When John Major pulled off a shock election victory in April 1992 there was despair in the Labour party. After four defeats in a row, it seemed as if the Conservatives would be in power for ever.
Five months after being reinstalled in Downing Street, Major faced a run on the pound that culminated in Britain’s departure from the European exchange rate mechanism on Black Wednesday, 16 September 1992. The economy recovered but Major’s political reputation never did.
The mood was similarly downbeat in Labour ranks last December, when the party again notched up a fourth straight defeat, and this time by an even bigger margin than in 1992. And for a couple of months following his election triumph Boris Johnson lorded it just as Major had done after seeing off Neil Kinnock.
Yet, as then, things have gone downhill fast. The economy went into enforced hibernation in mid-March and is at its nadir this month. Evidence of that will come through in May – five months after the election.
Governments unfortunate enough to be in power when a crisis strikes tend to get the blame. Ted Heath was held responsible for the three-day week in early 1974 and Jim Callaghan was booted out following the 1978-9 Winter of Discontent. Black Wednesday did for Major and Gordon Brown lost power as a result of the banking crisis of 2008.
It didn’t really matter that Black Wednesday proved to be a boon to the economy, since leaving the ERM meant the pound and interest could fall; nor that Brown is seen – by fair-minded observers, at least – to have handled the global financial crisis well.
Johnson will need to go some – or Labour will need to be truly incompetent – for this pattern to be broken. This is no ordinary crisis: early indicators suggest that one-in-three private sector employees are either furloughed or have lost their jobs. Three quarters of households have suffered a fall in their incomes. The government will need to sell £180bn of gilts in the next three months to cover the cost of the economy being in hibernation.
This is worse – far worse – than anything in recent or, indeed, distant history. Jan Vlieghe, one of the members of the Bank of England committee that sets interest rates, said the UK was facing its biggest slump in three centuries.
Nor is this going to be over quickly. The need to prevent reinfection means the economy will only come out of lockdown slowly and – unlike in other countries – there is no suggestion of when that might start. Failing to take Covid-19 seriously in January and early February, a period when Johnson and his team were effectively winging it – has proved not just costly but fatal.
On the basis of the relative scanty data out there, the Office for Budget Responsibility’s projection of a 35% fall in output in the second quarter of 2020 looks reasonable. A slightly smaller fall in gross domestic product might occur if parts of the economy reopen in late May and June, but even then in the best case a drop of 25% looks probable.
The OBR is also assuming that half the restrictions will be lifted in the third quarter, the rest will go in the fourth quarter, and that there will be no lasting damage done. On that basis, output will be back to pre-crisis levels by the end of the year. This looks far less realistic. For a start, there are already signs that some firms are going bust and that workers are being made redundant, despite government assistance.
Moreover, Chris Whitty, the chief medical officer has warned that social distancing will remain in place until at least the end of the year, and that means large chunks of the economy – bars and restaurants, for example – have no chance of being back to business as usual. This recession is far more severe than that of 2008-09 and it will take time for the economy to return to its pre-crisis level. The chances of the UK emerging from this without deep scarring are zero.
Johnson’s cabinet – as has been highlighted during his enforced absence due to illness – is weak: far less impressive than the team of ministers that Major had round him at the time of Black Wednesday. Rishi Sunak has looked competent; the rest have seemed out of their depth.
What’s more, the things Johnson has got going for him are all diminishing assets. The government may be taking comfort from the fact that the Covid-19 crisis happened within months of the election, leaving plenty of time to put the economy straight. But the effects of this slump are going to be felt for years not months.
Nor should ministers assume that public support for the government’s handling of the crisis is going to last. The longer this goes, the longer the list of screw-ups becomes. It is not a good look to be seen as clueless when that cluelessness has cost lives and livelihoods.
All things considered, the government has had an easy ride from the opposition parties, which have been reluctant to be too critical at a time of national emergency. There have been signs in the past couple of weeks that Labour has started to toughen up its stance, with Keir Starmer asking pointed and appropriate questions, such as why was the government slow to respond to the crisis, slow to provide enough tests, slow to provide enough protective gear and slow to come up with an exit strategy.
Starmer will never match Johnson for charisma but he is a lawyer who knows how to make a case. So was John Smith, Labour leader at the time of Black Wednesday, and he had a fine old time at Major’s expense.
Source: Read Full Article