London Steve Baker is back on the warpath. The Tory rebel leader, who already hit Prime Ministers David Cameron and Theresa May hard, has a new opponent in his sights: the current incumbent Boris Johnson. The conservative party has strayed from the right path and is moving ever further away from conservatism, Baker recently wrote in a manifesto in the Sunday Telegraph.
The reason for the lawsuit was the government’s new corona measures, but Baker does not fit the whole direction under Johnson – be it with economic policy, Brexit or climate protection. He therefore wants to revive the lobby group Conservative Way Forward, which was once founded by Margaret Thatcher to defend conservative values.
One year after leaving the EU internal market, disillusionment is spreading among the British Conservatives. They wanted to build a “Singapore on the Thames”. The cipher stands for a liberal, open country with low tax rates and little bureaucracy.
Instead, the kingdom under Johnson is now increasingly taking on continental European traits: government spending and subsidies are increasing – and with them taxes and social security contributions. The tax burden is higher than it has been in 71 years.
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Brexit intensifies the trend towards a strong state
This is of course due to the exceptional situation caused by the corona pandemic. All countries have increased their government spending tremendously to offset the lockdown damage. But Johnson’s enthusiasm for spending goes beyond that. He is extremely generous in trying to differentiate himself from the austerity measures of his predecessors. His finance minister, Rishi Sunak, boasted in his recent budget speech that every ministry would get more money. Many traditional conservatives had to swallow that.
Johnson’s critics saw this week’s crushing defeat in a by-election in the rural conservative stronghold of North Shropshire as confirmation. “Will the Chancellor of the Exchequer admit that his high-tax stalling economy is wrong?” Tweeted Conservative MP John Redwood. “It’s time to listen to conservatives.”
Liberal Democrat Morgan took from the Conservatives a constituency they’d won for nearly 200 years.
(Photo: AP)
Johnson, celebrated a few years ago as a Brexit hero and guarantor of a new liberal order, has long since become a traitor from the point of view of his former comrades-in-arms. You’re complaining about the Social Democrat in disguise on Downing Street. “Conservatives know that government intervention of any kind can have painful consequences,” warns Baker. Whether Covid passports, billions in investments in express trains or climate protection regulations – all of this falls under “big government” and is the devil’s stuff for Thatcher fans.
It is one of the ironies of Brexit that it reinforces the trend towards a strong state. The independent budgetary authority OBR estimates that the exit from the EU will depress the productivity of the British economy by four percent in the long term. Therefore, damage limitation through government intervention is the order of the day. Johnson will repeatedly resort to subsidies to keep companies in the country, to promote trade or to push infrastructure projects.
New problems for British companies at the turn of the year
British companies are facing two challenges at the turn of the year. First, they have to struggle with the new Brexit bureaucracy: From January onwards, the government will introduce border controls for imports from the EU for the first time. So far, it had suspended this so as not to exacerbate the delivery bottlenecks. Now, however, companies are faced with new forms and controls. According to the Federation of Small Businesses, only a quarter of small firms are prepared for the changes.
“The new customs rules from January will result in new disruptions in trade,” says Rain Newton-Smith, chief economist at the CBI business association. “The big companies are prepared, but it’s a challenge for the small ones. Many will simply stop trading with the EU. ”The EU had introduced its border controls for British goods earlier this year. As a result, trade across the English Channel fell by around 15 percent.
The omicron variant of the coronavirus, which is spreading rapidly, could prove to be an even bigger problem. The number of new infections is reaching new highs every day. It is still unclear how dangerous the mutant really is. The government has therefore not yet imposed a lockdown, but is relying on mild measures such as home office and 3G for major events.
Nevertheless, there is growing concern in companies that consumers will lock themselves down and thus slow down the economic upturn. The new wave of infections could also lead to massive numbers of employees falling ill and disrupting production.
Doubts about Boris Johnson are growing despite the economic recovery
So far, economists have expected that the Omikron storm will only slow the upswing. The growth forecasts for 2022 are still around five percent this year. That is quite high in an international comparison. But the British economy also has more catching up to do: in 2020, gross domestic product fell by ten percent. Unlike many other European economies, Great Britain has not yet reached the pre-Corona level.
The Bank of England initiated the interest rate turnaround this week, despite all the risks. It raised the key rate from 0.1 to 0.25 percent. Omikron brought downside risks at the beginning of the year, admitted the central bankers. But from their point of view it was more important to send a signal against rising inflation. The rate of inflation rose to 5.1 percent in November – and according to the central bank, it should rise to six percent by April.
Most of the indicators do indeed point to a robust upturn so far. The unemployment rate has not risen after the end of the state short-time work program at the end of September, but has remained at a low 4.2 percent. The number of vacancies is 1.2 million, a new record. The wages are increasing. In addition, households saved the equivalent of ten percent of the gross domestic product during the pandemic.
“The accumulated savings will ensure strong growth in the coming year,” says Hugh Gimber, capital market strategist at JP Morgan Asset Management. Companies are also investing again. The super depreciation that Finance Minister Sunak introduced this year will help. Companies can write off 130 percent of their investments in new machinery over two years.
Newton-Smith confirms that the super-depreciation boosted investment in industry. Still, companies needed more support as the UK still ranks last in the group of leading industrial nations (G7) in terms of business investment. This is also a consequence of Brexit.
Doubts about Premier Johnson are growing despite the economic recovery. That has to do with his personal escapades, but also with his political course.
“Take back control” was the slogan with which he first won the Brexit referendum and then the elections. But now the impression is spreading that Johnson doesn’t know what to do with his power. Due to the double burden of Corona and Brexit, the government’s room for maneuver is severely limited.
Are “Global Britain” and “Leveling up” more than just slogans?
Johnson himself expressed his policy in two slogans: “Global Britain” and “Leveling up”. The first is to describe the country’s new role on the world stage. After decades of EU hibernation, the old “nerves, muscles and instincts” of the seafaring nation would be reactivated and become the champion of global free trade, Johnson promised after Brexit.
The major trade agreements with the USA or China are not in sight, however, so far Great Britain has only agreed agreements with Australia and New Zealand. In addition, the government hopes to join the Pacific free trade zone CPTPP. Their economic benefits, however, pale next to the damage caused by the new trade barriers with the neighboring EU.
On top of that, the ongoing guerrilla war with the EU is also putting a strain on relations with other countries. Most recently, Trade Secretary Anne-Marie Trevelyan tried unsuccessfully to get the US government to lift punitive tariffs on British steel. Washington apparently wants to see an agreement in the Northern Ireland dispute between London and Brussels first. Such episodes show how much British bargaining power has shrunk.
The British Prime Minister and his Minister of Health visit the construction site of a children’s hospital.
(Photo: AP)
So far, the “leveling up” is only an announcement. Johnson wants to use state billions to stimulate the economy in the structurally weak regions so that they can catch up with London as the economic engine. It is the equivalent of the “blooming landscapes” that Helmut Kohl once promised the East Germans.
But while the federal government funded the upswing in the east with hundreds of billions of euros, the sums for the English province are much more modest. It is questionable whether they will really change the economic structure of Great Britain, especially during Johnson’s tenure.
On top of that, the burdens on companies and households will increase in the coming year: In April, social security contributions will be increased by around ten percent. From 2023, the corporate tax rate is expected to increase from 19 to 25 percent. Due to the high inflation, real incomes are falling at the same time. A dangerous mix for Johnson. And fodder for its critics.
Johnson has to fear for his job
After two and a half years in office, the prime minister is increasingly under pressure to justify himself. There is still no sign of the promised Brexit dividend. Instead, government scandals are mounting – from corruption to corona rule violations. Two-thirds of Britons think Johnson is doing a bad job.
The loss of the Tory stronghold of Shropshire is not a good omen for the future of the already ailing prime minister. Because Johnson lives from his reputation as an election winner. If there are no victories, the conservatives traditionally replace their leader quickly.
In any case, Baker and his friends are running out of patience with Johnson. This week, 99 Conservative MPs voted against the government’s corona measures. It was the biggest rebellion against Theresa May since the Brexit uprising. The rebels were not only interested in Corona, it was also a vote of no confidence in the prime minister.
The risks in Great Britain in the coming year therefore increasingly include a change of government. Baker’s party colleague, MP Roger Gale, summed up the mood on the BBC: “One more mistake and he’s out.”
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