London Playbook: 2 weeks to go — Fear of all sums
— Cop a load of this
BY ESTHER
WEBBER
NOVEMBER 4,
2022 8:01 AM
POLITICO
London Playbook
By ESTHER
WEBBER
Good Friday
morning. This is Esther Webber.
DROPPING
SOON: Keep your eyes peeled for confirmation in the next hour of an early
Christmas present to the people of Northern Ireland. There will be no election
in December, government officials are expected to confirm following discussions
between Northern Ireland Secretary Chris Heaton-Harris and party leaders. One
of Playbook’s moles says the infamous Sue Gray has also been on the scene in
Belfast. Expect a full update next week in parliament.
DRIVING THE
DAY
TWO WEEKS
TO GO: Prime Minister Rishi Sunak and Chancellor Jeremy Hunt will both be
working away in their next-door offices today with just under two weeks to go
until the fall statement which is somehow meant to repair trust in the U.K.
economy without causing a political implosion. The task in hand is thrown into
sharp relief by rising interest rates, which will be just one of a range of
grievances to be thrust in MPs’ direction as they return to their
constituencies this weekend. It’s lucky they both have strong geek vibes,
because it sounds like the world’s worst homework club.
Shot: The
Bank of England aggressively upped interest rates by the biggest amount since
1989 in an attempt to combat high inflation. The bumper increase takes the base
rate to 3 percent, the highest level since 2008.
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Chaser: At
the same time, the bank has warned the U.K. is facing its longest recession
since records began, with unemployment nearly doubling by 2025.
Sweetener:
The bank said it now expects interest rates to peak at 4.5 percent — lower than
the previous 5.25 percent that investors had once priced in — while inflation
is expected to hit 11 percent before falling sharply in the middle of next
year.
Prophets of
doom: Bank bosses said the U.K. faced a “very challenging” two-year slump,
while Hunt acknowledged the rates rise was “going to be very tough for families
with mortgages up and down the country.” He stressed: “The most important thing
the British government can do right now is to restore stability, sort out our
public finances, and get debt falling so that interest rate rises are kept as
low as possible.”
Sunak’s
take: A Downing Street spokesperson said “there will be some difficult choices”
but “we will ensure that we’re acting fairly, protecting the most vulnerable
and continuing to seek long-term growth. It’s only through sound management of
public finances that we can provide that long-term economic stability, which is
so vital for everyone up and down the country.”
No shit:
Hunt was even more frank behind closed doors at a gathering of senior business
people, according to Bloomberg’s Katherine Griffiths, telling them the U.K. is
in a “very challenging situation.” At the same meeting he apparently repeated
Barack Obama’s quip of 2008, saying: “This would be really interesting shit if
I wasn’t in the middle of it.” Which just about sums up how we’ve all felt
about British politics for the past eight years or so.
What it
means: The Times’ splash by Mehreen Khan, Steve Swinford and Arthi Nachiappan
breaks down the nitty-gritty, calculating that the loss will come to £66 a
month on average. The poorest 10 percent of households will be hit harder
because they spend twice as much of their budget as the richest 10 percent on
utilities and food. More than 8 million people face an average of £3,000 more
in annual mortgage payments when their fixed-term deals expire, they report,
while more than 2 million households on variable-rate mortgages will take an
immediate hit.
Rate
expectations: If the headlines are grim, then it’s all grist to the mill as the
government rolls the pitch for what is likely to be an extremely tricky set of
maneuvers in the fall statement on November 17. As ITV’s Robert Peston spells
out in this pithy piece, Hunt and Sunak are preparing contractionary tax rises
and public spending cuts in order to reassure international investors — but to
voters it will look and feel like they are reinforcing the recession.
Blame game:
Answering questions from Sky’s Ed Conway, Bank of England Governor Andrew
Bailey made it plain why they were hidebound in this way, saying there had been
a “questioning” of U.K. policy which “we will have to work very hard” to
redeem. He said there had been “a U.K. premium” on rates as a result of the
“considerable turmoil” which accompanied the mini-budget, although that had now
been unwound.
Expect to
hear more of that … from Keir Starmer, who has landed on the phrase “Tory
premium” to describe the higher mortgage payments facing many homeowners.
Maximum
shade: Best use of punctuation award goes to the FT, which has taken to
attaching inverted commas to the word “mini” whenever the mini-budget is
mentioned.
Meltdown
countdown: Bailey also told Channel 4 News the U.K. was just “hours” from
economic meltdown when the bank intervened to protect pension funds. “We had to
step in quickly and we had to step in quite decisively. This felt, and was, a
very real threat to financial stability,” he said.
FEAR OF ALL
SUMS: Playbook hates to break it to you but the news will be an endless cycle
of variations on a theme between now and the fall statement — the theme being,
how the government plans to find some money. Hunt and Sunak’s is the only homework
club where you not only have to show your workings out, but do it on the front
pages of the newspapers. Every day.
Capital
punishment: In the Telegraph, Tom Rees, Ben Riley-Smith and Charlotte Gifford
reveal Hunt is preparing a hike in the headline rate of capital gains tax,
while there is unlikely to be any extra help on the way for homeowners. The
chancellor and PM have agreed those with the “broadest shoulders” should bear
the brunt of efforts to bolster public finances, Treasury sources told the Tel.
Share and
share alike: The Tel, i and the FT all hear that Hunt could target people who
own shares. In the latter paper, George Parker, Mary McDougall and Daniel
Thomas specify that the chancellor has asked officials to look at raising the
dividend taxation rate as well as cutting the tax-free allowance for dividends.
As they point out, it would put the government on a collision course with small
business owners who pay themselves using dividends from their company profits.
Fancy a go?
If, for some reason, Jeremy Hunt’s job sounds appealing to you right now, the
FT has you covered with an interactive game where you can take your best shot
at finding £50 billion. Reductions in capital spending and a new windfall tax
rank high up in the most likely options for the Treasury.
Civil
behavior: A new paper by the Institute for Government suggests six steps the
government could take to cut the civil service while not damaging its
capability. Welcoming the recent decision to drop the target of cutting 91,000
jobs, the IfG argues ministers need a long-term plan sketching out the size and
shape of workforce needed over the next five to 10 years, rather than repeating
the “boom and bust’” in recruitment and retrenchment.
Everyone’s
a critic: Some nice intel from the i’s Hugo Gye, who says senior Conservatives
believe the focus on balancing the budget creates a bear trap for Labour which
will force it to abandon some of its investment plans. Meanwhile, Truss allies
(yes, they still exist) insist that the bank’s latest predictions vindicate her
plan to pursue growth at all costs. A former member of her administration tells
Gye: “A prophet is never listened to in his own time.”
Notes from
the postbag: Tory MPs chatting to Playbook last night said the increase in interest
rates was not yet crashing their inboxes, compared with concern over the state
pension triple lock, described by one MP as “the single biggest postbag thing.”
The bad news for the government is that it’s rivaled only by correspondence
from constituents about immigration — more on that in a moment.
NOW HEAR
THIS: Westminster Insider is back today, with host Ailbhe Rea trying to uncover
the real Rishi Sunak. From his early years in Southampton and his lifelong
Hindu faith; his elite education at Winchester, Oxford and Stanford; to his
rapid rise through the political ranks, Ailbhe uncovers the values, personality
traits, priorities and potential pitfalls of the new man in No. 10. She hears
from friends from the Hindi temple where he worshipped in Southampton; from his
university days in Oxford; from his intake of 2015 MPs; and from the
journalists who have covered him closest.
DAMAGE
LIMITATION: There are some mildly cheering polls around for the Conservatives.
Or, as the Express optimistically puts it, “a major fightback” by Sunak, who
has succeeded in knocking 11 points off Labour’s lead less than two weeks after
entering Downing Street. The latest Techne UK tracker poll for Express.co.uk
still gives Labour a 20-point lead over the Conservatives, but is down from an
enormous 31 percent just a fortnight ago.
Joy of 6:
Sunak leads Starmer by 6 percent on the question of who would be the best prime
minister, according to Redfield and Wilton’s latest survey — the largest lead
for Sunak over Starmer in 2022. The same pollster finds the Labour Party
leading by 17 percent, 6 points lower compared with a poll on Monday.
Better than
a poke in the eye? People are fed up with the government, particularly on the
economy, according to a TimesRadio focus group out later today, but they still
want to give Sunak a chance and prefer him to Starmer. “He hasn’t had his
actual chance yet,” said one participant. “And I think that now he has got his
chance, he’s got his work cut out — he’s chosen to still go for it despite what
a mess we’re in. I mean, I don’t know why he’s doing it.” Quite.
Head-scratcher:
Politics professor Philip Cowley has a fascinating piece for Times Red Box on
what voters do and don’t know about Sunak. They correctly identify him as
young, privileged and wealthy, but his Brexit allegiance poses more of a
problem. Cowley finds that insofar as Remainers have a view, they think he was
a Brexiteer; in so far as Leavers have one, they narrowly think he was a
Remainer.
COP A LOAD
OF THIS
NO SHARM NO
FOUL: Sunak may well have preferred to be alone with his spreadsheets today —
and indeed every day — but that’s not an option, as he’ll be heading to
Buckingham Palace for the king’s pre-COP27 jamboree. More than 200 of the great
and the good from the climate world, including U.S. climate envoy John Kerry,
will gather to hear remarks from Sunak before King Charles mingles with guests
to hear what they are doing to change things for the better. Keir Starmer will
be in attendance as well.
Royal
prerogative: No. 10 insisted yesterday the king’s non-attendance in Egypt was
by “mutual agreement,” but today’s get-together looks very much like a show of
royal muscle. If Charles wants to be involved, he will be. Buckingham Palace
highlighted that the event would feature senior figures from the Sustainable
Markets Initiative, founded by the king, and his record as a “champion for the
fight against climate change and biodiversity loss for more than five decades.”
Put that in your pipe and smoke it.
Staying
alive: From the palace, the PM will head to Lancaster House where outgoing
COP26 President Alok Sharma will issue his valedictory report. He will stress
that above all the U.K.’s efforts over the last year helped “keep 1.5 degrees
alive,” as the terrible jargon goes. Sharma then departs for the whole shebang
of the COP27 fortnight in Sharm el-Sheikh, where he will be greeted with an
enthusiasm that No. 10 certainly no longer has for him after a week of
no-holds-barred interviews to mark his exit.
Time for
one more: Speaking to the Times’ Adam Vaughan and Oliver Wright, he called on
Sunak to stick by his election pledge to insulate millions more homes despite
the bleak outlook for government finances. For good measure, he cast doubt on
proposals to extract more oil and gas from the North Sea, warning that it did
not appear to be compatible with the government’s net zero commitment.
Handle with
care: Also in the Times, Ben Cooke has a deep dive on what’s changed since the
U.K. hosted COP, with the invasion of Ukraine and increasing hostilities
between the West and China placing greater strains on what was already a
fragile set of goals.
Don’t
expect a red carpet: Sunak departs for his — literally and figuratively —
flying visit to Sharm on Sunday, where he can expect to be met by demands from
the developing world for new finance to help countries rebuild after they are
hit by climate disasters. POLITICO’s Senior Environment Correspondent Karl
Mathiesen, who’ll be at the summit, texts in to say that developing countries
are demanding a new fund, but rich countries including the EU are not
convinced. The U.K.’s failure to meet existing climate finance commitments will
lead to awkward questions from many of the 111-plus leaders scheduled to take
the rostrum.
Fun fact:
Those keeping track of the U.K.’s credentials will have already noticed a
certain prominent green Tory is no longer in charge. Sharma will soon be on the
back benches, and the climate change minister has been demoted. Yesterday the
government also slipped out some changes to Cabinet committees. Previously
there were two dedicated to climate, one chaired by Sharma and one by Johnson,
but now net zero has been rolled into a committee on “domestic and economic
affairs” with a focus on energy security.
Shape of
things to come: As my colleague Cristina Gallardo notes, we’re beginning to see
the outline of Sunak’s foreign policy — which, much like his economic policy,
involves scrapping lots of Liz Truss’ ideas. In the Cabinet committee reorg, he
has shelved the Cabinet Office’s Foreign Policy and National Security
Secretariat that briefly existed under Truss (which also had responsibility
over the Northern Ireland protocol) and brought back the National Security
Council.
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