Historically, the City has leaned heavily to the Tories. In part, this was ideological with practitioners mostly believing in free enterprise capitalism, the small state and low taxes. In part, too, it historically reflected the background of most of its leading figures: male, privately educated and upper middle class. The frontier between finance and the Conservative Party was always porous with movement both ways. Rishi Sunak moved from being a hedge funder, to representing a safe Tory seat and then becoming chancellor. Former PM Theresa May’s husband continues to be a senior figure at an American fund management company. Much party funding is sourced from individual financiers. Prominent City entrepreneur Michael Spencer and businesses associated with him have given millions over the years. He served as party treasurer from 2006–10, radically improved the party’s financial position and was rewarded with a peerage in 2020.
So how is the current government viewed from the City? The short answer is with cynicism, tinged increasingly with bemused contempt and incredulity. There is, however, little sign yet of any willingness to embrace the alternatives, as was somewhat reluctantly the case with New Labour; the pro-Tory stance seems as good as hard-wired in. The anti-Tory vote (which includes the author) is still very much a minority position. Boris Johnson enjoyed a lot of support in the City, more because he was seen as a winner, and the man to see off the dreaded Corbyn, than because of any confidence in his abilities or policies, which were a secondary concern (if they were considered at all). Since his accession, he has been engulfed by two crises: one, hard Brexit – of his own making; the other, Covid-19 – an external shock exacerbated by his own ineptitude. Johnson has given us all a masterclass on how to fail to rise to a challenge, and appears to be a man who, as was said of the late Duke of Windsor, is at his best when the going is good.
First the cynicism. Johnson will, of course, be removed if his ineptitude and plunging popularity look like endangering the party, and that is what finance and the betting markets ultimately expect. Today one can get odds of 5:1 on Johnson stepping down in the first quarter of 2021. This would have been inconceivable a year ago. As to his trumpeting about leaving the EU transition period without a deal, the markets believe that this is a bluff, as shown by the recent resilience of the pound. The expectation is that bombastic rhetoric is exactly that, and that a deal will be reached, with both sides making some concessions and winning some symbolic gains.
The template is the Withdrawal Agreement, once hailed by PM Boris Johnson as an ingenious triumph of British statecraft and which the very same PM is now trying to unpick, as the widely identified (at the time) complications come back to bite him. My guess is that any deal will involve a ‘win’ for a tabloid Brexiteer enthusiasm such as fishing, an industry that has romantic symbolism, but is at a national level economically unimportant, employing fewer full-time employees than Poundland.
If this prediction is wrong, whether because of a tactical error by either side or because the government really believes the economic downside is manageable and a price worth paying, then the consequences will be devastating for British manufacturing, trade and agriculture. The talks themselves revolve around physical goods. The City in particular and service sector in general are rather left to their own devices, and the former could, at some cost, weather a ‘no deal’. Indeed, in some quarters it can be a source of profit. There are corners of the financial sector that can and do position themselves to gain from chaos. Many of the firms in question were prominent funders of the ‘leave’ campaign.
Next the contempt. Johnson chose to surround himself with a circle where loyalty is favoured over ability. Cabinet government has effectively collapsed, with real decisions taken by Johnson and a small coterie of advisors led by the self-proclaimed weirdo and super forecaster Dominic Cummings, whose weirdness is more firmly grounded than his forecasting ability. The Covid-19 crisis has exposed the inadequacy of this model. Johnson, in his customary position of both wanting cake and eating it, tacks between two incompatible positions: reviving the economy at the expense of protecting public health, and prioritising public health over the economy. The attempt to avoid making a choice, and the failure to use the time gained in the spring lockdown to put coherent measures in place to contain the virus while permitting an orderly restart of the economy, have ensured that Britain has both one of the worst health records in the developed world and the worst economic outturn.
A second deferred decision lurks behind this first one: how to pay for it all? Johnson and the populist wing of the party advocate keeping taxes low and spending high and hoping for the best. The best in this case is that global capital markets don’t spot this and decide to drive the pound down and inflation and interest rates up. The more traditional ‘sound money’ wing of the party (and this is where the majority of City opinion and the chancellor stand) favours some combination of cutting spending and raising taxes to restrain the ballooning deficit. This Austerity 2.0 will bring further misery to the poorest and most disadvantaged, while possibly alienating some core support as well if taxes bite the party’s electoral core. Either way the choice is an unappealing one and has the potential to divide party and nation for years to come.
Under the incredulity category, the biggest surprise has been the scale of naked cronyism and corruption, as even some of Johnson’s prominent initial backers have admitted to me. One of the least attractive aspects of the modern British version of capitalism is the extent to which, under the pretext of introducing commercial discipline and management efficiency, the state and its activities have become a milch cow for a network of consultancies, outsourcers and politically connected entities to grow fat at the public expense. If they were any good at what they do, that would be some compensation, but Serco and Dido Harding have shown that, so far, the rewards for failure on the private sector side of the public/private interface are considerable. In the public sector, six civil service departmental heads have been ousted, while no ministers have resigned over their own performance or complicity. Lady Harding’s Tory MP husband is the government’s ‘anti-corruption champion’. Let no one say Dominic Cummings lacks a sense of humour.
Former Bank of England governor Mark Carney famously remarked that the UK is reliant on “the kindness of strangers” to finance its current account deficit. Those strangers are beginning to take notice. Moody’s, one of three rating agencies that score the creditworthiness of countries and large corporations, downgraded the UK’s rating earlier this month. Aside from the damage wrought by the Covid-19 crisis and Brexit uncertainty, they explicitly cited: “the weakening of the UK’s institutions and governance”.
Stock markets are imperfect mirrors of national performance, but the FTSE 100 is 16 per cent below where it was at the close of the 20th century and 8 per cent below where it stood on the eve of the Brexit referendum. Over the same two periods the broadest measure of global stocks is up 180 per cent and 59 per cent respectively.
This is not all about Britain’s political or economic management, or Brexit, but speaks to a deeper malaise of short-termism and failure to embrace the future that populism and its embodiment in the current government are so determined to deny. The City is not an innocent party in this, and in some areas is very much part of the problem, but that is a topic for another day.