A Claim Of Patriotism Is The Last Refuge Of A Busted Government

(Jeff Randall) – THERE’S A WELL-KNOWN BOOKMAKER who, when asked how he is, likes to reply: “Sound as a pound, old boy, sound as a pound.”

As Britain’s financial woes mount, one suspects that he will soon need a fresh line in chirpiness because, far from being sound, the pound is looking softer than Mr Whippy in a heat-wave.

Sterling’s exchange rate is, in crude terms, a 24/7 opinion poll of what the markets think about Britain’s economic prospects. As currency traders fret over how honest the Government is being in its pledge to slow the growth of state debt, their enthusiasm for holding pounds is dwindling.

And who can blame them? Britain’s budget deficit, as a percentage of GDP, is the worst in the G20, with total debt expected to go beyond £1 trillion and reach 100 per cent of GDP. Call it redinkonomics. This, in part, explains why Britain must pay much more to borrow than rival economies such as Germany, France and the US.

A lower level for the pound is not all bad news: exporters can sell goods and services more cheaply to overseas buyers, without having to slice into profit margins. There are, however, significant disbenefits attached to a devalued currency: the increased cost of imported materials feeds into prices, which in turn makes more likely the need for higher interest rates.

When the cost of money rises, as it inevitably will, small businesses and homeowners, who are clinging to solvency only because their interest bills have been slashed, will be tipped over the edge. Near-free money is a quick-fix painkiller, not a long-term panacea. The economy’s deep-rooted illness – unaffordable spending, fuelled by excessive debt – has yet to be cured.

During his time in opposition, Gordon Brown delighted in taunting Conservative ministers over the implications of sterling’s decline: weak currency, weak, economy, weak government. He had a point.

Now, however, as show time approaches, the Prime Minister and his team of Subbuteo ministers are trying to suffocate debate on the flaccid pound. Theirs is a shameless attempt to position themselves as the embodiment of national interest, branding as “unpatriotic” those who predict that another dose of Labour’s laxity will lead to sterling’s enfeeblement.

Liam Byrne, the Chief Secretary to the Treasury, is sent out by Number 10 to accuse rivals of “talking down” Britain. It would be easy to dismiss this as cheap-shot politics, but it is more insidious than that. In essence, Mr Brown is claiming that only his policies are aligned to the nation’s prosperity; any alternative is a form of treachery. L’état, c’est moi.

When Ken Clarke argued that Britain could “not afford” five more years of Mr Brown – a reasonable observation in the run-up to a general election – Mr Byrne snapped back: “We know they [the Conservatives] are suffering a loss of confidence, but trying to win it back by undermining confidence in the economy is reckless. It’s desperate politics and about as unpatriotic as it gets.”

This low-rent tactic is how the Government shut down dissent over mass immigration at the time of the last election. Those who dared suggest that the economic case for a huge number of new arrivals was bogus, while the consequences for population growth and social disharmony were serious, were smeared as “racists”. We must not be fooled again.

One man’s patriotism is another man’s treason, which is why David Cameron was unwise to invoke it in his conference speech last weekend. Now that the Tory party’s vice-chairman, Lord Ashcroft, has admitted being a tax avoider on his overseas earnings, the patriotism jibe looks like a nasty boomerang that is curving its way back to Conservative Campaign Headquarters.

That said, for Mr Byrne to demand that Opposition spokesmen should stop warning us about the dangers of flawed government policy is a step in the direction of Mugabe’s Zimbabwe. It would be an abnegation of responsibility for Mr Clarke or any of his front-bench colleagues to acquiesce.

Even The Guardian, broadly sympathetic to Labour, cannot stomach the argument for gagging shadow ministers lest they “undermine confidence” in the British economy. When the row over sterling’s slide first broke at the back end of 2008, the newspaper’s Mark Tran wrote a thoughtful piece: “Any Opposition worth its salt can hardly be expected to remain silent at a time when the Government is chucking huge sums of money around in an effort to find a way out of the current economic mess. As far as the pound goes, the shadow chancellor is doing nothing more than stating the obvious. In fact, he is behind the curve. There is already a run on the pound.” Precisely so.

Financial markets have little difficulty seeing through the assurances of a discredited administration. Disingenuous promises of solidity backfire, as was pointed out by Robert Johnson, a former chief economist to the US senate banking committee: “In trying to soothe markets, officials often elevate the sense of unease. Investors in uncertain times ask themselves: ‘Why do they feel the need to reassure us? Are they not just drawing attention to how anxious things really are … Is this talk a substitute for concrete action?’ ”

We all know that Mr Byrne wasn’t really talking to the markets’ heavy hitters – nothing he says is of any consequence to them. The true target for his comments were millions of floating voters whom he hopes to turn away from the Conservative option. Thus, it seems, the UK is now burdened with a Government that is viscerally committed to putting itself before the country.

Alistair Darling has pledged to halve the deficit in four years, cutting £90 billion from his annual borrowing requirement.

On paper, that seems like a reasonable shot at restoring Britain’s viability. So why are traders so jittery about another Labour victory? Answer: they do not believe that the current Chancellor would be invited back to Number 11 if Labour were to win.

The City fears – in my view, correctly – that, emboldened by a shock election victory, Mr Brown would ditch Mr Darling (who, much to his boss’s chagrin, is beginning to think for himself) and install Ed Balls as his next-door neighbour. At that point, the pound would go downhill faster than Amy Williams. The difference being: she won gold, whereas we would end up skint.

In the week that Michael Foot passed away, I have flicked through Labour’s 1983 election manifesto, a document that destroyed the party’s credibility. With its five-year national plan and promises of unilateral nuclear disarmament, much of it appears comically dated.

Then I got to the bit about how to pay for public spending: “Like any other expanding industrial enterprise we shall borrow to finance our programme of investment … Of course, once the economy gets much nearer to full employment, some taxes will have to be increased.”

Whether Old Labour or New Labour, some things never change.

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