When Lewis Carroll’s Alice says she can't believe impossible things, the White Queen gives the smart politician’s reply: “I daresay you haven't had much practice. Why, sometimes I've believed as many as six impossible things before breakfast.”
Rishi Sunak, the UK’s pragmatic new prime minister, doesn’t believe impossible things either. However, a number of powerful factions within the ruling Conservative party want several contradictory things “before breakfast” — and even more of a challenge, before the next general election in two years’ time.
The prime minister is being forced to fend off attacks within his party while a Labor opposition under Keir Starmer, reinvigorated by a 20-point lead in the opinion polls, savages the Tory record since 2010. He has enough material to go on — real disposable income is set to drop by 7.1% over the next two years. All things being equal, that spells electoral doom for the party in power for the last 12 years.
Sunak is indeed trapped in a vicious circle. He is criticized by many in his party for presiding over a “high-tax, low-growth” economy. The prime minister, therefore, proposes to stimulate it by building more houses and getting around bottlenecks in the labor market through immigration. Unfortunately, though his party base accepts the diagnosis, it refuses both remedies.
The PM also knows that post-Brexit trade deals have not compensated for the loss of access to the European single market. Yet any talk of reviving trade and investment through an accommodation with Brussels is also greeted by howls of betrayal from the Tory right, clinging to the vision of a “pure Brexit.”
Angered by the tax increases in the Autumn Statement and plans for economic retrenchment, many restive Conservatives yearn to put rocket boosters on growth. On this point, I sympathize. Why reduce demand in a downturn — the inevitable effect of tax hikes? There is a decent argument to be had on this point. However, Tory MPs seem keener on opening up a number of battlefronts on both the left and right wings of the party. On Tuesday night, rebels successfully stalled the government’s plan to build 300,000 homes a year — an entirely notional target, last achieved 45 years ago. But, in the process, they have attacked a central tenet of Sunak’s election pitch to restore the reputation of the party among would-be home-owners.
Many economists argue that house building is the best way to stimulate activity in a recession. It did just that during the Great Depression in the 1930s. In any case, the country needs to build affordable new homes for young people. If they can’t get on the housing ladder, they will vote Labor. Sunak knows that at heart. The electoral map of London has turned Labor red in recent years because rents and house prices are too high. Nationally, voters under 50 have turned away from the Tories.
The rebels, however, are more reflective of their constituents. These NIMBY (not in my backyard) voters resent new developments on green fields that will block their view. Everyone agrees in principle to construction on brownfield sites in the UK’s low-density cities. But then the leader of the rebels — former Environment Secretary Theresa Villiers — also insists that the government should not “urbanize the suburbs” either, where can Sunak build?
If the prime minister can’t enforce his national planning regime against his own MPs, I would suggest he narrow his ambitions to a more limited but perhaps more achievable target.
Sunak should throw his weight behind the development of the booming Oxford-Cambridge-London high-tech triangle where growth is currently hindered by planning constraints. In the past, a Cabinet minister, Michael Heseltine, was vested with enormous powers to revive the docklands of Liverpool and the capital. He succeeded spectacularly. A similar initiative, offset by plans for renewal in the post-industrial North, could deliver large economic gains at smaller political cost.
The Office for Budgetary Responsibility, which checks the government’s tax-and-spend homework, predicts that increased immigration will encourage economic activity and bypass bottlenecks in a tight employment market. The Confederation of British Industry and the farming lobby both want workers from abroad to fill vacancies.
However, that opens another battlefront. A key Brexit demand was control of immigration, ending the free movement of people into the UK from the European Union. Official figures released on Thursday show that UK net migration hit 504,000 in the year to June. Post-Brexit, the number of migrants has actually risen. Brexit voters are furious at the influx.
Mass migration, in turn, turns Sunak’s crisis into an alarming vicious circle: the population surge increases the demand for housing. One Housing Ministry report four years ago estimated that prices had been driven 20% higher over a 25-year period from 1991.
If the Tory leader wants to break out of this trap, he has to tackle labor shortages at the source. More than five million adults are economically inactive in the UK — a number that has swollen by another 600,000 since the pandemic. Some are unemployable through long-term physical and mental disabilities but many are healthy — and must be incentivized to return to the labor force.
Sunak must either get more people back to work and reduce immigration numbers, or allow mass immigration to continue but build more homes to house the newcomers. Instead, the UK has both more migrants and an inflationary housing shortage.
The Organization for Economic Cooperation and Development calculates that the UK will suffer more than most developed nations during the downturn. Barriers to trade with the EU are clearly a hindrance to growth but when unnamed sources told The Sunday Times that the government was contemplating a Swiss-style deal with Brussels there was an outcry from the Conservative party’s right wing.
Never mind that there is no Swiss option on the negotiating table. In any case, neither the Tories nor the Labor party currently favor what such a deal would entail: paying into the EU budget, acceding to European judicial primacy, and allowing freedom of migration. Yet some reduction in trade friction would be welcome. Sunak, although a committed Brexit supporter, is a more amenable negotiating partner to Brussels than his two immediate predecessors, Liz Truss and Boris Johnson (both of whom are leading another revolt against Sunak focused on their opposition to onshore wind farms).
In truth, Sunak is faced by an unholy alliance of diehard Leavers and Remainers who don’t really want to make a pragmatic Brexit work. The diehards want no compromise with the EU. The Remainers want a re-run of the referendum. The new leader at the helm is an affable, conflict-averse politician but avoiding all rows is an impossible thing. The prime minister will soon need to choose where to make a stand against his own enemies within. And unless he can offer them a glimmer of economic growth, the chances of revival are narrowing by the month.
Bloomberg
