The three mega-risks that could doom Boris’s high-wage gamble to disaster

 The three mega-risks that could doom Boris’s high-wage gamble to disaster

Boris the showman is back, and what a performance he put on. The Prime Minister’s ebullient speech in Manchester was a perfectly pitched peroration to the median voter, reminding them that the Tories share their values and aspirations.

The points Boris Johnson made, the opinions he proffered, may not have all been ideologically consistent or even, at times, especially credible, but their common thread was their popularity. He was his old self again, oozing charisma, delighted that Covid is all but over, poised for another fight with Brussels. Some of his biggest cheers came when he savaged the M25 protesters and attacked cancel culture, yet it was also a masterpiece in cakeism. He embraced the end of free migration, while launching an impassioned plea for the very same capitalists most upset about this; he backed his massive tax rises, while bizarrely invoking Margaret Thatcher in support; he called for more affordable homes, while giving up on house building in the South.

The problem is that politics isn’t just about positioning, charm and rhetoric. At some point, delivery matters: the public will need to see at least some of his promises come to fruition. Yet Johnson’s two main aspirations – raising wages, and levelling up – are fiendishly complex challenges that almost no countries have cracked, and his agenda could easily be derailed, again, by global events out of its control, in this case a tsunami of inflationary forces.

To Johnson’s critics, immigration policy is a technical issue: we need more workers to fill jobs that the British don’t want. Yet this is to spectacularly miss the point: that attitude led to Brexit and will eventually trigger immense problems in France and elsewhere.

The UK is the first major European country to have listened to its electorate on this question. There was no public consent for the scale of immigration this country has seen since the late 1990s, and the referendum allowed voters to reassert themselves. The Government’s new migration policies – some tough, some liberal – are a totemic moment for the West and democratic accountability, and Britain’s opportunity to show that a different yet still civilised approach is possible.

But Johnson has decided to go even further: he wants to make a virtue of the current labour shortages, many of which are not even Brexit-related, and to claim that they will bring about a high-wages, high-productivity nirvana.

It is partly a case of the ex post facto rationalisation of a series of blunders: our useless civil service were caught unaware by the lack of tanker drivers, as was the Government, despite plenty of warnings, and were then stultifyingly slow to react because of division and disorganisation. But there are three further enormous risks to Johnson’s higher wage gamble.

First, shortages could lead to certain industries shutting down, and being replaced by imports, and an overall hit to GDP, as well as pushing up prices. The transition towards a different kind of labour market has been not so much mismanaged as ignored: the market can’t suddenly deliver extreme automation or high-rise Dutch-style farms. A lot of these changes require explicit government consent or action, as with the DVLA and HGV licences.

Whereas Johnson will be able to point to higher wages for certain jobs, confounding Remainers, bringing about the productivity increases to ensure sustainably higher pay across the economy will be extraordinarily hard. It is almost dementedly hubristic to believe that any government could deliver this over three years.

We would need a tax revolution, with a much simpler system which massively incentivises capital expenditure, innovation, research and entrepreneurship; a welfare shake-up to make sure UK workers fill vacancies; a radical shift in standards in schools and universities; a wider reskilling drive; a cultural shift in attitudes to work and excellence; drastic deregulation; major planning reform to push down the price of housing, the biggest single drain on productivity; a war on public and private sector bureaucracy to reduce the vast number of non-jobs and productivity-reducing jobs across the economy; and a recentering of the City away from virtue-signalling and back towards creating real shareholder value. With the exception of some transport infrastructure spending, almost none of this is happening, and, apart from temporary investment incentives, tax policy is going the wrong way.

Second, what of levelling up? This suffers from many of the same problems. To ensure that the North becomes richer, radical supply-side policies are required: simply building a few more brownfield flats or shiny new buses won’t be enough. Other countries have tried this, and failed: most rich nations face seemingly intractable issues with poorer, peripheral regions stuck in relative decline.

Part of the Government’s problem is that it has been prevented by the blob from thinking truly radically: one of the themes of the Tory conference was the frustration and even fury of so many ministers towards the civil service, and especially Treasury orthodoxy. Many were bruised, others defeated. Yet it is impossible for a government to push through the kinds of historic reforms required if it doesn’t even control the apparatus of state. There is a high chance Britain remains as London-centric in three years’ time as it is today.

The third major risk to Johnson’s agenda is the potentially calamitous inflationary threat ahead, as well as the mounting dangers to a global economy pump-primed by cheap money. The cost of government borrowing is rising, and the retail price index measure of inflation could jump to 6-7 per cent next year. Interest rates will have to rise, especially with the pound under pressure. And what if the energy and supply crunch tips the global economy into an actual recession?

The Government’s carelessness about the cost of living means voters will connect Johnson’s decarbonisation push and tax rises with inflation. Next year’s national insurance increases and the frozen income tax thresholds mean that workers are facing a quadruple whammy of surging energy costs, much higher overall inflation, higher taxes and a costly green transition. 

Even if the inflationary shock fizzles out, there is a chance that we will end 2022 a lot poorer than we started, in which case no number of brilliant speeches about Jon Bon Govey, “high pay” and “levelling up” will cut the mustard. 

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