BY STEWART SLATER
When I write, I expect what I write to be right. Not because I have an overdeveloped ego (although I probably do) but because no-one who sets finger to keyboard thinks they are wrong. To produce a piece on that basis would be a waste of time and open one up to humiliation, something most (not all, some premises in Soho appear to have a thriving business catering to those who wish to be belittled (and worse)) seek to avoid. This is not to say that I always am right, merely that, when I set out on the process, I think I am.
I am also the product of a classical education which taught me that nothing is ever settled unless we have discussed it for a couple of millennia, so I generally give my predictions time to play out. If, to Zhou En Lai in the 1970’s, it was “too early to tell” whether the French Revolution had been a good thing, any of my prognostications over recent years in these pages are mere babes in arms.
It was, thus, a surprise, at once pleasing and slightly depressing, to see over the weekend confirmation of a thesis I outlined just a fortnight ago when I wrote:
Neither Dangerous Liaisons or Damage had a sequel, so there are no successors to Close or Irons. But Sturgeon and Merkel will have them, politicians whose reputations are immune to reality until that sudden, sickening moment when they are not. For, as Harper Lee said, “people always see what they are looking for.”
This little ego-boost was provided by the pollster James Johnson, who tweeted out a word-cloud of the descriptions most commonly associated with Rachel Reeves, the most prominent of which was “competent”. By contrast, Jeremy Hunt got “useless” and Rishi Sunak “weak”. About the latter two, we can debate. Jeremy Hunt has certainly, at time of writing, failed to produce any discernible economic boom and Rishi Sunak appears to find it hard to get his MPs to do what he wants, but, the country’s finances are undoubtedly more stable than when Hunt entered No. 11 during the short-lived Truss Imperium and the Prime Minister appeared quite steely when he was knifing his predecessors. In both cases, we have evidence, we can weigh it and come to a conclusion.
What about Ms Reeves though? What evidence do we have about her?
We know she is well educated, but so are Sunak and Hunt (and Truss and Johnson for that matter), so that cannot be a dividing line between her and them. We know that she worked at the Bank of England. But we don’t know what she did there. She might have done a good job, she might have done a bad job, none of us knows. We do know that, mandated to protect financial and monetary stability, the Bank has, so far this century, failed to foresee the greatest threats to both – the Financial Crisis and the recent bout of inflation. It would be reasonable to ask whether having worked for an institution which has not proven itself notably competent can reasonably be taken as proof of an individual’s own competence.
What else? Well, she appears to say the sort of things serious people like, and say them in a serious way. But, that a politician says something is not necessarily good evidence that they will not, at a subsequent point, say the opposite, a problem, one might gently suggest, particularly acute with the current Labour front bench. Talking the Talk tells us little about whether an individual can or will Walk the Walk.
Far better to stick to deeds than words. But, by its nature, our political system allows Opposition MPs to accrue little that we might reasonably count as achievement. There is a lot of fruitless opposing, but not much doing. Small wonder, therefore, that so many feel the need to find alternative sources of entertainment to fill in their days. Some host radio shows, Some write columns. Some even write books. Like Ms Reeves.
As some of you may remember, her contribution to human erudition, The Women Who Made Modern Economics was competently researched (by her assistants) but not so competently written that the FT was unable to identify over twenty instances of plagiarism in it. Nor did the ensuing furore reveal apologising to be one of Ms Reeves’ core competences, her defence moving from “I take full responsibility for that” (after subtly throwing her assistants under the bus) to “I’m really proud of that”.
Playing fast and loose with scholarly etiquette might tell us about her character, but it does not reflect on her economic competence. If we are to judge that, since she has never compiled a track record which can be publicly scrutinised, we can only rely on the policies she has seen fit to tell the public about – not that there are many of those.
You may have noticed that Labour has decided to abandon its £28bn “Green Pledge” after much anguished deliberation – so much anguished deliberation in fact that the leader could publicly declare his fidelity to it just 24 hours before it was abandoned. As the only major policy the party had, this was embarrassing and needed to be explained, so the excuse Labour settled on was that rising interest rates under the evil/incompetent/child-eating Tories had forced the party of sunshine and rainbows to abandon its efforts to save the world’s innocent moppets.
Well, up to a point, Your Honour. What follows is a bit of financial geekery and there may even be some numbers involved, so if that is not your bag, skip ahead a few paragraphs, content to know that the story therein suggests Labour’s economic team have rather more in common with the Muppets than Midas. To cut a long story short, no competent investor would have formulated a plan which fell apart in the way it did for the reasons Labour claim.
As “context” to explain the U-turn or shift the blame on to the government, those sent out to defend the policy were keen to point out that, when it was introduced, interest rates were 0.1% and due to the incompetence of Liz Truss, they had risen in most major economies including the UK. This “context”, however, needs some context of its own. Yes, interest rates have risen, but from an unprecedentedly low level – throughout the entirety of British economic history, they had never been so low. For all that time, they have been “mean-reverting”. They get cut during recessions to boost growth then, when it returns, and turns to boom and then to bubble, they get raised, until they reach levels which spark the next downturn. Over time, they fluctuate around the average, which, over the last 50 years is just over 9%.
The plan was formulated in 2021 but, due to the electoral calendar, could only be enacted in 2024/5, once the party had taken power. Therefore, when it was modelled, it was the rates in that latter period which were important (because that is when the borrowing would occur), those obtaining when it was formulated were irrelevant. Given their well-known history, any reasonable person would have assumed that they would be substantially higher than they were at the time. At extreme lows, the next move was overwhelmingly likely to be up and history suggested they would move quite a long way since they were far from the average and that is what has always happened. Anyone touting such a plan around the City would be expected, as a matter of course, to have designed it to take account of this and to have the modelling to prove it.
On the basis of last week’s farago, by contrast, Labour appear to have formulated a plan which only worked if rates stayed at historically extreme levels for at least 3-4 years, longer than history suggested they ever would. At which precise level the tipping point came we cannot tell. Inertia and a fear of embarrassment mean most people are slow to exit unviable positions, allowing them to get worse before eventually pulling the plug. It was not purely a financial project – “green” benefits, the impact on jobs etc. could and probably were used to justify its continuation long after it had become unviable on a purely monetary basis. Its cancellation had certainly been rumoured for a while, so it is probably reasonable to assume that it had stopped working before rates hit their current level or when, always mean-reverting, they have retraced only about half of their way back to the mean.
So, on the basis of its own defence, Labour thought it a good idea to place all its chips on an investment plan which only worked at unprecedentedly low rates, required them to persist over several years, and was designed with such a tight margin that it fell apart after a smaller rise than has been seen in every other move off the bottom. Was that, to use a word associated with one of Ms Reeves’ predecessors, prudent? Does it suggest that Labour’s policy-makers have a sophisticated understanding of investment and the economy? And if it does not, what does that tell us about their competence?
There may be, although I doubt it, a hidden cohort of Reeves’ fanatics who lull themselves to sleep every night with recordings of her grating voice, lurking in the thickets of the Country Squire readership. They may attempt to defend their heroine on the grounds that the plan was the work of Britain’s favourite sarnie-scoffing oddball, Ed Miliband. This is, however, no defence. If he pitched the idea, she still, functioning as Labour’s Chief Investment Officer, let it go forward. A fund manager who lost their clients’ money on a similarly spivvy scheme would be condemned for the failings of their due diligence. So should a shadow Chancellor.
Not that it appears she has been. The story has been covered by political journalists as a political story – will it move the polls? Which faction wanted to kill it and which to keep it? What does it tell us about relationships at the court of King Keir? It is an embarrassment, but nothing more. It reveals nothing deeper about the abilities of those behind it, it is not evidence for a reconsideration of their reputation.
And so, it is happening again. In real time. Just as with Angela Merkel and Nicola Sturgeon, there is publicly available information, accessible to all, suggesting that a politician is being accorded a reputation her performance does not support. Just as with them, it is making not one jot of difference, the media preferring to ingratiate rather than interrogate. A few years ago, Isabel Hardman wrote a book entitled Why We Get the Wrong Politicians. Look around yourself. This is why.
Stewart Slater works in Finance. He invites you to join him at his website.