ANDREW NEIL: Rishi needs to raise spirits as well as cut taxes. It’s not yet clear he knows how to do either
The new year has started better than Britain’s vast army of doomsters predicted. True, it’s very early days and there are undoubtedly some grim times still to come. But already there are reasons to be cheerful — or at least less gloomy than the consensus of the commentariat.
The best news of all is that wholesale gas prices have collapsed since their August peak and are heading for levels not seen since before Russia invaded Ukraine and sparked last year’s energy price spiral.
President Putin is not only losing the ground war in Ukraine. He’s lost his bid to freeze Europe into submission this winter and weaken the West’s commitment to Ukraine by cutting off its Russian energy supplies. Far from that happening, the Nato allies are ramping up their support for Ukraine with more powerful and sophisticated weapons.
President Putin has lost his bid to freeze Europe into submission this winter and weaken the West’s commitment to Ukraine by cutting off its Russian energy supplies
The allied response to the Kremlin’s attempted energy blackmail has been remarkable. The European Union has cut gas consumption by 20 per cent, something Britain has miserably failed to do. As a result, the brimming gas storage tanks with which Europe started the winter are still close to full.
Norway has already replaced Russia as Germany’s biggest European gas supplier. America hasn’t just led the way in arming Ukraine, it’s stepped up to the crease to keep Europe warm: 30 per cent of the continent’s gas needs now come across the Atlantic in liquified natural gas (LNG) tankers from U.S. ports.
Inveterate anti-Americans on both sides of the Channel should keep that in mind before they next have a pop at the U.S.
Russia’s state-owned energy monopoly, Gazprom, is exporting 45 per cent less than it did a year ago. Since Gazprom’s revenues alone account for 25 per cent of what’s in the Kremlin’s coffers, that’s a huge setback for Putin’s ailing war machine.
Norway has already replaced Russia as Germany’s biggest European gas supplier. State-owned Gazprom – Russian’s energy monopoly – is exporting 45 per cent less than it did a year ago
It’s also a huge boost for Britain and its allies. The worst of the energy price hikes is over. Predictions that the average household energy bill would hit £7,700 this year, loudly promulgated by the BBC and other broadcasters with a distinct penchant for gloom, but without proper independent scrutiny or caveats, are already discredited.
Indeed, by the summer, average energy bills could be below the current Government energy price guarantee which stops the average household from shelling out more than £2,500 a year.
That would mean families beginning to see some respite in their energy bills — and the Government saving billions in subsidies needed to pay for the guarantee. It will also put inflation on a distinctly downward path. That’s already happening in America, where year-on-year price rises have gone from 9.1 per cent in June to 6.5 per cent last month, with more falls to come.
The same will happen in Britain, where inflation could well tumble from November’s double figures to about 4 per cent before 2023 is out — and fall further in 2024.
That will make it easier for the Government to resist some of the more absurd pay demands currently being made and avoid a dangerous wage-price spiral, which would end in a deep recession. There are already signs that, behind the militant rhetoric, unions are keener to do sensible deals than they make out.
UK inflation jumped to 11.1 per cent in October 2022 – far worse than predicted by experts
It would also reduce the need for further big rises in interest rates, with the official benchmark rate now likely to peak at 4.5 per cent or less (below its long-term 5 per cent average before the Great Crash of 2008). You might think all this would perk up the Government. But it hasn’t. Assailed by gloom and doom from all sides, from Prime Minister Rishi Sunak down it merely wallows in the misery, wringing its hands with the gloomsters, muddling through at best, incapable of articulating the finer possibilities that 2023 might bring, bereft of energy or ideas.
You can understand why the British people have had enough of the Tories even if there is no great enthusiasm for Keir Starmer or the Labour Party. As they start their 13th year in power, people feel so many things don’t work, including some pretty basic services, from healthcare to the railways.
Ministers seem too exhausted, too worn out, too uninspired, sometimes even too incompetent, to do much about it.
There has been no Sunak bounce in the polls, which show the Tories still languishing at record lows. The prime minister is decent, smart, very hard-working, patriotic — the best of British. But he is struggling to connect with the public at large. His first party political broadcast this week was wooden and stilted, not quite Gordon Brown at his fake-friendly worst. But getting there.
Polls show that Tories are still languishing at record lows and there has been no Sunak bounce
Sunak is clearly in dire need of some new spin doctors to burnish his image and loosen him up (if Margaret Thatcher could do it, so can he) but he also has more important matters of substance to address.
The Office for Budget Responsibility’s fiscal projections for the budget deficit and national debt assumed energy prices for this year and next much higher than they’re now likely to be. It factored in billions of state spending to subsidise home and business energy bills. Much of that will no longer be needed.
By his March Budget, when the downward trend in energy prices will be even clearer to see, Chancellor Jeremy Hunt will have the leeway to loosen the hair shirt and indicate more clearly where we might expect some tax cuts. Above all, he will have scope to stop tightening our fiscal stance while the economy is in the doldrums, something no other major economy is doing. If this opportunity is not seized, I suspect the Government is beyond saving.
The other big challenges — a radical rebooting of the NHS and major welfare-to-work reform — are even tougher to meet. I suspect the Government no longer has the energy or the political capital to tackle the NHS. It has thrown billions more at it, but the service just keeps getting worse. It’s not sure what to do next.
Even in Tory circles there’s an ingrained belief that only Labour can deliver meaningful reform of our healthcare behemoth, on the same basis that only Nixon could go to China, and that the Tory opportunity to do it has come and gone.
At the March Budget, Jeremy Hunt will have scope to stop tightening our fiscal stance while the economy is in the doldrums, something no other major economy is doing
Labour is already talking the talk about NHS reform, saying it will be on the patients’, not the providers’, side.
It also has something to say about welfare reforms that would get some of the five million folks currently on out-of-work benefits into the workforce, where there are still serious labour shortages. The Government is belatedly following in its wake with similar talk.
Labour’s musings are vague and you can’t discount the possibility that it would run a mile from reform at the first sound of gunfire from the vested interests of the public sector producer classes, which are powerful, articulate and unionised. But at least the opposition is raising matters that need to be debated and confronted.
Time is not on Sunak’s side. He needs to show that the worst is over on a variety of fronts before spring is out and then preside over incremental improvements for the rest of the year and into 2024.
It is a tall order for it doesn’t just have to happen. He has to connect enough with us to convince us it’s happening.
Boris Johnson, a booster for good times, could do that. But Tories who long for a second coming before the next election are deluding themselves. It would be the height of folly to change Tory leaders yet again (though I accept there is no shortage of folly in Tory circles these days) and I believe Johnson himself now plans to make a ton of money (‘put hay in the loft’), then see how the land lies after the next election.
So Sunak has a clear run to the general election without a leadership challenge. But he also has a mountain to climb and hasn’t even reached the foothills. To rally the Tory troops and resonate with the country, he needs to raise spirits and cut taxes. At the moment, it’s not yet clear that he knows how to do either.
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