower 0.01% rate – Europe has not followed suit, with only Finland instituting a similar tax. The United States continued to oppose such a policy as well, under both the Obama and Trump Administrations.

However, the Tobin tax has recently received some attention once again, due to the high-profile Game Stop market madness. This saw a small US video games’ retailer’s stock become among the most volatile financial assets in recent months, driven by day-trading users on increasingly popular share trading applications and platforms. These in turn are dependent on selling their order flow to high-frequency traders, who some blamed for causing massive losses for small retail investors when trading in Game Stop shares was first suspended in late January.

In February, the Chair of the Financial Services Committee, Maxine Waters (D-CA), said she was willing to consider such a move. The Congressional Budget Office’s prediction that a 0.1% securities transactions tax could raise as much as $777 billion over 10 years has helped it garner further support. House Democrats are now expected to propose exactly such a tax.

However, such a proposal has little-to-no-chance of advancing in the Senate. The Biden Administration is unlikely to spend political capital on such proposals. Coverage of the tax will only grow through the rest of this year as budget debates and structural economic reforms dominate in Washington. But as with previous proposals, this game too will soon peter out and stop.

Power play: Madrid’s Diaz Ayuso

“It bothers me enormously to lose, I can’t stand it. And I’ve spent many years, with some friends, devoting almost all of our political activity to thinking about how we can win”

Pablo Iglesias, Head of Podemos

Isabel Diaz Ayuso was little heralded when she assumed the presidency of the community of Madrid, the governorship of the greater capital region, in August 2019. She had to hobble together a coalition between her centre-right Popular Party (PP), and the then-rising centrist Ciudadanos faction, as well as the nationalist Vox party. In the election held that May, she led PP to win just 30 of 132 seats in the Chamber, finishing behind the Socialist Party (PSOE), and with Ciudadanos securing 26 seats. The result was the PP’s worst performance in Madrid’s regional elections since the fall of the Franco dictatorship.

A little over 18 months later, Diaz Ayuso has called snap elections that will now be held on 4 May. Nearly 35% of voters plan on backing her PP in the vote, up from 22.23% in 2019. She said she called the vote to prevent Ciudadanos from switching to an alliance with the PSOE. Meanwhile Ciudadanos, which won 19.46% last time around, is polling on the verge of falling below the 5% electoral threshold.

Diaz Ayuso’s likely success tells the story not just of her masterful management of Madrid’s politics, but also of her prominent public opposition to the national minority government of PSOE leader Prime Minister Pedro Sanchez. Sanchez ousted the PP government in 2018 in a series of parliamentary no-confidence votes and won the most votes in the two general elections held in 2019. However, the PP has never been able to form a majority coalition and remains dependent on left-leaning Catalan independence parties for support.

With pro-independence parties winning a majority of votes in Catalonia’s 11 February elections this year, but chafing at the PSOE’s first-place finish, it is more-likely-than-not that that another election will have to be called before December 2023. Pablo Casado, PP’s national leader, has failed to capitalise on Sanchez’s troubles, particularly his regular spats with his leftist coalition ally, Deputy Prime Minister Pablo Iglesias of the Podemos party.

Iglesias announced this week he will step down to lead Podemos in the Madrid elections, vowing to challenge Diaz Ayuso. He may be able to lift Podemos above the 5% threshold it appears at risk of falling below, but it will be Diaz Ayuso who uses the election as a platform to raise her national profile. She may well lead the PP ticket by the time the next general election is called.

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The Rt Hon Caroline Flint on managing change in business and politics

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.

Listen to the replay of Sarah Sands in conversation with the Rt Hon Caroline Flint.

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.

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Boundary review blues? A (r)evolutionary framework and Dutch days

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.

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Putting the green in German, the future of working from home and New York’s next star?

Policy preview: putting the green in German
“Germany is Europe’s heart.” Yanis Varoufakis, former Greek Finance Minister

German voters are set to go to the polls by 26 September, in elections that have garnered significant attraction because Chancellor Angela Merkel will not be the lead candidate of her Christian Democratic Union (CDU) for the first time since 2005. At the helm of various coalitions in that time with the centre-left Social Democrats (SPD) or the libertarian-leaning Free Democrats (FDP), Merkel’s coalition deal-making has been an underappreciated feature of her political nous. Her successor as party leader Armin Laschet also has shown the necessary coalition-building skill to be an effective premier, brining in the FDP to form a regional government in North Rhine-Westphalia following the state’s 2017 vote.

However, if polls are accurate, the September election will throw up new coalition possibilities heretofore unseen in German politics at the federal level. The reason for this is two-fold, first the rise of the Alternative for Germany (AfD) party, which all other parliamentary German parties have placed a ‘cordon sanitaire’ over that is unlikely to be lifted anytime soon. The second factor is the rise of the Green Party, which has sapped votes from both the CDU and the SPD. In many polls in now leads the latter and could well become the second-largest party in the Bundestag come October.

The Greens will have clear environmental demands. However, less attention has been paid to the fact that the Green Party is expressly in favour of the further mutualisation of European borrowing and has little regard for the ‘Black Zero’ policy of balanced budgets that held throughout so many Merkel governments until the COVID-19 crisis. In fact, the speed with which Germany has abandoned both this domestic borrowing policy and its reticence to mutualised European debt marks a profound paradigm shift not just in German politics, but for all of Europe.

Whether the Greens negotiate with the CDU and its more-conservative Bavarian sister party, the Christian Social Union (CSU), or with the SPD, as to forming a coalition, expect it to demand an explicit endorsement for further European financial federalisation, and for stimulus packages inspired by the recent Biden Administration package. The latter is a more natural coalition partner, though it would likely require the pair to at the least also bring in the FDP or the Left, more likely both, a daunting challenge. A Green-CDU coalition is therefore more likely, but for this to be successful it would have to cast off the remaining vestiges of Euro-trepidation that marked previous Merkel governments.

Dollars and sense: the future of working from home
“If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it.” US President Ronald Reagan.

For many readers in the UK, and much of the rest of the Western world, it has been over a year since daily attendance at the office place was expected. Some have enjoyed the comforts of home; others eagerly await escaping its confines. How and when to support, advocate, and demand a return to the office remains a politicised question, and one on which no consensus has yet emerged, even in the UK where half of all adults have now had at least one dose of the COVID-19 vaccine.

It is little surprise that there appears to be growing demand for guidance or an answer on what the future of work-from-home will look like. The scale and the extent to which last year’s normal becomes ‘the new normal’ will have major ramifications not just for individual employers, but for public transportation and its finances, for the values of commercial prime real estate, and even for graduates coming out of university, amongst many others.

There is, however, no one-size-fits-all answer for how to reincorporate office life into the work routine for those able to work-from-home. As it is judged safe to do so, individuals keen to return to the office will begin to do so – in some places, particularly the United States – this is already well underway. Others may well seek to retain their home offices a while yet, and some even seek to make them permanent. There had been a slow trend of increased work-from-home practices in recent years already, the pandemic simply gave it the mass testing needed for acceptance, rather than hesitancy to become the standard.

That is not to say that we are entering a work-from-wherever-one-likes world. Taxes so often based on residency and place of employment will complicate the dreams of many would-be digital nomads. In that same vein, expect governments to institute programmes aimed at maximising the benefits of the increased number of people seeking to work from home. These will very from country to country, but examples ae already appearing on the horizon. In Spain where rural depopulation has been a trend for decades, discussion is already underway on how to incentivise some employees to stay outside the cities. In the UK, government minds are aflutter with discussion over how to link the benefits of increased work-from-home with its ‘levelling up’ agenda.

One certainty is that work-from-home numbers will increase, even if the extent is unclear. But even small changes on the margins can reshape the economy.

London has a workforce of 5.2 million, whereas Birmingham, the UK’s second largest city, has just half-a-million. If just one in five working Londoners, spends one day a week working outside London, it will be the equivalent of distributing all of Birmingham’s work force across the country. Governments will be keen to ensure they can manage the distribution of that pie.

Power play: New York’s next star?
“I don’t care who does the electing as long as I get to do the nominating”. William ‘Boss’ Tweed, former head of New York’s ‘Tammany Hall’ political machine

The last year has proven to be one of extreme turbulence for New York Governor Andrew Cuomo. Initially hailed on the left side of the US political aisle, and even on occasion by Republicans for his stewardship of the COVID-19 pandemic in his state, now facing bipartisan calls for his resignation over sexual harassment allegations. His great rival, fellow Democrat Bill de Blasio, saw his presidential campaign flop even before the first primary – and he will be replaced in the November New York mayoral election. De Blasio is all-but-certain to carry one of the lowest-ever approval ratings for a New York mayor on his way out of office.

While Cuomo has vowed to fight on, and at the end of March brokered an agreement in the State Legislature to legalise cannabis – a move many have correctly identified as a ploy to make good on an often discarded campaign pledge to regain some popularity – he may well still be forced to give up plans to run for a fourth term as governor in 2022.

New York needs a new political star. It has a long tradition of creating such creatures, even before it served as a springboard for Donald Trump’s rise to celebrity and then politics. Trump’s departure from the city predated De Blasio and Cuomo but was solidified when he announced he would move to Florida after his presidency, with the threat of state criminal investigations and his family’s unpopularity amongst the city’s social elite key factors in pushing him out. The pull of New York City on the state means that anyone looking to find their way up in state politics is likely to have to come from the left of the aisle, as with Cuomo and De Blasio.

Alexandria Ocasio-Cortez goes some way to filling the gap, though her profile is more national than regional given she how she has used her seat in the House of Representatives to campaign for a left-leaning progressive agenda. The New York City mayoral election provides the most natural proving ground for any aspirant-star, and former presidential candidate Andrew Yang has eagerly seized the mantle. He holds a narrow, but steady, lead in the polls for the 21 June Democratic primary.

Yang may well prove to be the man of the hour. However, one of his closest competitors is Scott Stringer, currently New York’s Comptroller, known for his mastery of the Democratic Party machine. The primary vote will be the first to determine the winner through ranked-choice voting. With some 50% of voters still undecided according to the latest vote, and Stringer’s experience in local organising, he may well prove victorious. A weakened Cuomo would be little match for a victorious Stringer, whereas Yang has little experience with the local Democratic Party. New York may soon be Stringer’s oyster.

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The forthcoming filibuster fight, leaseholds and cladding and Israel’s once-and-future kingmaker

Policy preview: the forthcoming filibuster fight
The US Senate’s ability to only corral 57 votes to convict Donald Trump on impeachment charges on 13 February highlights the incredibly high bar needed to pass major legislation, with 60 votes in the Senate required to end the filibuster. There have been repeated tweaks to Senate rules over the last two presidencies – with Democrats doing away with the filibuster for most judicial appointments when Barack Obama was president and Republicans expanding this to include Supreme Court nominees under Donald Trump. The legislative filibuster, however, has remained in place, despite attracting far more controversy than all others combined, with both parties fearing that the other will ram through legislation as soon as it retakes narrow control of Congress and the White House.

Now that Democrats have precisely that narrow control, the Biden administration has been muted on calls to end the filibuster. Moderate Senate Democrats such as West Virginia’s Joe Manchin, Arizona’s Kyrsten Sinema and even California’s Dianne Feinstein have pledged to retain the filibuster, so although the Democrats could technically jettison the rule with just a majority vote, there is not yet a path to do so.

Progressive activists, many of whom have long campaigned for the filibuster’s abolition, have remained surprisingly quiet over the matter to date. But that belies the strategy they have adopted to seek to push the change through. Amongst left-leaning and Democratic activist circles in Washington D.C., efforts are underway to revive a bill first introduced to the previous Congress – dubbed House Resolution 1, or HR1 – and to use its passage as a cri de cœur to abolish the filibuster once and for all.

Democrats easily passed HR1 in 2020, but Republicans who still held the majority barred it from even being considered in the Senate. The bill is essentially a wish list of Democratic party goals: regularised mail balloting, expanded voter registration, campaign finance reform and reforming the uber-partisan and increasingly controversial congressional redistricting process. After the dust settles on Trump’s impeachment, and once Biden’s administration is in place, Democrats will reintroduce the bill. It may be packed with even more radical – but broadly popular – sweeteners, such as authorising a pathway to statehood for Washington D.C. and Puerto Rico, in an effort to show that while such legislation polls extremely well, it cannot get through the Senate while the filibuster remains.

Later this year – either in the summer or, more likely, the autumn – Democrats will push the package, not in an effort to bring Republicans on board, but to convince the aforementioned Senate holdouts to abandon the filibuster. If they succeed, it will radically reshape US politics forever. If – as is more likely than not – they fail, the opening of a rift within the Democratic Party may finally create room for moderate Republicans to emerge as leaders of the opposition after four years of being stifled by Donald Trump.

Dollars and sense: leasehold and cladding challenges
The lockdowns and government policies announced in the wake of COVID-19 make clear that real estate and housing remain at the core of Britain’s economy. Estate agents’ offices have been one of the only non-healthcare or essential service industries to remain open throughout the latest lockdown, and the stamp duty holiday announced by Chancellor Rishi Sunak has helped drive transaction volume to a 13-year high, despite the pandemic. Two key pillars of housing policy, however, have proven politically contentious and vexing to the government, though by tackling them together it may just find a pathway forward.

First is the issue of cladding, which has become something of a national scandal as thousands of buildings were found to contain hazardous or non-standard material in the investigations launched after the Grenfell Tower tragedy in 2017, which left 72 dead. Second is the issue of leasehold reform, something the Conservate Party has dabbled with since even before Margaret Thatcher’s Right to Buy reforms were launched in 1980. Proving it can be done, Scotland has effectively eliminated leaseholds over the last two decades.

The government has set in motion processes to address both issues over the last few weeks. On 11 February, the government announced £3.5 billion in funds to remove unsafe cladding from buildings over 18 metres high, and a loan programme for flat-owners in shorter buildings aimed at capping the cost of refurbishment work at no more than £50 per flat per month. On 7 January, Housing Secretary Robert Jenrick announced a plan to allow leaseholders to extend their leaseholds by 990 years, up from 90 for flats, and 50 for houses, at zero ground rent.

The overwhelming majority of flat-owners, and particularly those in multi-family houses, i.e. those affected by the issues with cladding, are leaseholders, not freeholders. Aiming to smooth the process, the government’s leasehold reform also includes a policy of abolishing calculations of ‘marriage value’, which had aimed to reflect the greater combined value of a freehold held with a leasehold. The right to extend without ground rents aims to counter the recent trebling of many such charges at recently developed leasehold properties and incentivises leaseholders to extend by lowering their annual costs.

The millions living in properties affected by cladding issues have argued the government’s new repair fund is insufficient, and that it fails to reflect higher insurance costs they have had and will continue to bear as repair work is underway. There are already quiet rumblings of what more can be done.

One suggestion that appears to be gaining traction is for the government to buy out freeholds and transfer them to non-profit companies, allowing leaseholders to obtain a proportionate interest in them when they extend their lease. Taking on the cost of doing so for properties affected by cladding, or at least those uncovered by the current fund, may just provide the government with an opportunity to make major progress on leasehold reform and mitigate the cladding issue’s ability to further disrupt real estate markets, particularly for new builds.

Power play: Israel’s once-and-future kingmaker
Israelis go to the polls on 23 March, the country’s fourth election in two years. The vote is widely seen as yet another referendum on Prime Minister Benjamin Netanyahu, who has narrowly held on through the last three votes by forming ever-shifting coalitions, most recently with the Blue and White Party of Benny Gantz, who had vowed before the last election never to countenance such a government and lost most of his own allies in agreeing to the coalition.

Netanyahu has received plaudits for his management of relations with Israel’s Arab neighbours and getting the Trump Administration to recognise the annexation of the Golan Heights and Jerusalem as Israel’s capital. He heads into the vote on the back of arguably the world’s most successful COVID-19 vaccination programme to date. However, he is also embroiled in a long-running corruption scandal and has faced allegations of putting his interests before the nation’s. Netanyahu’s Likud Party is expected to win the most seats, but current predictions show the conservative parties he has traditionally aligned with well short of a parliamentary majority. Gideon Saar, who unsuccessfully challenged Netanyahu for the Likud leadership in 2019, quit the party last year and his New Hope party goes into the elections as one of Netanyahu’s strongest challengers. Yet even if the Saar-Netanyahu split can be healed, seat predictions suggest they will be short of a majority.

Netanyahu’s fate may therefore very well be determined by another jilted former coalition partner, Avigdor Lieberman. A Russian immigrant and former nightclub bouncer, the populist Lieberman has often been dubbed ‘Israel’s Trump’. He has vowed never to sit in a government backed by the Arab Joint List, but also bitterly opposes the military service exemptions for the ultra-Orthodox and has arguably become Netanyahu’s fiercest public foe despite previously serving as his deputy prime minister, foreign minister and defence minister, among other posts.

Lieberman’s refusal after the March 2020 election to join a coalition led by Netanyahu or back the only other viable alternative – a Blue and White-led government backed by the Joint List – forced the brief and tempestuous marriage between Netanyahu and Gantz. Burned by the experience, Gantz’s party is at risk of falling out of the Israeli legislature altogether in the next vote and certain not to countenance renewed support for Netanyahu.

Although Lieberman’s Yisrael Beiteinu party is expected to only win seven or so of the Knesset’s 120 seats, expect Lieberman to dominate coalition discussions. His positions may just prove sufficiently intransigent as to force yet another election.

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Monetary policy and the Treasury, trust and the Troika and spotlight on the Senate Parliamentarian

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.

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Batteries for Britain, deal with Japan hints at data plan and the keys to US trade agenda

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.

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