In the past few months I have blogged on my encounters with some of the leading female commentators on the economy: Baroness Hogg and Ruth Lea, Merryn Somerset Webb and Kate Barker. This week I met the lady who is surely the doyenne of them all, Patience Wheatcroft. She is one of Britain’s most distinguished financial journalists, a former Business and City Editor of The Times, Editor of the Sunday Telegraph and Editor –in-Chief of the Wall Street Journal Europe. She founded the leading trade paper, Retail Week, and has been Non-Executive Director of Barclays Bank and Shaftesbury, the West End property company. She is a visiting fellow at Oxford Centre for Corporate Reputation and a trustee of the British Museum, the Royal Albert Hall and the Reuters Centre for the Study of Journalism at Oxford. Patience was ennobled as The Baroness Wheatcroft of Blackheath in 2010 and became a working peer in the House of Lords.
She began by reminding us that the UK government’s deficit in 2010 was £146 billion, a huge number and one of the worst in the developed world. Her outlook can be summarised by one statement “I’m hoping to be pleasantly surprised- I’m not confident.” She quoted other commentators who are already describing the financial crisis of 2015. Her views on Gordon Brown are probably not for a family blog but she predicts that when the text books are written he will be seen as one of the worst Chancellors of the Exchequer Britain has ever had. Brown introduced his so-called Golden Rule i.e. that over the cycle spending would not exceed income. At the time of his election defeat in 2010 he had missed this target by £485 billion, a number that Patience finds easy to remember but frightening to digest. In her journalistic capacity she had many chances to meet Brown in No 11 or No 10 and often put to him the un-wisdom of his ways but he never listened. One of the myths of the recent financial crisis is that no one saw it coming. Many did and they include Patience Wheatcroft. (My words, not hers)
When the banking crisis hit the UK in 2008 Brown likes to say that he saved the world but in fact because of his reckless spending this country was particularly badly equipped to cope. As a result corporates have become cautious and are sitting on cash, banks are being told by government to make more foolish loans please, while households are crippled by debt, particularly the young who have grown up with credit card debt freely available on tap and would be in serious difficulties if they lost their jobs or had to accept pay cuts.
One thing Patience gives Brown credit for is staying out of the Euro. It is almost unimaginable to think of the calamity that would now face Britain if Tony Blair had won that argument. As it is we at least are sovereign over monetary policy. Meanwhile Greece has €300 billion in debt and had a deficit in 2010 of 34% compared with Britain’s 9% and Ireland‘s 10%, the next worst in Europe.
Turning to America Patience commented that President Obama certainly knows how to work a room but doesn’t seem to know how to work an economy. Of the developed economies only the US is trying an expansionist solution rather than an austerity model and is not dealing with its $12.7 trillion of public debt but is seeking to increase it.
Patience thinks that the UK is just going to have to accept that its position in the world is not what it was. She quoted Guy Hands who, while he does not get everything right, had written in 2007 that the average standard of living in the UK needed to fall by 30%. We have lived for too long beyond our means and there has to be a day of reckoning. This is likely to lead to the best of our young people looking abroad for opportunity and the Irish are already experiencing something of a brain drain.
The night before had been the occasion of the Lord Mayor’s banquet at Mansion House where George Osborne had set out his plans to introduce something of a Glass-Steagall Act and force the bankers to ring fence their retail operations so that in the event of a future banking crisis the Government would only need to save the retail operations and let the investment banks fail as the US had let Lehman Brothers fail as it had no direct retail consequences. She thought this was broadly right although the devil would be in the detail. Corporate clients would continue to want a suite of services including hedging currency, derivatives etc and it was difficult to see how these relationships would work if Chinese walls were erected. However, on balance Patience had always thought that investment banking was a misnomer. (I am less sure about this approach as the interconnectedness of banks is the problem and the downfall of Lehman Bros, without any retail exposure, still endangered the whole banking system.)
She told the story of the former cabinet minister who died and went to meet St Peter at the gates of Heaven and Hell. St Peter explained that he would have a choice, either Heaven or Hell and would first have the opportunity of seeing what both were like. The former cabinet minister chose to visit Hell first and took the lift down. The doors opened and there was a beautiful vista of verdant fields. He played golf on a splendid course, and then feasted on a sumptuous banquet before going to sleep in an enormous, comfy bed. The next morning he went to St Peter and said that wasn’t so bad, now let’s see Heaven. Up he went in the lift and the doors opened on a blue sky with fluffy white clouds. He lolled about on the clouds with no more entertainment than some angels plucking rather tunelessly on their lutes.
He returned to St Peter and said I choose Hell. So be it said St Peter and down he went in the lift. This time the doors opened on a barren desert, people hobbling around scavenging for a few scraps of food. There was no golf course, indeed no grass. A figure was lurking nearby, horned with a tail. The former cabinet minister asked him in despair. “What’s happening? This is not what they showed me before.”
And Satan said “Ah, but that was before you voted!”
After her speech I asked Patience if the £485 billion included all the debt piled up in Brown’s PFI deals. She told me it did not as that was difficult to calculate. I then asked her if it included all the debt piled up in the student loans which of course were financed by government cash. That too was excluded. So while I don’t know the number it is very much more than £485 billion. Perhaps a trillion?
Passing on such gloomy views from one of Britain’s’ most astute observers whose track record over decades for pertinent and insightful observation is second to none does not give me any pleasure. But I think that unless we are honest about the difficulties we face we are doomed to repeat the catastrophic errors of the Brown years and will saddle our children and grand-children with more and more debt and Guy Hand’s forecast will turn out to be optimistic.
The remedy is to become much more international in our outlook. Listening to our politicians and our journalists you would think the world is in recession. It is not. The world’s economy is growing at 4-5% pa and the engines of that growth, India and China are growing at nearly 10%. But Britain exports more to Ireland with its 3 million consumers than to Brazil, Russia, India and China combined! We are heavily reliant on the sluggish economies of the developed world and are missing out on the fantastic success of the emerging economies. We behave as if it was still 1966 when we won the World Cup and London was swinging. But actually it was in 1967 that someone started a campaign called “I’m backing Britain” as the writing was already on the wall. The 1967 Labour Government budget involved the biggest deficit in Britain’s history up to that point and the pound had to be devalued as it has by every Labour government before and since.