The Daily Telegraph

Everything is about to get much, much worse for the Tories, and there is nothing they can do

The party is paying the price for years of economic malaise and myopia

- JULIET SAMUEL

How many times can he do it? Boris Johnson seems to have landed on his feet yet again. Yesterday should have been the day when his party was mulling a dismal set of local election results and wondering whether they ought to grasp their last chance, fast approachin­g, to replace the Prime Minister before the next general election. Instead, jostling with the Conservati­ve Party’s losses in the headlines was the news that Sir Keir Starmer is now under police investigat­ion for breaking lockdown rules. If he’s fined, it will be Labour, not the Tories, who are soon holding a leadership contest.

But while Boris keeps winning the battles, he is losing the war. The biggest political event of the week wasn’t really the local elections. It was the Bank of England’s decision to raise interest rates to try and curb inflation despite issuing a dire warning of rising unemployme­nt and recession. Bad times are coming – and there is almost nothing the Government can do to stop them.

I should caveat that: there is nothing this side of an election the Government can do to stop them. This means, of course, that nothing will be done, because outside the barest essentials, our politician­s struggle to do much to look after the long-term interests of the country if it won’t win them votes. This is why defence spending still hasn’t risen, deregulati­on is still just a myth and energy bills are soaring. We are reaping the harvest sown by years of easy money, under-investment and wishful thinking.

A recession later this year or next is looking increasing­ly likely. The main question obsessing City analysts is whether wealthier households, who are sitting on an £180billion stock of savings built up during the pandemic, will respond to rising prices by spending their nest-eggs and thereby keep the economy afloat. If instead they save, perhaps spooked by the possibilit­y that mortgage rates will rise as lenders respond to the Bank of England, bankruptci­es and job losses will soon follow.

Even worse is the possibilit­y that we are just at the start of the new inflationa­ry era. Energy bills still don’t fully reflect the cost of price rises on internatio­nal markets. A bumper rise in the price cap, coming to homes soon before the winter, will send household costs spiralling again later this year. The cost of food is on the rise, too, as markets become increasing­ly starved of the grain that would usually have been planted across central and eastern Ukraine and farmers are thwacked by the combinatio­n of soaring fuel and fertiliser costs (fertiliser ingredient­s being a major Russian and Ukrainian export).

Meanwhile, another Chinese supply chain blow-up is in the works, with more than 500 ships already queueing outside the locked-down city of Shanghai and more piling up every day.

The only way to stem inflation in such an environmen­t is with a central bank policy of what the analysts politely call “demand destructio­n”. In normal English, that means everyone becomes too poor to buy anything. Of course, in the South’s housing market, this became true long ago – no doubt one of the reasons for the Tories’ abominable performanc­e in London yesterday.

Presumably, someone in the Government is aware of the economic cataclysm heading our way. Yet even if they are, their options for mitigating it are all bad.

The most obvious demand will be that the Government spend much, much more money to help people with rising costs. The advocates of this policy seem cheerfully oblivious to the fact that it was precisely the spending of very large amounts of cash during Covid (financed by printing money) that helped stoke the inflationa­ry bubble in the first place.

In a world with a gas shortage, the more British consumers are given to spend on gas, the more they will drive up prices. Of course, you could and should still concentrat­e support on the neediest households, but that still leaves millions of people spending hundreds more on the bare necessitie­s.

Any real fixes to the energy crunch require years to produce results. There’s North Sea and shale, where investment would undoubtedl­y lift production, but first we have to persuade energy companies that they will face a stable and safe investment environmen­t for the years that it takes to generate a return. Then they have to secure the equipment to drill – no easy feat in the current environmen­t – and then they need to perform the technical work of finding and extracting supplies.

As for building more nuclear plants, it will be a miracle if we get a single new gigawatt out of that plan before 2026. Just as it is for energy, so it goes for all the other supply squeezes.

Now it may be that one could imagine a Conservati­ve prime minister able to weather this mess.

Such a prime minister would be honest with people about the difficulti­es ahead and the fact that the Government’s ability to help is severely constraine­d by its Covid spending and global events. He or she would then lay out a plan for how to reform our economic model so we can bring down taxes and never again be caught out so painfully by world markets.

The plan would include a comprehens­ive idea of how to make the best of Brexit freedoms by overhaulin­g regulation­s for major and emerging industries, lay out a scheme to unwind the massive overhang of unproducti­ve, overly indebted businesses and households due to low interest rates, set up taskforces to deliver new power plants and infrastruc­ture in record time (while also assessing why High Speed 2 is so unacceptab­ly expensive), and develop a trade and economic policy that addresses some of the damage wrought by Brexit bureaucrac­y, reorients the country away from reliance on hostile zones, and liberalise­s trade with other free markets.

I would add promises to cut taxes, improve public services and implement the Rwanda migration plan in a decent and competent way, but that stretches credibilit­y to breaking point.

The Conservati­ves don’t have long left to change leader, if that’s what they want to do. They should bear in mind, however, that it’s not just the face on the leaflet that wins or loses elections. It’s also about the fundamenta­l question of whether voters are poor and getting poorer, or anticipati­ng the day when they can pay off their mortgages and go on holiday. On that score, the outlook is grim.

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 ?? ?? Bad times ahead: Andrew Bailey of the Bank of England announced a rate rise this week
Bad times ahead: Andrew Bailey of the Bank of England announced a rate rise this week

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