Andy Sloan: (Let’s hope) the only way is up

I remember the exact moment Labour won the 1997 general election. It was something like 3 or 4 o’clock in the morning and, in the part of north London I was living in at the time, there were fireworks. Not just one or two, they went off for around half an hour or so. It was a bit surreal, but it caught the mood of optimism that surrounded Labour’s victory. We all remember the Prescott shuffle.

That political optimism of 1997 seems so naive now, from a different era. Those hopes of a better future being dashed on the rocks of the 21st-century state of polycrisis – war (Iraq, the Arab Spring, Ukraine and Gaza); economic instability (the financial crisis, the euro crisis, quantitative easing and inflation); and environmental crisis (climate change and Covid). Optimism today is thin on the ground, we’re perilously close to global conflict, contemporary historians are already labelling present times Cold War II (clearly a bit hotter second time around).

So Rishi Sunak getting soaked calling the UK general election outside 10 Downing Street last week seemed a perfect metaphor not just for the Conservative Party’s prospects but our whole political times.

‘Give the Tories five more years and things will only get worse,’ is hardly inspirational campaigning from Kier Starmer. From where I’m sitting, Labour’s election pitch contains little promise of sunlit uplands, merely that they’ll be less rubbish than the present lot. A low bar, uninspiring stuff. Perhaps I’m being unfair, after all, the axiom is that oppositions don’t win elections, governments lose them. But I have no idea what Labour might do other than water the plants till it’s time to hand the keys back to Number 10, possibly in more than a decade’s time.

Which is worrying because from where I’m sitting (clearly, I do a lot of sitting) there are an awful lot of things to fix. In my more hysterical moments, as my regular reader knows, I worry that the whole Western economic order is under threat, from enemies without and within, placing our fortuitous economic place in the world in peril. Before I throw in interest rates, government deficits and secular stagnation, let me remind you we never did work out after the financial crisis how to wean the economy off ever-increasing levels of debt. And, while I’m no economic hippy, despite there being a small window in the middle of Covid when just about everyone agreed, we never did ‘build back better’. That’s enough for a few sleepless nights.

It remains to be seen if significant economic issues take up much airtime during the general election campaign. Bringing back national service is clearly a much bigger crowd pleaser.

But back to the main point, perhaps I’m being unfair. After all, Tony Blair and Gordon Brown came to power promising to stick to Tory spending for the first three years of a Labour government. Rachel Reeves has only copied that strategy. But Blair and Brown obviously had plans in a way that many suspect that Reeves and Starmer do not.

Notwithstanding, the UK election result will be felt in Guernsey. The health of the finance sector and our economic wellbeing is inexorably tied to two things: 1) the state of, and prospects for, the UK economy and its finance sector; and 2) the UK government’s attitude to offshore financial centres. Regards point 1, global and UK economics haven’t been favourable to offshore finance for many years, hence its decline, and regards point 2, a Labour government is likely to be more, not less, antagonistic to us. And antagonistic in an effective way, not in a rude, gauche, indefensible, Andrew Mitchell kind of way.

I’ve heard it said in certain quarters that, counter-intuitively, Guernsey does better under Labour regimes because they’re not as knowledgeable in finance as the Tories. That perspective disrespects the fact that it’s the same civil service that advises whichever government is in power and ignores history. The whole OECD harmful tax regime kicked off in 1998 when Labour was in power, as did the global tax transparency initiative back in 2009, which was pretty much fronted by Brown. So yes, have no doubt, a Labour government will be impactful here and we need to do much more to defend our existence. Much, much more work needs to be done in making the positive case of our economic role. And a much, much better job than the recent Frontier Economics report. But that’s a story for another day.

But there were two elections whose date was set last week. Our own general election was set for 18 June 2025. And there is a startling similarity to one of the economic issues facing politicians seeking election both here and in the UK. Both need to resolve the problem of their economies failing to deliver the necessary economic growth to fund the growing costs of public services. It’s the topic that’s haunted this States term.

The president of Policy & Resources was right about one thing the other week when he pointed out that health has been the primary cause of growth in States revenue spending over the last decade. It’s outstripped any of the projections made for it.

As I highlighted in a report early last year, the number of nursing staff grew by over 40% in 10 years following 2011 and the wage bill doubled (albeit in nominal terms). The UK faces similar spending pressures.

I was asked in an interview recently, what was the one thing I’d do to improve the prospects of the UK economy? My answer was reform the NHS and fix public sector productivity. OK that’s two things, but the point is we both face similar issues on health spending. One of Blair’s notable targets was increasing UK health spending to the EU average, but as a share of GDP spending that has now doubled since 1997. Sloan’s law is that things can be unsustainable for a very, very long time, but this kind of rise in health spending cannot continue.

The upshot of weak growth and higher spending is an increasing tax burden and people feeling poorer, if not actually becoming poorer.

The result is a growing public anger, a preoccupation with inequality, and a growing suspicion of the capitalist wealth creation process rather than a focus on economic growth as a solution. Hardly an auspicious mix for optimism but fertile territory for the Pikettynistas.

Turning back to optimism, the States Accounts were published yesterday [before my filing deadline]. I think there’s a good chance they’ll surprise on the upside. Capital spending isn’t taking place at anything like the scale it’s being talked about and corporate tax revenues should be getting a boost from banks earnings from net interest income with the more normalised interest rate environment. Add in a bit of this and a bit of that and my guess is that the overall position should be improved. Though that’s all conjecture, despite being a member of the Fiscal Policy Panel, I’m not privy to the accounts. A point the Fiscal Policy Panel made last autumn was that it felt that the States’ fiscal path had been unsustainable for some time. I think that’s still likely to be the case going forward. The long-term position is a much bigger fix.

Perhaps this is all too abstract an economic issue and it’s too much to expect our local politicians to fix this common global economic problem? There are plenty rather more straightforward local economic problems to sort, essential to maintaining our economic competitiveness and paying our way in the world. The rising regulatory burden, the housing shortage, transport issues, energy costs and the cost-of-living crisis to list just five. Can our local politicians really do much to improve any of this? It has to be possible, surely? Let’s hope so. Because if not, the consequences are a bit frightening to consider.

So let’s look forward to the result of 18 June 2025 with enthusiasm, and sing along with D:Ream.

‘Thiiiiings can only get...'