Get ready for an economic catastrophe

Here we go. Like pinpricks of light in the dark, the warning signs on the economic dashboard are pulsing across Britain. More vigilant MPs are tweeting out the  horror stories being sent their way by businesses in their constituencies. On Friday, a shocked Steve Baker, the MP for Wycombe, highlighted one local company that tells him its electricity bill last year was in the region of £900,000. The new annual bill is estimated to be £5.5m.

As Baker says: “It is a disaster for the company, one which will be repeated across the country. This huge energy supply shock is a national emergency demanding immediate action from ministers.”

Other MPs report endless similar examples. There are the manufacturers looking at input and delivery costs and working out they’re sunk, and soon. The shops that are about to become uneconomic. The pubs that may have to close all winter. The entertainment venues large and small facing such steep increases in energy and other costs that they will be wiped out by early next year. The common theme in all the tweets, and news snippets, is that this simply can’t be happening. The increases in costs are incredible, unbelievable, unsurvivable.  Unless you’re a large firm with access to deep pools of capital, or a conservative run SME that stockpiled cash, or a technology-based firm with relatively low costs, if you’ve got substantial fixed costs you’re facing energy and employment hits on such a scale that you move quickly from profitability into danger territory. 

Imagine a small business in your local high street, a cafe or restaurant perhaps. Having just about survived the pandemic, through loans and ingenuity on the home delivery front, the cost of everything is going up, and particularly on food. According to the ONS, in its latest data published last week, inflation is running at 40% on milk, and 31% on flour. 

Meanwhile, employees are feeling the squeeze and need pay rises. Customers are still spending, but they have less disposable income and are now thinking about conserving cash. Energy costs are out of control. The business owner will pay soon one way or another, whether they have a direct deal with the energy supplier or via their landlord looking to increase rents. At this point, the owner of the small business has a choice to make going into the autumn. Obviously, costs can be cut on employment or supplies, and prices increased. There’s a limit though. And when he or she looks at the bill landing on the mat in their shop, and the graphs online of what’s coming on energy, it becomes a question of whether or not to keep going, perhaps into debt, when there is no sign that the improvement will be along soon. If that small business owner has cash in the business, the easiest solution is probably to wind things down, lay off staff, pull down the shutters and retreat home to see what happens over the winter. 

This, or a variation of it, is the true national conversation happening now across the country in hundreds of thousands of parts of the private sector, although there are grave challenges in the public sector too. Think of hospital and school heating bills.

In another universe, the Tory party continues it’s fairy tale leadership election ahead of a change of Prime Minister on 6 September. The winner will be unveiled the day before.

I mention the backdrop to the leadership contest not to be needlessly negative. I began the week hoping to write something cheering.

Subscribers to Reaction will know I try, I really I do, not to be too pessimistic. I’m an optimist about the noisy, argumentative, disputatious, free, innovative West. I’m for civilisation, markets, and healthy institutions. Coming out of the Covid crisis I was relatively bullish about Britain’s prospects too. The UK’s economic strengths, in services, higher education, technology, finance and life sciences, mean Britain could be rather well positioned.

There are still scenarios in which the West, and Britain as a G7 economy, dodges the worst of what’s coming. Petrol prices are nudging down and with a lucky break or two, perhaps the defeat of Putin, the downturn could be shallow.

But in Britain just about any positive, or less negative, outcome is dependent on there being in place – now – a government with a calm sense of the extent of the crisis and a mentality attuned to handling the emergency. In Germany, the government is working to stockpile energy and reduce use. Right now, there is no government here. The person who is Prime Minister, in theory, took another holiday even though he leaves on the 5/6 September. This sheer fecklessness, typical of the manner in which Johnson has handled his ousting, is a vindication of the decision to turf him out.

Says a ministerial colleague and old friend of Johnson’s state of mind: “He is childlike. He is furious about being removed. He refuses to take responsibility.”

Ahead of the changeover, the formal briefings by senior civil servants of the incoming Prime Minister and those likely to be her close team have got underway. I hope the officials, some of them veterans of the 2008 crisis, who should be listened to, are laying out the full seriousness of the situation. Truss herself is very realistic about how difficult it will be, apparently.

Within a few weeks, the government will have to stage an epic intervention to avert the worst effects of the energy crisis. Not just on households. Very soon, it will be a question of saving businesses and jobs across Britain. Those are businesses that are otherwise healthy, now facing immolation via geopolitics and the effect of Putin’s murderous invasion of Ukraine. The dislocation and disruption in the energy markets is not the fault of those firms. Nor is the British government’s botched energy policy that paid too little attention to energy security.

Of course, there will be a row about what mix of help should be on offer. Should the government use the tax system, or energy rebates, or buy gas in the open market and subsidise providers? They may have to do all that. Within days Team Truss will have to move from sunny leadership campaign mode, pleasing Tory members, to producing an actual practical plan to deal with an economic catastrophe already underway. They need to get moving.

Nicola and nasty Nationalism

One of the unintentionally funniest Nicola Sturgeon videos is the one in which the First Minister is on the election trail explaining her kind, compassionate vision. With a face like thunder she shouts aggressively that Scotland is an open and welcoming place. And no Toree (Tory) will ever change that, she says. The clip came to mind after the disgraceful scenes when the Conservative party held its hustings in Scotland earlier this week. A Nationalist mob turned up. The BBC’s James Cook was abused as a “traitor” and “quisling.” Eggs were thrown at Tory members who had turned up to hear leadership contenders Sunak and Truss.

The SNP line is that these extreme nationalists were nothing to do with the official SNP. Right away Sturgeon condemned the abuse of James Cook, although not, it was noted, of Tory members, her fellow Scots, who had the temerity to attend a political meeting in a democracy. Whether or not those in the mob were members of the SNP, and some appear to have been SWP-types judging by the banners, can the First Minister really not see how the SNP’s approach in the last decade has created this nasty climate?

In 2014, encouraged by her then mentor Alex Salmond, Yes supporters marched on BBC Scotland’s headquarters. It was a sinister episode and there have been plenty more since. The SNP leadership in its constant search for grievance, and othering of opponents, has made Scottish political culture this ugly, humorless and threatening. It is her party’s legacy.  

What I’m watching

Going to the cricket at Lord’s on Thursday with a generous friend was a treat. This was glorious, proper fun in the old style. Cost of living crisis? England, and Britain, will be just fine we concluded over several beers.

I then attempted to get home via the tube. There was a rail strike on but the tube staff were also getting ready for a strike of their own. The network was winding down. The increased traffic on the roads meant total gridlock at Hammersmith. Hundreds of people stood at the bus stop waiting for a bus that never came. Taxis were nowhere to be found. The capital had ground to a halt. We commuters looked desolate and defeated. Is this how it felt in the 1970s? 

No. They, we, knew how to get through it all smiling back then when inflation soared and society fell appart. Right now, to remind myself of this, I’m watching an episode of the 1970s sitcom Are You Being Served? Economic times are hard and the bosses of the Grace Brothers department store, where the TV series is set, have removed the staff travel allowance. Mrs Slocombe has taken to riding a tandem bike to work, dressed in cycling gear. Mr Humphries, the dandyish star of menswear, has arrived on a skateboard. The theme of the episode is comical stoicism in the face of economic collapse. We’ll need some of that spirit.

What I’m doing

Ignoring my own advice on conserving cash, we are now going out to dinner. It was A-levels week in our house and on Friday evening it’s time to celebrate, with joy and hope in our hearts. Would I like an aperitif? Yes, make mine a Campari spritz.