Ian Smart: Scotland and the next election. The Tory trap that Johnson is preparing for Starmer may not work.

11 May

Ian Smart is a lawyer and blogger who has been a member of the Labour Party since 1974.

On the 28th of March 1979, the Labour Government led by Jim Callaghan lost a vote of confidence by a single vote, triggering a general election which will no doubt be of very fond memory to those of my readers old enough to remember it.

Most however will have largely forgotten exactly how that election came about. But not in Scotland we haven’t.

At the previous October 1974 General Election, the SNP had achieved their then-best ever result, returning eleven of Scotland’s (then) seventy-one MPs. Almost as significantly they were the second party, behind the Tories or Labour in just about every other seat in Scotland.

Opinion polling indicated that had there been an election in 1976 or 1977, they might well have secured a majority of Scotland’s seats.

They had got themselves here by, in electoral terms, being a sort of super-Liberal Democrats: all the localism, plus the added factor of a flag. If you wanted to oust a Tory incumbent (then more bits then than you might think) in bits of Scotland where Labour wasn’t really challenging locally, then you could vote SNP.

More worryingly for my own party, who then bestrode Scottish politics, the same thing happened where the Tories weren’t contenders. And we had much more to lose.

But underlying this there was still an assumption among the electorate that the SNP were ultimately (like, dare I say it, the pre 2010 Liberal Democrats) an anti-Tory party.

So let us return to the 28th of March 1979.

On the 1st of March there had been the first devolution referendum. A narrow majority had voted for the creation of (what would then have been) a Scottish Assembly.

But this still counted as a loss, thanks to a provision that victory required at least 40 per cent of the electorate voting Yes. This was introduced to the Bill by George Cunningham, a Labour MP, and passed because of support from a significant number of other Labour MPs also voting against their own Government.

And the extremely narrow and ultimately inadequate margin of victory for ‘Yes’, which pre campaign had been assumed to be a shoo-in result, was because many of the most prominent No campaigners had been from the Scottish Labour Party: Robin Cook, Brian Wilson, and, probably most famously, Tam Dalyell.

So, suffice to say, post-referendum relations between Labour and the SNP, never good, were at a long-term low. When Callaghan announced that he couldn’t simply ignore the 40 per cent rule, the Nationalists lost the plot and put down a vote of no confidence.

Margaret Thatcher, spotting the moment, took it over. By-elections had long since deprived Callaghan of an absolute majority and, all attempts to cobble one together having failed, the Tories, with the support of all eleven SNP MPs, won the vote. The rest is history.

What happened next is why this little history lesson holds a vital lesson for today’s Labour leadership – and a warning for Conservatives who complacently assume they will be able to re-run their brutally effective ‘Vote Miliband, Get Salmond’ campaign from 2015 at the next election.

The 1979 election is engraved in the hearts of Scottish Nationalists. They lost nine of their eleven seats, holding one of the others only by a whisker (and then because Labour, perhaps not entirely wisely, fielded a candidate who had only recently left the Communist Party).

More significantly still, Thatcher got down to the job.

The 1980s should have been a golden era for the SNP: the spectre of permanent Tory rule; their deep hostility to devolution; and a raft of policies which were not, to put it mildly, universally popular in Scotland.

But their efforts to capitalise on it were hamstrung by the fact, which Labour never stopped pointing out, that the Conservatives were only in power because the Nationalists had put them there.

The Nationalists simply could not get a hearing and at the 1983, 1987 and 1992 elections there was no speculation as to whether they would gain seats, only whether they would even keep the two they had.

Even the very minor revival, to six seats, they enjoyed in !997 was very much in the undertow of the Blair landslide in parts of rural Scotland which even the maestro could not reach and on the clear understanding that the SNP would never again vote to bring down a Labour government.

That understanding remains to this day and believe me, getting that to be formally acknowledged will be a central focus of Scottish Labour’s next general election campaign.

Now, having dealt with the past, let us deal with the future.

I don’t want to annoy my readership here so I will only say that if you were a betting man or woman you might think the current most likely outcome of the next general election is a Labour plurality but without an overall majority. It is certainly much more difficult for us to win without Scotland.

But you see we would have Scotland whether we win there or not. For the SNP could never vote to bring down a Labour Government, even less so if the alternative were saving Boris Johnson’s bacon. If they did, they would pretty much lose all their seats (again).

This means that come the campaign, Sir Keir Starmer doesn’t need to offer the Nationalists “radical federalism” or indeed anything else. For what, in the event of a hung parliament, could they possibly do? If we’re far enough ahead in England and Wales they might just be able to abstain on our Queen’s speech but, if not, they’d just have to vote for it.

In 2015, Ed Miliband could not escape the trap the Tories dug for him in part because he couldn’t admit in advance that his party was about to get crushed in Scotland. Starmer has no need to hide from the facts, and this means he can take a very clear line on how he will conduct himself in the event of a hung Parliament.

This helps him both ways both ways. In England and Wales, we can rebut any suggestion by the Conservatives that Starmer would sign up to a deal which either undermined the Union or saw the Nationalists getting lots of extra cash when voters all over the country are grappling with the cost-of-living crisis.

And if the SNP object, Scottish Labour can pin them down on the question of whether or not they would support his Queen’s Speech.

That puts Sturgeon in a tricky spot: either she says her MPs will back it without conditions, disarming the Tory trap in England, or she sends left-of-centre voters in Scotland a clear signal that Nationalist MPs might stop Labour booting Boris Johnson out.

She won’t want to do that. The SNP haven’t forgotten 1979 – or what happened to the Liberal Democrats in 2015. So if the Tories are waiting for Starmer to play into Johnson’s hands on this, I suspect they’ll be sadly disappointed..

Gerry Lyons: How the Bank of England has failed to control inflation. And what should be done to reform it.

3 May

Dr Gerard Lyons is a senior fellow at Policy Exchange. He was Chief Economic Adviser to Boris Johnson during his second term as Mayor of London.

This week sees the Bank of England celebrate 25 years of independence. Quite rightly, the current rise in inflation has raised questions about whether it is time to reassess its remit and governance.

There has been a rise in inflation across western economies. That this is more than a UK issue should not divert attention from where the problem lies.

If you are driving a car and approach a red light and decide to not only ignore the signal to stop but put your foot down on the accelerator, you are driving dangerously. That some other cars may do the same does not change that fact. It is not safety in numbers, but is more likely to cause greater carnage. Last year, in monetary policy terms, central banks went through the red light – with their feet down on the accelerator. The Bank of England was near the front.

At that time, it was clear that our economy was recovering and inflationary pressures building. The supply-side shock triggered by the pandemic was already evident. The correct policy would have been to tighten policy, not add fuel to the fire by increasing Quantitative Easing to a mammoth £895 billion.

The question I posed then was: which ‘p’ was this inflation? Would it pass-through, persist or become permanent. The Bank strongly believed it would pass through quickly. It was evident it would persist. It was unlikely to be permanent because of intense global competition but, even if inflation persists, once it then eases it may settle at a higher level than before, say nearer three per cent to four per cent than one per cent to two per cent.

The danger, as was clear at the time, was that even if the initial cause of inflation is a supply-side shock, action needed to be taken to prevent cost-push inflation by which firms raise prices to pass on higher costs, or second-round effects allowing prices and inflation expectations to creep higher. Effective communication as well as clear actions were called for. We got neither.

What are the lessons and implications?

Consider the 1970s. It may be hard to believe, but Britain began the 1970s as the low inflation country of Europe. Monday 15th February 1971 was Decimalisation Day, when we moved from 240 pennies in the pound to 100 new pence.

Ahead of that day, I remember paying my bus fare with pennies that had been minted not just in the early part of the twentieth century but some in the nineteenth century too, with Queen Victoria’s head on them. That such old coins were still legal tender was testimony to how well Britain had kept inflation under control.

Apart from the First World War, when annual inflation averaged 15.3 per cent in the UK, only the 1970s saw high inflation, averaging an annual 12.5 per cent during that decade. There is no reason why, with the right policies we cannot return to being a low inflation economy.

The 1970s showed that inflation is deadly. That’s why the complacency with which the Bank treated it last year was wrong. It is felt by everyone, with the poor and those on fixed incomes like pensioners suffering the most.

Another lesson is that the measures necessary to control inflation are deeply uncomfortable, often requiring sharply higher rates, with damaging economic consequences. Nowadays, with borrowing higher, the economy is not only vulnerable to higher rates, but can be impacted sooner as policy tightens.

UK policy rates are currently only 0.75 per cent, while annual consumer price inflation in March was seven per cent, ten times higher than its rate of 0.7 per cent a year ago. And it will head higher.

Harold Wilson, Edward Heath and Jim Callaghan all lost elections because of their inability to control inflation. A central feature of the two general election campaigns in 1974, and even of that of 1979, was the use of a shopping basket to show how the Government had failed. Don’t be in any doubt as to who pays the price for a failure to control inflation.

Given this background, and how important monetary policy is in everyday life, one might think Westminster would pay more attention to the Bank of England – to how it is governed and keeping inflation under control. It is now as the cost-of-living crisis bites and the economy slows sharply.

The weekend saw much coverage of the 25th anniversary of the Blair landslide in 1997. An early decision – on 6th May 1997 – was to award operational independence to the Bank of England.

Although a surprise – having not been mentioned in the campaign – independence had been a topic of discussion for some time among economists. Indeed, I remember a well-attended Society of Business Economists debate early in 1997 where David Currie gave the case for central bank independence and I argued against. There were pros and cons. It would embed low inflation expectations, but there was a need for transparency and democratic accountability.

Even the Bank’s own Quarterly Bulletin in 1995 had carried an article by a leading economist, Robert Barro, showing that it was not independence but often an external factor that was the driving force behind inflation. Indeed, China’s entry into the World Trade Organisation in 2001 contributed to intense competition – helping to drive inflation down globally and in the UK for much of this century.

Inflation has averaged two per cent over the last quarter century. While welcome, this should not divert attention from how the economy has suffered the consequences of three major policy mistakes from the Bank.

First, monetary policy has fed rampant asset price inflation, in financial markets and property. Alongside low property supply, this has fed intergenerational inequality.

Second, a cheap money policy through low interest rates and Quantitative Easing has fed financial instability as markets do not price properly for risk.

Third, the Bank’s recent policies have fed inflation.

Attention usually focuses on the Monetary Policy Committee and interest rates. Thus, the Bank’s other policy committees on prudential regulation and financial policy are too often freed from scrutiny – as is the interaction between these policies. The economy, after all, is significantly affected by the prudential controls placed upon on banks, and peoples’ ability to borrow has been impacted by micro-prudential regulations.

While the Bank, in recent years, has played a welcome role in how finance can help achieve the green agenda, there are other important areas that the Bank should confront. Not least among these is the low level of commercial lending to small firms. It should also be more of a cheerleader for the Square Mile.

Now, it is time to ask whether the Bank’s inflation targeting regime has run its course. I favour a new remit based on a target for nominal GDP. An anti-inflationary monetary policy remains critical, but change is well overdue.

In this much-needed review of the Bank there needs to be a reassessment of its governance, transparency and accountability.

The Bank’ governance is overseen by the Court, but this is rarely held to account, and would appear to pay only lip-service to diversity, not least in thought. Groupthink can be a problem with policymakers. In my view, one might ask if the Bank’s historic underrepresentation of those from working class backgrounds in senior positions hinders how it sees its policies affecting those on low incomes. Its communications too have caused problems. Yet, effective communication is critical – not only to the public and financial markets, but to global audiences too.