Andy Sloan: Rosy retrospection

Last week saw the passing of a political legend – John ‘Two Jags/Two Jabs (delete as appropriate)’ Prescott. For me, his death symbolised more than just the loss of a towering figure in British politics – it felt like the end of an era and a poignant reminder of times past. Prescott was as much a part of my political upbringing as Margaret Thatcher, Ronald Reagan, and Helmut Kohl. Yes, I’m outing myself here – the game is up. I’m an eighties child.

Some readers will be aware that I stood against Prescott in the 2005 election. I shared in last week’s Press how, on election night, he pointedly avoided shaking my hand. Prescott hadn’t appreciated my campaign. He wasn’t used to being challenged in the constituency. I had zeroed in on education in East Hull, particularly on proposed school closures – some of which were successfully reversed – and highlighted his lack of involvement as a constituency MP. Mischievously, I’d also pitched myself as the ‘local’ candidate - being born in East Hull - against the deputy prime minister and sitting MP of more than 30 years. Prescott was a national political figure of immense stature perhaps, but locally no one thought of him as ‘from Hull’.

In hindsight, I suppose my confession struck some as odd. Despite our political sparring, there were many issues where Prescott and I agreed – federalism and climate change being two significant examples. And there was an honesty and humour about him and our relationship that’s sorely lacking in today’s politics. His snub on election night was just part of the game. Fast forward a year when I was on the ruling group of the city council we worked together on many matters of benefit to the city, though it didn’t stop him campaigning on the steps of the Guildhall calling for my public censure (a story for another day).

I strongly stand by what I said on social media last week – for me the era of honesty in politics ended long before the death of John Prescott. Call it rose-tinted nostalgia if you like, but I swear there was a time when straightforwardness and honesty had a big place in public life – there was a time when government announcements did not come accompanied by 30 shades of spin – and I think we need more of it today.

The Allez family’s recent ordeal, with their property being sold out from under them, is a stark reminder of a political complacency that pervades Guernsey. Back in August, I was amazed at the States’ initial indifference at what had transpired. Come September that indifference morphed into bluster and bravado as P&R mounted a rumbustious defence of the Property Unit. But last week, however, things landed in a place that seem shameful to this bystander.

In our tight-knit island community, where personal relationships often (and wrongly) dictate decisions, very few are willing to publicly speak out for fear of grudges or repercussions. For those who do, standing up for principle and truth deserves applause. Hats off to Deputy Taylor for his willingness to pursue this difficult issue.

There were two Budgets this month and, as I explained last time out, Rachel Reeves was facing a similar (relatively speaking) sized hole in her finances to that claimed by P&R in our budget. Such is the autocratic nature of UK parliamentary system – it has been described as an elective dictatorship on occasion – Rachel faced little opposition to implementing her economic strategy of trying to tax the UK economy back to growth.

While headline writers focused on the hike in employers’ national insurance and changes to inheritance tax for pensions and farmers, Reeves quietly changed her fiscal rules to accommodate a hike in borrowing to fund an increased infrastructure spend. You might have missed it, but you’ll notice when interest rates stay higher for longer and there’s an uptick in UK inflation as a result. Indeed, 10-year gilts are even a little higher than following Kamikwasi’s Budget in 2022 and with Trump 2.0 on the horizon, the US Fed has called time on its interest rate-cutting plans. Turns out Bill Gross was wrong, and I was right, interest rates are staying higher for longer. (‘Things can’t stay like this forever’, Guernsey Press, 26 October 2023).

I might be in the minority, but I do see signs of some economic thinking in Labour’s approach. Reeves may have been given a bit of a hard time for one entry on her LinkedIn CV but there’s a trained economist at the helm in Number 11. The UK’s had a problem with low investment and low productivity for decades, that has been worsened by a growing worklessness problem over the last few years. Measures aimed at addressing these issues, higher investment and labour market reforms, could improve the long-term competitiveness of the UK economy. It’s a strategy that’s just not been subject to much heraldry and fanfare, and it’s all a bit, how should I put it? Dull.

Competitiveness is at the heart of any economic strategy. If we want to see significant growth again, here in Guernsey, improving our competitiveness is not optional – it’s essential. Competitiveness a bit of an abstruse concept even to seasoned economists, but its implications are anything but. Our friends in Davos, the World Economic Forum, publish a global index which offers a useful framework, assessing factors such as government efficiency, innovation, and infrastructure.

While Guernsey isn’t included in the rankings, it’s clear our competitive position hasn’t improved in recent years. The degradation of our transport links is one obvious example, but inefficiencies in governance and decision-making are just as significant – and often harder to quantify. But yes, given enough time and pecuniary inducement one could probably calculate the economic costs of the sclerosis of our system of government.

One sector where our decline is painfully evident is financial services and the growing compliance costs. The chart above plots share of GDP of financial services and share of GDP of professional services since the global financial crisis. I’ve adjusted the published data to account for the recent profit mis-statements in the banking sector.

As is pretty evident, business services has been accounting for an increasing share of economic activity, while the other, financial services, our export sector, has been in decline. If you consider professional services as effectively an input cost to the exports of the financial services sector, you don’t need a PhD to see that our international competitiveness has worsened.

Just a caveat, this is is a very simple rule of thumb, regulated financial services are our exports, what’s sold to international clients. Professional services, accountancy, audit, business consulting, compliance etc, are generally services sold domestically to the firms and entities selling those services. It’s a simple distillation of the economy, don’t treat this as completely gospel, but as a broad-brushed illustration of what’s been happening, it serves as a decent enough exposition of the issue.

This erosion of our economic foundation makes it harder to tackle other challenges, the public sector costs of changing demographics being the obvious one, but there are many others, including my personal pet issue, climate change. Yes, I know I harp on a bit on this one, but like I said it happened to be one of the late John Prescott’s too, and it’s a serendipitous endpoint.

The recent COP29 summit may have passed with little fanfare, but the issues it sought to address are not going away. Blink in Guernsey and you’ll have missed the whole shebang. It wasn’t a great success, the latest climate commitments were poor, but there were one or two successes, including agreeing rules for international carbon trading.

But if we are to achieve our climate commitments and play some role on the international stage, we’ve got to start improving our competitiveness because a stronger, more dynamic economy is going to be necessary to provide the economic resources we’re going to need to take on this global challenge.

The States can’t tax us back to growth, we’ve got to be honest with ourselves about this and address the competitiveness issue soon.