Are the Just About Managing still managing?

Rise of the "Deanos"; global subsidy war; falling birth rate; bleak economy; faltering Eurozone; Tory radicalism; struggling pensioners; ethical capitalism; high inflation; Illegal Migration Bill

We think conservatives need to talk more and get better at sharing ideas. So here we share the best newspaper columns, policy reports and books that will stimulate thinking and promote new ways of doing things.

The Conservative Reader is published every Friday lunchtime, so please do look out for it. And expect plenty of content about the things we think make conservatism such a compelling body of thought: identity and belonging, community and commitment, market economics, national resilience and good government.

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Best wishes, Nick and Gavin

Towering columns

In UnHerd, Tom McTague dispels myths about the Tories’ target voters. Far from the traditional industrial working class, many are “Deanos” - an online stereotype of the provincial just-about-managing:

If Deano is in any sense working-class, it is upper working-class. But what he really is is nouveau riche — petty bourgeois. These people have always come in for more abuse than the romanticised northern worker. As Dr Dan Evans — author of A Nation of Shopkeepers: The Unstoppable Rise of the Petite Bourgeoisie — has pointed out, they are Harry Enfield’s “Loads a’money” character, Hyacinth Bucket, Boycie from Only Fools and Horses. Today, the author of the In The Sight Of The Unwise blog told me, they are Molly Mae from Love Island or the influencer Mrs Hinch.

…Deano is everywhere. And for the past year he has been screwed. 

Deano is not rich and he is not poor. He relies on cheap credit, low taxes, good public services and stable prices. All of this has disappeared. In the wake of the pandemic and Russia’s invasion of Ukraine, both public borrowing and inflation rocketed and so, in time, did interest rates. Then came the madness of Liz Truss who sought to light a fire under the British economy in order to burn away its problems, only instead to burn it all down — hitting Deano in the pocket all over again. 

In the chaos that followed the Truss budget of September 2022, as many as 1,700 mortgage products were removed in the space of a week. When they came back on the market, they were at rates 1-2 percentage points higher. For Deano in Ingleby Barwick, who might have a £200,000 mortgage left to repay, the monthly repayment costs would have risen over £500 a month — or around £6,000 a year. The interest rate rises have also increased the cost of leasing a car and anything else bought on credit. And this is before the food and energy price rises are taken into account. For the first time in Deano’s life, his standard of living has dropped. He was born into a world of low interest rates — and that has suddenly disappeared.

In The Times, Juliet Samuel says Britain’s allergy to any form of industrial intervention may leave us dangerously exposed in a world of growing economic fragmentation:

Then we come to the vexed issue of subsidies. When the Tory right hears the word, it triggers traumatic flashbacks to the 1970s. This ignores the experience of Asia in the past 20 years. Yes, subsidy programmes can be wasteful, but if designed well and aimed at the right target, they can also be hugely effective. It is worth examining China’s trajectory. Beijing’s approach to subsidies used to be fairly indiscriminate. It used state-owned banks to make massive, cheap loans. Some of this helped to generate superstar companies like Huawei, but much of it funded big, inefficient employers like aluminium smelters. After 2014, when Edward Snowden underlined the security risks of American technology, Beijing shifted gear.

The aim was to create more Chinese makers of advanced products, like semiconductors, batteries and quantum computers. Beijing funnelled about $1 trillion of state cash into setting up venture capital funds to overcome the problem experienced by innovative start-ups: how to scale up production. The funds were meant to hire private sector experts and make a profit as well as deliver supply chain security. Some failed, hiring local officials and wasting cash on political projects. But others generated successes, like the scale-up of NIO, an electric vehicle company that now rivals Tesla and has become the centre of the world’s battery production hub in Hefei.

Given Britain’s financial expertise it should not be beyond the wit of our government to create a UK version, run by commercially minded, home-grown experts. Nor should we ignore other subsidy models experimented with in Japan, where companies compete for grants by showing they are seeking non-Chinese suppliers of “critical materials”. Or Australia, where the state frequently finances the building of infrastructure and then privatises the asset to get its money back. There are, in short, dozens of models we could adopt and no shortage of expertise to make this work.

In Tablet magazine, Michael Lind points to the growing “fertility gap” in the West - a demographic disaster which successive governments have sought to fill with mass immigration:

Are low and falling birth rates a matter of changing preferences in the number of children that people want? As the demographer Lyman Stone has pointed out, in the United States and throughout much of the world today there is a large gap between desired fertility—the number of children women say they want—and the number they end up having. In 2010, ideal fertility was nearly 2.4, well above replacement, but projected completed fertility was 1.8 (today it has fallen to 1.7).

Using 2010 data, Stone in 2018 estimated the number of “missing-but-wanted children” in 2010 as 270 million—many of these in the developed countries of North America, Europe, and East Asia. While a few radical Greens might welcome a decline in human numbers, if not human extinction itself, the leadership in most countries does not want the national population to shrink and disappear. Strategies for preventing national population implosion do not map neatly across conventional ideas of “left” and “right.” There are three conceivable strategies, which might be called “sectarianism,” “immigrationism,” and “pro-natalism.”

…Immigrationism is the answer to declining native fertility that is favored by most of the trans-Atlantic establishment. Immigrants will be brought in to maintain population levels, as national birth rates fall.

In the Financial Times, Martin Wolf paints a bleak picture of Britain’s medium to long-term economic performance, saying growth is essential for the UK’s survival as a modern democracy:

So, yes, the shocks of the past few years have been large and unexpected. But what has made them particularly difficult to cope with was the long period of stagnation and austerity that preceded them. Indeed, everything has become far harder to manage in this context.

Give credit where it is due. Former prime minister Liz Truss was right about one thing: economic growth matters. But she and her chancellor Kwasi Kwarteng had no intelligible view on how faster growth was to be achieved. Yes, incentives are important. But so are sound public finances, low interest rates, an open economy and a reputation for sound economic management. Much of this has been sacrificed to the totemic politics of Brexit. These are not yet even over: consider the nonsense of the “retained EU law bill”, which is a plan to “review or revoke” much of the EU-derived law that forms the basis for much of today’s national life.

All this is just dancing on the decks of the Titanic. It is hard to believe that the UK will thrive, perhaps even survive, as a peaceful and orderly democratic society without faster economic growth. To bring that about, the country will need to raise its dreadfully low national rates of savings and investment, build far more houses, and reform its pension system, in order to generate more risk-taking capital, create dynamic new businesses, discover a route towards better opportunities for trade in its European neighbourhood, offer high quality jobs to its people and fund the education and training they desire. Only if all this is done can it also afford the public services it needs and its public will certainly continue to demand.

In the Telegraph, Ambrose Evans-Pritchard says there is a black cloud hanging over Europe’s economy:

The giant spoiler is that the eurozone money supply is in free-fall. The process has been going on long enough to raise the risk of an economic sudden-stop over coming months. European Central Bank data shows that 'narrow' M1 money has been contracting since last September in absolute terms.

Nothing like this has been seen since the creation of the euro. The annual growth rate never fell below zero even during the Lehman crisis and the eurozone debt crisis. Furthermore, the pace of contraction has been quickening, not that the ECB is paying any attention. It abandoned its monetary 'pillar' long ago and embraced the New Keynesian gospel. 

Over the last five months, eurozone M1 has been falling at a rate of 12pc (annualised). It screams monetary overkill. Simon Ward, from Janus Henderson, said policy was too tight even before the ECB raised interest rates by 100 points over February and March. “The impact has yet to kick in but it will over the next two quarters. The normal lag is 6-12 months for the economy, and two years for inflation,” he said. Note the long lag on inflation. The latest CPI horror in Britain is the mechanical legacy of a mistake made by the Bank of England a long time ago. It would be jejune for the Bank to raise rates at this late juncture to chase this effect. It is already in danger of making the opposite mistake.

Wonky thinking

In an essay for the New Statesman, Danny Kruger says we must think of the 2019 Conservative majority as the beginning of a new Government. Tory political thought has always blended moderation and tradition with romantic radicalism, and there is now a prime opportunity for a new kind of politics on the centre-right, he argues:

The principal reason in many people’s minds to “get Brexit done” was to take back control of our borders. Establishment opinion – the axis of liberalism that runs from the City of London to the Labour front bench, through the universities, the civil service and the media – is that we need high levels of immigration to power our economy. Asylum seekers, moreover, are seen primarily as the victims of Western imperialism and should be welcomed in considerable or even unlimited numbers.

…The social and cultural battle demanded by the realignment of 2019 must be fought simultaneously with the economic one. A great shift is underway, from a globalised economy to one where the nation state matters once again. This entails stress for the UK, which has always been, and still must be, a free trading economy. But we can ride the new wave too.

…It is easily asked, “Why, after 13 years, should we trust the Conservatives to deal with the great challenges we face?”, and easily answered. In 2019 a new government was elected, with a new electoral base, a new crop of MPs, and a new mandate: to deliver authentic, anti-establishment, “national” conservatism. The Covid-19 pandemic and the Conservative Party’s long leadership wars have prevented this agenda getting beyond the first base, namely Brexit. With the leadership question settled, the 18 months until the general election offer a short window in which to deliver on the 2019 mandate.

The Institute for Fiscal Studies has called for a review of the UK pensions system. With employees saving very little for retirement, insufficient private pension contributions and rising living costs, many pensioners face a bleak retirement - yet the state pension bill will continue to put pressure on the public finances:

The latest projections from the Office for Budget Responsibility (2022) imply that spending on state pensions and other pensioner benefits will remain relatively flat over this decade, with state pension spending just under 5% of national income and pensioner benefit spending (which includes things such as housing benefit for low-income pensioners living in rented accommodation, and attendance allowance for those deemed to have a severe disability) just below 1% of national income. But, in combination, they will then rise sharply, by 4% of national income, over the following 40 years (together reaching 9.6% of national income in 2071). A 4% of national income rise is equivalent to about £100 billion a year in today’s terms. Recognising this challenge, the recent Independent Review of the State Pension Age (2023) suggested a cap of 6% of national income on spending on state pensions (though – oddly – did not include pensioner benefits). Based on the OBR’s analysis from 2022, without further increases in the state pension age, reductions in generosity of indexation, or other measures, this proposed limit would be breached before 2051. 

The public finance challenge of this spending pressure comes alongside the – even larger – pressure placed by greater need for health and social care with an increasingly old population and rising cost pressures over time. The OBR projects state spending on health and social care to rise from 10.3% of national income in 2021 to 13.7% in 2051 and 17.5% in 2071. Overall, this would leave spending on state pensions and pensioner benefits and on health and adult social care at 27.1% of national income in 2071, up 71% from the 15.8% spent in 2021. 

The public finance burden of the ageing population should not be surprising given the overall demographic changes in the UK over the last decades. Figure 13 shows the fraction of adults (aged 20+) who are aged 65 or above, and the fraction who are over state pension age. The fraction of the adult population aged 65 or above has risen from 21% to 24% between 2005 and 2020 and it is projected to rise to 31% in 2050 and 34% in 2070. The fraction who are over state pension age has actually remained remarkably constant in recent decades, despite the ageing population, because of rises in the state pension age. In fact, the fraction over state pension age in 2020 – at 23.1% – was actually lower than at any point in the last 50 years. However, this fraction is projected to increase to 27% in 2050 and 30% in 2070. Unless mortality rates are higher than expected, then, absent further increases in the state pension age, the most likely factors that could prevent this are higher fertility and/or higher net inwards migration of working-age adults. As an illustration of the extent to which the population is ageing, in 2050 a state pension age as high as 70 would be required to keep the share of adults aged over the state pension age at its current rate of 24%. 

Book of the Week

This week we recommend Paul Collier’s The Future of Capitalism: Facing the New Anxieties. Collier exposes the growing divide between the educated and metropolitan and the less educated and provincial. His approach of “social maternalism” seeks to restore the ethical institutions underlying our market economy:

Capitalist societies must be ethical as well as prosperous…I challenge the depiction of humanity as economic man: greedy and selfish. Shamefully, there is now indispensable evidence that students taught economics actually start to conform to this behaviour, but it is aberrant. For most of us, relationships are fundamental to our lives, and these relationships come with obligations. Crucially, people enter into reciprocal commitments, the essence of community. The battle between selfishness and reciprocal obligations - between individualism and community - plays out in three arenas that dominate our lives: states, firms and families. In recent decades, in each, individualism has been rampant and community in retreat. For each, I suggest how the ethics of community could be restored and enhanced by policies that rebalance power.

On the bedrock of this practical communitarian ethic, I turn to the divergences that have been ripping our societies apart. The geographic divide, between booming metropolis and broken provincial cities, can be tamed bit it requires radical new thinking. The metropolis generates huge economic rents which should accrue to society, but to do so requires substantial redesign of taxation. Restoring broken cities is feasible, but the record is poor. Neither the market nor public interventions have been very effective. Success requires that a range of innovative policies be co-ordinated and sustained.

The new class divide between the prospering educated and the despairing less educated can also be narrowed. But no single policy can transform despair: contrary to the Utilitarian fixation with consumption, the nature of the problem is far too deep to be solved by increasing consumption through higher benefits. Even more than with broken cities, a wide range of policies will be needed to change life-chances, not just for individuals but for the relationships. Its social interventions would aim to sustain families that are stressed, rather than assuming for itself the role of parent. Some of the problems of despair have been compounded by the self-aggrandizing strategies of those who are well educated and highly skilled. There is some scope for curtailing the most damaging; again, it is not just the consumption is excessive and needs to be curbed by taxation…

Quick links

Dominic Raab has resigned but challenges the findings of the inquiry into his behaviour.

The Illegal Migration Bill has been amended to toughen its measures.

Google-owned AI company DeepMind has been merged with Google Brain.

Pension schemes have asked the Chancellor not to force them to invest in riskier assets.

Labour’s plan for GP appointments has been slammed as “impossible” by doctors.

The Tories are 15 points behind and fewer than one in five 25-49 year-olds plans to vote Conservative.

The average renter pays 27% of gross income for housing costs each month.

Double-digit inflation in March may herald further Bank of England tightening.

The Government has failed to prosecute any offshore companies illegally using UK property holdings.