Team Boris did a fabulous job of completing the Brexit process against all the odds and created as smooth a transition as possible into the new Global Britain. During the negotiations, the one thing that the EU officials truly feared was that Britain would become the new Singapore on its doorstep. With a low tax regime that then drained investment capital from the EU into Britain. The Brussels greatest nightmare pointed the way to maximise Britain's growth potential, with a low tax, high investment regime, that would build Britain's economy into a powerhouse.
However, yesterday Rishi Sunak took a policy left turn, straight into a brick wall. Shifting Britain in the opposite direction, by signalling that the massive wartime like lockdown support packages would be paid for by higher taxes, rather than by seeking to grow the economy. The latter option is, in reality, the only way forward, as by increasing GDP significantly through growth, the percentage borrowed decreases compared to GDP.
The new political concept expounded by the Conservatives at the election, which has as yet not crystallized in the public consciousness, was simultaneous wealth distribution and wealth creation. However whilst Sunak and Boris have gone overboard on the wealth distribution component, they have failed to embrace the magnitude of wealth creation, demanded by Britain's current predicament. As such they are looking more like a Labour government than a Conservative government.
So why has it gone so horribly wrong? The first inflection point was the arrival of the Wuhan Virus, known by the woke as Covid. The government was slow to respond and failed to secure the older elements of society fast enough, creating an excess death spike. That spike then bounced the government into a lockdown strategy. A situation compounded by Boris’s near-death experience with the virus. From that point onwards the lockdown brigade: Hancock, Witty, and Valence, led by the Lord of Lockdown himself Gove, took an iron grip on Government pandemic policy and paid no attention to the cost of the lockdown to the nation. Despite the silenced protestations of Sunak, that the lockdown was economically unsustainable.
However, as detailed in previous Murrinations, that date back to March 2020, there was a viable alternative strategy that would not have cost the nation so dearly. One that was systematically suppressed by the lockdown brigade. To secure the old and vulnerable, increase the number of hospital beds significantly, and allow the under 55s to work normally and operate the economy, as the data has shown they are at much lower if not almost zero risk. The consequence would have been that the economy continued operating and the current obscene mass of national debt would have not been accumulated. However, as we know the lockdown brigade prevailed. As described in Judgment Day For The Lockdown Brigade Is Inevitable, they will inevitably be held accountable for the unnecessary economic hardship that follows and the derailing of a hard-fought massive post-Brexit relative growth opportunity compared to the EU.
However, Sunak and the Treasury must now also bear responsibility for another major wrong turn. Whilst Sunak was consistently the lone voice against lockdown, he did have a choice as to how the Treasury could navigate a path out of the current situation. Whilst being a brilliant wealth distribution Chancellor, giving away money at every turn (although missing out on some major sectors of business) Sunak has now fallen drastically short in the real test of his leadership: how to create wealth and supercharge the British economy. By signalling that his response to the crisis is to tax the current economy, he limits its speed of recovery. Rather than a drastic and unconventional approach that commits policy to the growth of Global Britain at a time of global flux, that would offer enormous opportunities for growth.
Sadly, I am not surprised at this turn of events, as I have heard via excellent sources, that the Treasury officials have been committed to increased taxation as the only solution to the situation. What is missing in such conventional thinking, is that the magnitude of the problem is so great, that even if the world carries on a straight-line path from this point onwards, tax rises just will not fix the problem, but rather make it immeasurably worse by inhibiting growth.
The government’s current accepted future projections, are based on the pandemic being subdued by the vaccination program and everything getting better from there. However, what they have not accounted for is The End of The Bubble of All Things that is now bursting in America as we write. An event that will collapse the global equity markets and destroy wealth, similar to the 1929/1931 and 2007/2009 bear markets, over the next six months. Then once the bond markets have rallied as rates collapse, the next step, probably from the autumn onwards, will be the reality that Western nations cannot support their debts and we will see a sovereign debt crisis unfold and rates soar. This will be coincident with the next phase of the commodity bull cycle taking off, which will create the most destructive of the economic environments: stagflation. An environment that will dominate into 2025-27, unless Britain can stimulate sufficient growth to stay ahead of inflation rates.
In this context, yesterday’s Sunak Budget was an unmitigated disaster. As it missed the opportunity to build the foundations of a wealth creation policy that would have attracted new foreign investment. A policy that should have been shaped by tax breaks that encouraged the growth of key new sectors such as Biotec, climate technology, quantum computing, 3 D printing, space technology, and many more.Now would have been the time to be innovative and to announce a government investment fund, with 20% from the government looking to attract sovereign wealth capital to build a war chest of hundreds of Billions to invest in new technologies and infrastructure.
If this scenario was not concerning enough for the economic well-being of Britain to ride out the oncoming triple economic tsunamis of deflation, debt crisis, and stagflation ahead. Consentingly it will inevitably be exacerbated by our inability to dramatically increase our future spending on defence and effectively deter Chinese and Russian aggression and so increase the chances of a global conflict in 2025.
Rishi Sunak, I am afraid to say, has failed at his first major wealth creation fence, with potentially major consequences for Britain.