There is a phenomenon in electricity generation called “Black Start”. That is the, as yet thankfully, theoretical process by which the electricity grid can be refired following a total blackout.
It requires a generating site powerful enough to kickstart the grid and independent enough not to depend, for its own operating status, on grid power. In Scotland, the giant coal station at Longannet was once designated with this task. Nowadays we would rely on the massive pump storage hydro station at Cruachan to restore the light.
This is exactly what the UK economy needs at the moment. The ability to “Black Start”, to take the economy from the slough of despond and austerity into the sunlit uplands of renewed growth. On the basis of Rachel Reeves’s first speech as Chancellor last week, that is unlikely to happen any time soon.
Having pored over the books with these cheerful chaps from His Majesty’s Treasury, the new Chancellor delivered a sorrowful shake of her head and confided in us all that the country’s finances haven’t been so bad since just after Captain Mainwaring had the Walmington-on-Sea Home Guard on parade.
In these far-off immediate post-war days, Labour won a landslide election victory and then, in the late 1940s, brought in a stony-faced Chancellor to balance the books. Sir Stafford Cripps, they said, had a smile “like moonlight on a graveyard” and his policy mix of austerity and sound money ensured that a Britain that had won the war proceeded to lose the economic peace.
That is not to say that the Attlee government did not have substantial achievements to its name – the NHS, welfare state, commanding heights nationalised – but no amount of Labour folklore can disguise the fact that the monetary orthodoxy of the newly-nationalised Bank of England crucified the economy on a cross of sterling convertibility that is the objective of allowing huge sterling balances held around the world to be convertible into other currencies that, in practice, meant into the mighty dollar.
It was because of this preparation to defend sterling that the cheap money policies of Cripps’s predecessor as chancellor, Hugh Dalton, were abandoned and the Bank Rate increased. As it happens, when it came, the 1947 convertibility of sterling lasted a grand total of 37 days, as the Anglo-American loans ran out and Britain baulked at flinging good gold reserves after bad sterling. The objective of current and capital account convertibility was only finally achieved under the Tory administration of a decade later.
Cripps did stabilise the economy through an unyielding fiscal stance. He wore a taxation hair shirt as if it had been tailor-fitted for him. This considerably enhanced his personal reputation as an “Iron Chancellor”, but it also meant that the Labour Party, ushered in by a landslide in 1945, was dispatched from office by a long-suffering electorate in 1951.
The comparisons between Britain post-pandemic and Britain postwar can be overblown, despite the new Chancellor’s anxiety to paint them. But in so far as they can be drawn, they should be ringing alarm bells for Rachel Reeves. Forget the Tory tosh about being the fastest-growing economy in the G7. Right now, thanks to Brexit, the UK economy is six per cent smaller than even its modest trend growth would have achieved and the average person more than £2,000 poorer.
And now yet again, in another moment of crisis, Labour has produced a Chancellor espousing fiscal responsibility at all costs. With her orthodox Bank of England background, Reeves now characterises herself as a “modern supply-sider”, which means that growth should be encouraged by increased productivity, enhanced infrastructure and better communications.
That is all well and good but it is all long-term stuff. There is nothing in it that will supply the “Black Start” to growth that the economy needs right now. And as John Maynard Keynes, whose final economic acts on this earth were to negotiate American (and Canadian) loans for Britain and offer support for Dalton’s cheap money strategy, famously said, “in the long run we are all dead”.
So what is to be done? Well, how about this for a policy? Sack the governor of the Bank of England and clear out the Monetary Policy Committee that sets interest rates. Give the newly-staffed Bank a growth remit to match its inflation objective and the power to recommend fiscal measures to Treasury, instead of relying on the single interest rate club to hammer down on inflation. Instead, drive interest rates quickly down to a more reasonable level, perhaps matching Dalton’s immediate postwar two and a half per cent.
The result will be enhanced investment, a significant boost to confidence, the repair of personal and business finances and a feel-good factor through the economy. It will free up some £20-30bn over the next two years in reduced debt servicing costs, enough to repair the damage to the public realm without resorting to Wes Streeting-style privatisation.
This proposed “Dark Start” would make “finance less proud and industry less poor”. It would liberate the people from 15 years of austerity and be the change of direction that Labours claim to represent but, as yet, has shown little to nothing in its declared policy programme to deliver.
Alex Salmond is leader of the Alba Party and the former first minister of Scotland