After delivering Gordon Brown a thumping in last week’s local elections, the Tories are entitled to feel a little smug – but not too smug. As various commentators have pointed out, the Tories will now find their own plans coming under greater scrutiny. On current form, that won’t be a comfortable experience – at least where economic policy is concerned. At a time of profound financial instability, the Tory contribution to the debate has been marked by a mixture of naivety and opportunism that has alarmed the City.
These faults were on display last month when shadow chancellor George Osborne rushed out a policy proposal calling for a Government bail-out of UK banks days before the Government was to unveil something similar. Clearly, the aim was to wrong-foot the Government by taking credit for the idea. That may have seemed clever tactics, but the result was that Osborne effectively wrote the Government a blank cheque to bail-out banks using taxpayers’ money without even waiting to hear the details. From the self-proclaimed party of sound money, this was little short of astonishing.
Osborne compounded this error by saying the bail-out was needed to unblock the mortgage market and keep over-stretched homeowners in their houses. That certainly wasn’t how the Bank of England justified it and it left the Tories in dangerous territory. Why should the Government prop up house prices? Who will speak for all those prudent savers and would-be first-time buyers who did not get caught up in the mortgage frenzy, who now see Government and opposition conspiring to keep them out of the housing market by blowing more air into the bubble?
This wasn’t the first time Osborne had sold the pass on a major policy issue with billions of pounds of public money at risk. He did the same over Northern Rock, when the Tories supported the plan to prop up the collapsed mortgage lender and the subsequent futile search for a buyer. Even the Government ultimately realised that allowing Sir Richard Branson to gamble with £50bn of taxpayers’ money was unconscionable and that nationalisation was the only option. But by this stage, the Tories were absurdly insisting the bank be put into administration – a move that would have cost the Treasury billions.
It’s easy to put these misjudgements down to naivety. The credit crunch has been a complex, fast-moving phenomenon. And years in the wilderness have left the Tories woefully short of MPs with recent, relevant City experience. That in turn has no doubt left them particularly susceptible to the advice of sharp-suited bankers talking their own books. But while these mistakes hurt the Tories’ credibility in the City, they may do little damage beyond. Far more damaging is the charge of opportunism that surrounds many of the Tories recent attempts to exploit the Government’s difficulties over tax. These raise serious doubts over what sort of Government they would be.
For example, the Tories opposed the abolition of the 10p tax rate, but now won’t say whether they would reintroduce it. They also campaigned against the reform of capital gains tax, but won’t say whether they favour restoring the 40% rate. In both cases, the Government’s difficulties arose from botched efforts to simplify the tax system. Yet instead of seizing the opportunity to set out their own vision of “simpler, flatter, fairer” – and, one might add, lower – taxes, they opted to defend the status quo in an attempt to secure a short-term political advantage.
Of course, it is exactly this tendency to put political calculation over the national interest that has got Brown into his own mess. The danger for the Tories is that, by the time of the election, all this opportunism will make it hard to articulate a coherent narrative of what they stand for.
Besides, with the Government in disarray, the Tories are in a position to do something politicians often find very difficult: tell the truth. People are not fools. They can see the country faces tough times. Britain needs a government that can take difficult decisions. There’s not much in the Tory record over the last year to suggest they have grasped this yet.
Food prices are bubbling up
I get to talk to a lot of senior figures in the financial world. But until the start of this year, I can’t remember any expressing concern over rising fuel prices. Yet at a dinner the other day, almost everyone cited this as one of their top worries right now. Of course, it’s easy to see why: commodity prices (everything from rice to wheat to sugar) have rocketed over the last year or so, while the soaring cost of oil has raised food prices even further.
But what’s causing these hikes? Food firm bosses seem in little doubt. One told me last week that the cocoa market, once dominated by five big industrial buyers, is now 50% in the hands of hedge funds. Hot money has poured into commodities, the prices of which no longer reflect economic reality. There is a word for this phenomenon: bubble. At some point, this bubble will burst – but not, I fear, before it causes real suffering to many people.
Simon Nixon is executive editor of Breakingviews.com