A week is a long time in politics, as every column dealing with Westminster will attest. This summer, the weeks and even the days have felt like eons. Cometh the hour, cometh the (wo)man, another old saw which needs to be wheeled out, because the next few weeks could well be pivotal to the next decade of British politics.
Cost of living crisis
The inflation we are experiencing is about to become a true cost-of-living crisis. How the Government and Opposition plan for the raising of the fuel price caps in October and handle the political messaging around any plan, may well be a huge first step on the road to victory or defeat at the next General Election.
Historical parallels that come to mind include Black Wednesday, the Winter of Discontent or perhaps even the publishing of the Beveridge Report (if we are very lucky).
Gordon’s Knot
The problems the country is facing are complex and solutions scarce. The Russian invasion of Ukraine and the fallout (metaphorical rather than literal so far, touch wood) from the conflict have lead to reduction in the availability of fossil fuels, above all gas. Natural gas, unlike oil, is hard to transport and is essential for European electricity generation, heating and even as fertiliser production.
These limited supplies and inelastic demand have prompted suppliers to increase their prices. These signals which the market will hopefully translate into lower demand this winter but as Gordon Brown pointed out this weekend “[The reality for families] is grim and undeniable: a financial timebomb will explode for families in October as a second round of fuel price rises in six months sends shockwaves through every household and pushes millions over the edge.”
Inelastic demand is a another way of saying that people need gas and the heat it produces whether the price is low or high. Unlike say, bottles of Champagne these cost increases will hit the poor as heating and electricity make up a much larger part of their expenditure than the rich and they are unable to switch to different sources.
This supply shock, is a different kind of economic problem we are used to. In a traditional recession or asset bust, consumer confidence is knocked and can be reinvigorated with public spending. In this case, adding more money to the system will bid up the price of limited gas and therefore inflation. Much of Europe is in a similar situation, it will only get worse as winter approaches.
Gas prices are the anvil on which Vladimir Putin hopes to shatter European unity on Ukraine this winter. With freezing voters at home and a relentless enemy abroad the stakes could not be higher for our political leaders.
Given the stakes and the complexity of the problem what we require from our political leaders are novel solutions to the problems they can solve and narratives to explain those they can’t. Rishi Sunak, Liz Truss and Sir Keir Starmer need to lay it out for us.
First, solutions. I am no expert but where ever we can substitute alternative energy sources to gas, we should do it. We need to build up gas reserves while the sun is shining and draw up plans to ration gas by shutting down industries where gas is a large input. Employers and employees will need to be made whole from these losses. It is essential that people can afford to and are able to heat their homes this winter and though Russia is a large supplier of gas, delivering about 30% of gas used, that is not enough to freeze us out.
Any solutions must be co-ordinated at a European level. By supporting our consumers we could bid up gas prices across the continent, rationing and industry shutdowns will cause knock on effects throughout the economy and one of our main objectives must be to maintain European support of Ukraine throughout the winter.
No heat, no light
Next, narratives. A successful response to this crisis from any political leader will need to shape the public’s understanding of both the problem and it’s solutions. Any leader will have to convince the electorate to endure short term pain for long term advantage, perhaps the definition of leadership.
From a Labour perspective, we have two Conservative leadership candidates that are speaking to their members, not the public while the sitting Prime Minister is on holiday during the crisis. Labour need to have a tranche of plausible policies to deal with the crisis and need to start selling these before there is a new Conservative leader and Prime Minister in September. The message is that Putin’s Russia is the cause of this problem, European unity is the answer and the Conservatives are too busy taking lumps out of each other to deal with the former and too divided on Europe to bolster the latter.
From a Conservative perspective, now would be a good time for the leadership candidates and PM to sit down and discuss the outlines of an emergency budget. It would be an amazing show of party unity (which is sorely lacking right now) and would send the message that despite the leadership turmoil the Conservatives are still running the country.
Failing that, a new leader could quickly announce an emergency budget, set out solutions and work with our NATO partners to co-ordinate efforts. As a producer of gas it is important the UK is at the table of any plan to shore up the European economy. This is no time for Brexiteer pettiness. Politically, they can point out that Labour’s last leader was at best lukewarm on NATO and they are currently in a row about MPs visiting picket lines as strikes threaten to bring industries to a halt as sure as any shortage.
It is essential that as we enter a recession, or see inflation rise further that both Government and the opposition explain why this is happening and why we must endure. The Russian invasion of Ukraine is the cause of most of these problems, Putin is trying to make it hurt, we must endure this pain to make it clear to Russia and other countries that the age of changing borders by invasion is over.
In short, they can offer nothing but ‘blood, toil, tears and sweat’.