Front Burner - Britain: Rough month or road to ruin?

Episode Date: October 11, 2022

In her first month as leader of the ruling Conservatives, U.K. Prime Minister Liz Truss plunged the British economy into chaos. A major tax cutting plan for top earners and corporations — meant to stimulate the economy as energy costs soar — terrified financial markets so deeply, it sent interest rates skyrocketing, drove the pound into the ground, and required an urgent intervention from the Bank of England. Truss changed course, and the economy is back from the brink, but Britain's fragile state post-Brexit begs the question: Is the U.K. ok? Today on Front Burner, Tim Bale, professor of politics at Queen Mary University of London and the author of the upcoming book The Conservative Party after Brexit, gives a rundown of Britain's recent turbulence and the turning points that lead to this moment.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Ali Janes, in for Jamie Poisson. Prime Minister, you've been in power for 28 days, but 10 of those politics was paused. In 18 days then, you announced £45 billion of tax cuts without setting a fiscal framework. It precipitated a £65 billion emergency bond buying programme

provided by the Bank of England to protect pension funds. The pound tanked. A thousand mortgage deals withdrawn from the markets as interest rates expectations spiked. You established a 33-point lead for labor in the polls, and now the lady not for turning has announced a massive U-turn on a policy. This is surely the worst start of any prime minister. So that's Liz Truss facing a Sky News reporter last week. In her first month as leader of the ruling Conservatives, the new prime minister of the United Kingdom plunged the British economy into chaos. With a major tax cutting plan for top

earners that terrified financial markets so deeply it sent interest rates skyrocketing, drove the pound into the ground and required an urgent intervention from the Bank of England. The Bank of England announced today it will buy unlimited quantities of government bonds at a, quote, urgent pace. But this major intervention wasn't designed in haste to just restore markets, but to stop mass insolvencies that could have begun today. And then, mere days after tanking public support for her party,

and 24 hours after doubling down on her plan in a series of disastrous interviews, Liz Truss retreats. She is now polling as badly as Boris Johnson was at the depths of Partygate. I mean, the party must look at itself and go, what have we done? What's the point of all this. I mean, the party must look at itself and go, what have we done? What's the point of all this? Because they've lost this. I liken it to the ringmaster in the circus has left the tent and the lion's reaching the acrobats one by one.

I mean, it's all, it's chaotic. In just the past six years, the UK has been through a lot. From a divisive referendum on EU membership to a revolving door of prime ministers and a looming energy crisis. The economy is in shambles and the shadow of Brexit continues to loom large. So how did the UK get here? Is it all because of Brexit or is there something deeper going on? To help us answer that question, I'm joined by Tim Bale. He's a professor of politics at Queen Mary University of London, and his upcoming book is called The Conservative Party After Brexit. Hi, Tim. Thanks so much for being here.

It's great to be with you. So I've got to ask you, Tim, is the UK okay? Yeah, we're out of the ICU, if you like, but we're still in what we call over here the HDU, the high dependency unit, but not on a general ward yet. It looks like the markets are still reacting negatively to a lot of what the government did. So, well, let's dive into some of that news from over the past couple of weeks. The chaos really begins here on September 23rd, when new Prime Minister Liz Truss, she'd been in power for less than a month, and her finance minister Kwasi Korteng announces this proposal for a mini budget with some huge tax cuts. Can you just explain why this was so controversial? Yeah, you have to understand that we in the UK

were facing huge rises in our domestic energy bills. Cost of living and crippling energy bills are dominating almost all space in the public consciousness right now for politics and policy. According to Cornwall Insight, next year the typical household will spend £4,266 on energy. And the government had to do something about that. The way it chose to solve that problem was by offering to cap energy bills for households. And now, as a result, that meant the government

essentially writing a blank cheque for a couple of years. British Prime Minister Liz Truss has unveiled her plan to help with soaring energy costs. From next month, domestic energy bills will be capped for homes for the next two years and businesses for six months. This government is moving immediately to introduce a new energy price guarantee that will give people certainty on energy bills. uncertainty on energy bills. Now, that would have been perhaps bad enough, but the government chose also to counsel a couple of quite significant tax rises, one being a rise in national insurance payments, which is a kind of supplementary tax that all individual employees and employers pay, and the other being a rise in corporation tax tax and then on top of that it also

decided to abolish the top rate of tax which was 45 percent and bring it down to what a lot of other people pay which is 40 percent. Around 660,000 of the highest earners in England, Wales and Northern Ireland will benefit from the scrapping of the 45p rate getting back on average £10,000 a year all in the name of growth. So you have a situation in which the government is essentially saying, we want to give some help to households. We're accepting that we possibly are on the hook for over £100 billion for that. We're not going to do the tax cuts, which might have helped. And in fact, we're going to make even more tax cuts. And what we're going to do is rely on all this

kickstarting growth in order to be able to pay for it. And the markets just didn't believe it. Right. Okay. And so what were the immediate consequences of this mini budget being announced? consequences of this mini budget being announced? Well, the immediate consequences were really negative as far as the financial markets were concerned. So the pound took a hit, particularly against the dollar, but also against other currencies. Now, the British pound has fallen to its lowest level ever against the US dollar. In early Asia trade, sterling fell to $1.03 before regaining some ground to around $1.06 as the London markets opened. The pound's fall follows a frosty reception by the markets to the British government's announcement last week. And worse than that, in some ways, it became more

expensive for the government to borrow. So government bonds took a hit as well. Now, you know, that sounds fairly abstruse, except that, of course, the government was hoping to borrow an awful lot of money. So that will mean that the government is actually paying more in order to finance its deficit. But it also has a knock on effect for ordinary households in that it tends to drive up the interest rate on everyday loans, including obviously mortgages. In the wake of all of this financial chaos, Prime Minister Liz Truss decides to double down and she gives a series of interviews to a bunch of local BBC stations. And let's just say they did not go well for her.

I am really glad that you are here as well, because since Friday, since your Chancellor Kwasi Kwarteng's mini budget, the pound has dropped to a record low. The IMF has said that you should re-evaluate your policies. And the Bank of England has had to spend £65 billion to prop up the markets because of what they describe as a material risk. Where have you been? And, you know, you can really hear in these interviews, like she's totally digging her heels in on her plan. We were facing a situation where people could have had to pay energy bills of up to £6,000, where inflation was increasing and where we were looking at an economic slowdown,

which would have had a huge impact right across the country, including in places like Leeds. So we had to take decisive action. But then just a day later, Trust scraps this whole tax cut for top earners. Frankly, the 45p wasn't a priority policy. And I listened to people and I think there's absolutely no shame, Beth, in a I listened to people. And I think there's absolutely no shame, Beth, in a leader listening to people and responding. So how surprised were you when you heard that she'd done a 180 on this? Well, I wasn't actually that surprised that she'd had to U-turn, to be honest. I agree with you

totally about the interviews. I mean, they really were quite excruciating and i couldn't bring myself to listen to the the full round of them i mean she's she's a very very poor communicator and obviously she was in trouble on this particular policy in fact she was in so much trouble that it was immediately obvious during the conservative party conference actually that many of her mps were going to refuse to uh vote for the measure So really, as far as trust was concerned, it was a case of, well, did she U-turn now or did she suffer a really humiliating defeat on her finance bill in the House of Commons? And I think, you know, discretion was the better part of valor, really. She had no alternative. She had to face the embarrassment sooner rather than later. And I think U-turning, you know, was the best of the two very, very bad

options. So, I mean, Liz Truss's first few weeks as Prime Minister have been so bananas, it feels like that, like when you're watching it go down in the media, especially from over here, it kind of feels like a tragic comedy of sorts. you know obviously for people living this like this has really real life consequences so can you tell me a bit about how Liz Truss's tax plan affects real people yeah I mean I think you're right I mean in some ways you know it is quite incredible and I'm in all my years of politics, I really have never seen a prime minister lose so much public goodwill so quickly. But, yeah, I mean, the effect on real people is going to be pretty serious. The only way that the government can really balance the books, most people would say, if it is intent on going ahead with this tax cutting package, even after it's done the U-turn

on the top rate, is by cutting public spending. But we've had years of austerity in this country already. And so public services are really cut to the bone. I mean, we have a National Health Service here and there are continually tales of people having to wait on trolleys. And that's if they get into the hospital in the first place, because there are queues of ambulances outside waiting to unload patients into very, very crowded A&E departments, emergency departments. And that's if an ambulance can come at all, because we're getting huge waiting times for ambulances as well. That cut in public spending may also hit, of course,

people on welfare benefits who are already suffering because of this huge cost of living crisis that we've got. So those are two effects. And then the third effect will be for people who have mortgages on their houses, because unless they were clever enough to fix those mortgages for a few years, many of them will have variable rate mortgages and therefore how much they pay will depend on the interest rate movement. And I'm afraid some people will just be unable to make the payments on that. So either banks and what we call over here building societies will have to give them some kind of payment holiday, as occurred actually during the pandemic, or people are going to start losing their homes. They're going to be foreclosures.

God. And am I right that, I mean, even right after the announcement, this affected some people's mortgages? Yeah, it did. Absolutely. I mean, interest rates respond very, very quickly. And what you saw was banks quickly pulling all the mortgage products that they had on the market in order to be able to make those adjustments and jack up interest rates in order to reflect the amount that, of course, they were paying and passing it on to their customers. So people will already have begun to see, in many cases, their mortgages going up in the next month or two. You have to make huge decisions like, do we sell our house? This was meant to be our family house forever. It feels like the government government gambling on all our homes at the moment. Scared, worried for my kids, how we're going to manage everything. We've already been going without because of how much it's costing.

We've been to four food banks in the last couple of months, which is horrible to admit. My son is 17. He's been looking for a job. He goes, I'll try and help you with the gas and electric, Mum. Yeah, and for... For a 17-year-old to go and help with the bills, it's, yeah, it's upsetting upsetting this winter coming up is going to be the most desperate time the most desperate time for people who are already struggling to get by

on limited budgets not just financial hardship mental and physical ill health it could not be any worse the solutions remain the same but the scale and the urgency for government have really just stepped up. So let's zoom out here for a few minutes. As a political scientist, you write a lot about what you call critical junctures, or you know, what we might call turning points that shape the future of a country. And I mean, it certainly seems like you think that what Truss's government has just done may end up being one of those critical junctures. But I'd love to back up a bit and look at some historical examples of this that can maybe help us understand where the UK is today.

So I'd love to start with the fateful day in 2013 when David Cameron announced that he was going to call a referendum on whether the UK should leave the EU, even though he was totally against the whole idea of Brexit himself. It will be a relationship with the single market at its heart.

And when we have negotiated that new settlement, we will give the British people a referendum with a very simple in or out choice, to stay in the European Union on these new terms or to come out altogether. It will be an in-out referendum. Six years later, are we any closer to understanding why he did that? Yeah, I think we are. I mean, David Cameron, like many politicians, has published his memoirs, but they give a very partial account of the decision that he made. argue that there was this great demand within the country to settle this question once and for all, when really, actually, it was internal party management that led him to call that referendum.

The Conservative Party was facing a challenger on its right flank, UKIP, the UK Independence Party, that was beginning to, you know, steal, as the Conservatives would see, a lot of their votes. And one way of spiking UKIP's guns or shooting its fox was to hold a referendum on the one issue that UKIP made such a fuss about, which was Britain's relationship with the European Union. And Cameron's hope was that by holding this referendum and by winning it, he will be able to put to bed that particular issue within the Conservative Party and also see off UKIP. So

it was an essentially political decision borne out, if you like, of a threat from an insurgency on the right, on the one hand, and Cameron's, you know, some would say insouciance or confidence about actually winning it. But it was a gamble that clearly didn't pay off. Right. I mean, and why do you think he lost? Well, I mean, there are a number of reasons. First of all, he thought that he would be able to rely on most of his closest colleagues. However, some of those actually defied the party line. Despite job offers, badgering phone calls from the Prime Minister, huge pressure from the Tory establishment, Boris Johnson, Mayor of London, has tonight announced that he will be backing the campaign

to leave the EU. The last thing I wanted was to go against David Cameron or the government. But after a great deal of heartache, I don't think there's anything else I can do. I will be advocating vote leave. You find Tories on both sides of the argument who say the mayor of London's been driven by personal ambition. How to make himself the darling of Tory associations who'll select David Cameron's successor. His friends say that's not true.

So you had this situation where the government of the day contained people who were arguing against the line being put forward by the prime minister. So that was one really, really big problem. And supplementary to that, Cameron, because he believed he was going to win the referendum, didn't perhaps, you know, fight fire with fire. didn't perhaps, you know, fight fire with fire. So didn't attack them as much as they attacked him because he believed he would have to put the party back together again once he emerged victorious. And then, you know, you have to look at the context of time as well. A lot of voters at that time were very, very concerned about immigration.

We'd had a kind of migration crisis, if you like, in Europe, partly because of the Syrian civil war and other conflicts in other places. Germany and Austria welcomed thousands of refugees and migrants with open arms. For many, it was the end of a perilous journey stretching back many months and across thousands of kilometres. Behind them, a human tidal wave continues to sweep northwest across the continent. Thousands of people on the move, pouring into Hungary, after authorities today relaxed restrictions at its southern border. You know, people were seeing on their TVs, people washing up on beaches, etc.

And there was a real fear, I think, in Britain that this would eventually mean, you know, big waves of immigration into the UK, which we could do nothing about, in part because the European Union means freedom of movement. So the Leave campaign made a great deal of mileage out of this concern about immigration. I understand how immigrants feel, but it's about, the question is about who decides. It's about who is ultimately responsible. It's about control. And you loosen the bonds that should unite society if people feel that their elected politicians have abdicated their ability to control things that ought, frankly, to

be within their power. And it wasn't really very much that David Cameron could do about it because of this essential point that if you're in the EU, you can't stop people coming to your country who are EU citizens. So that was another big factor, I think. So after this Brexit referendum passed, Cameron stepped down. And then we've got another critical moment in 2017 when the person who replaces him, Theresa May, commits to a hard Brexit. We do not seek to adopt a model already enjoyed by other countries. We do not seek to hold on to bits of membership as we leave.

The United Kingdom is leaving the European Union and my job is to get the right deal for Britain as we do. And my job is to get the right deal for Britain as we do. Which I'll just note, I mean, seems like a pretty hardcore move considering she hadn't been pro-leave either. But can you just explain how the decision to go for a hard Brexit ended up changing the UK's economy? Yeah, I mean, first of all, we might as well define what a hard Brexit is. I mean, we obviously had decided to leave the European Union, but that didn't necessarily mean that we would also leave what's called the single market and the customs union. And a hard Brexit means leaving both of those. The reason Theresa May did that was because she not altogether unreasonably interpreted the result of the referendum as very much a vote about and controlling immigration.

And, you know, she felt that, you know, we would be unable to do that unless we left the single market. But of course, that makes trade so much more difficult because the single market isn't just about freedom of movement for people, it's freedom of movement for goods and services and capital. And it also meant leaving the customs union, partly because Theresa May and others in the Conservative Party thought that one of the benefits of Brexit would be to allow us to do independent trade deals with big countries, in particular the USA, particularly India. And even at that time, people were talking about a free trade deal with China. So as a result, we went for this

very hard Brexit. Now that has meant an awful lot of friction, both political and economic, with the EU. So trade has declined with our biggest single trading partner, which is the European Union. So there's a big hit to us. So Theresa May's next big decision that arguably kind of blew up in her face was she called a snap election in 2017 and lost her majority. No surprise there with the Conservatives as the larger party, 318, or the largest party, I should say, Labour on 262. But remember, the Conservatives need 326. Theresa May called the selection and she's lost a 17, what she had at the close of play, 17 majority.

How do you think that that loss ended up giving more power to maybe more radical elements of the party? Well, because she lost her majority, that meant she was all the more dependent, if you like, on holding her party together. Otherwise, she wouldn't have been able to get anything through. And that meant increased leverage for what you might term the Brexit ultras within her party. In other words, those who are pushing her to do the hardest possible Brexit. She was unlucky as well in the sense that, you know, there was no desire on the part of the opposition Labour Party to help her out because the Brexit she was going for, as far as they were concerned, was simply too hard. She could, of course, have pivoted and done a much more consensual Brexit,

which perhaps wouldn't have meant us leaving the single market and the customs union. But she was prevented from doing that because she had to hold her party together. So she was in a real catch-22 situation, you know, damned if she did, damned if she didn't. And, you know, we're still living in some senses with the mess that was created. I mean, she didn't in the end sign off the Brexit deal. That was Boris Johnson. But, you know, essentially the deal that we got was was Theresa May's. In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem.

Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people, and I have some startling numbers to share with you. Did you know that of the people I speak to,

50% of them do not know their own household income? That's not a typo. 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. So, I mean, I want to put whether or not Brexit was a a good idea to the side for for just a moment, because obviously, we know that it's done now. So, you know, what I'm wondering is, is Brexit the root problem here? Or is what we're seeing in British politics and in society right

now, something deeper, maybe? Well, I mean, I think that is a good question. I think some of the problems we're suffering from now are Brexit related. I think particularly Liz Truss and Kwasi Kwarteng and a lot of the people she's imported into her cabinet are, in effect, Brexit ultras and are seeking, in some ways, to do the Brexit that they always wanted, which is, you know, a Brexit involving, you know, massive deregulation and tax cuts in the UK in order to make us globally competitive. So, I mean, I think some of the current turmoil actually does stem from Brexit. But I think it's a useful question to ask. I think also you'd have to say, you know, we've become, as many parliamentary democracies have become,

a rather more presidential polity in the sense that, you know, the prime minister is no longer, if you like, primus inter pares, first among equals, but, you know, it is very much the kind of guiding light and the sole focus in some ways of government, which is fine if you've got a great prime minister, but isn't so good if you've got, you know, three people in a row, i.e. Theresa May, Boris Johnson and Liz Truss, who have, you know, severe limitations or even severe moral flaws. And then I think, you know, we've also been infected in some ways with this virus of populism that many other parliamentary and other democracies have been infected by as well, which doesn't help. So, you know, that's, I think, polarised British society quite badly, although that, of course, you know, takes us back to

Brexit. So, yeah, I mean, we have got a whole lot of other problems. And of course, many of them are economic as well as social. So in some ways, you know, it's a it's a mix of things, all of which tend towards, you know, both chronic and acute problems for the UK going forward. Right. I mean, speaking speaking of going forward, I mean, it doesn't seem like life is about to get easier for people in the UK. I mean, just for example, the British National Grid is warning that the UK could face scheduled three hour long power cuts this winter, which sounds horrific. I mean, given all the chaos we've just been talking about, are you feeling hopeful here, Tim? Like, can your country turn things around? Are we gonna have to call you again and check in a few months? Well, if we've got no electricity, you might not be able to. I mean, you are talking to someone who, you know, was a kid in the 1970s when we

had miners strikes. And, you know, I can remember, you know, the electricity going off there and having to do stuff by candlelight. So I guess that doesn't terrify me as much. I mean, to be honest, I think, you know, there is obviously some hope in the sense that I think we've had a government that, to be honest, has got very tired. It's been in power for 12 years now, albeit under different prime ministers. It's kind of run out of steam, run out of ideas, or at least if it has got ideas, it's kind of scraping the bottom of the barrel for those ideas. They're not really popular and they're not going to work. We've got an election coming up in 23, 24, and it's very difficult to see how the current government is actually going to be able to win that election. So I think, you know, there is to some extent hope on the horizon. I don't

think you need to be necessarily a Labour Party partisan to think that. I think, you know, many people would just say, look, we just need a change. We just need a bunch of people who've got different ideas, who will try different things. And to some extent, I think that gives the country a bit of hope. But that's two years away. That's an awfully long time to wait. Well, thank you so much, Tim, for this conversation. And I hope one way or the other things start looking up. So do I. All right, before we go today, I want to let you know about a new podcast by our colleagues at CBC North. It explores one of the most bitter labour disputes

in Canadian history. It's the kind of story that most people who lived through it just want to forget. It happened at a gold mine, the giant gold mine in Yellowknife. In the early 90s, when it was taken over by an ambitious CEO determined to make a profit, tensions boiled over with the union.

Replacement workers were brought in, inflaming the conflict, and setting off an 18-month lockout that divided a city, pitted neighbors, friends, and spouses against each other, and devolved into murder. 30 years on, the podcast Giant Murder Underground lays bare the lingering impacts

and hard lessons from the tragedy. Here's a bit of the show. It was probably the best impacts and hard lessons from the tragedy. Here's a bit of the show. It was probably the best mine in the country to work at. Things changed for the worst, I guess, when she took over. From CBC North, one of the most bitter labor disputes in Canadian history. That strike at the giant gold mine in the Northwest Territories has had another violent episode. The ticket signs were getting uglier and uglier, and there were starting to be fights in the local bars. The first thing we did was blow up a satellite dish.

And there was violence right from day one. Bring it over! Bring it over, tough guy! This was bread on the table, so it was a pretty, the stakes were quite high for those folks. The company has expressed time and time again that we have no more to give financially. Early on in the dispute, it was evident that somebody might die. I mean, there were guys who had, you know, cocked pistols right at their head from the police. There was so much anger. It was a living hell, actually. The explosion happened around 8.45 in the morning.

Like, I just couldn't believe that those people's lives were worth what was going on. I knew something had happened to my father, but I didn't think it was going to be that bad. Some people will never be over it. It was too much. You can listen to CBC's giant Murder Underground anywhere you get your podcasts.

That's all for today. I'm Allie Janes, in for Jamie Poisson. Thanks for listening to Frontrunner. For more CBC podcasts, go to cbc.ca slash podcasts.