The Wrong Question

A strategy of stopping Reform will delay and worsen Britain’s reckoning. It's time to take The Sniff Test.

The Next Election

The relief was tangible. After a week of worry that Reform might win, the media had a different story to tell. The Labour stronghold of Caerphilly had fallen to Plaid Cymru. Lindsay Whittle was a winner after 13 previous electoral defeats.

Reform came second with 37%, which is just above its one-third share of national polls. These polls trigger panic given that Labour won a sweeping majority with a similar share of the vote. Could Nigel Farage be Prime Minister?

David Runciman hosted a live discussion on the possibility. He doubled down with an episode on strongmen, in which he compared Farage to Trump, Xi and Viktor Orbán. The message is unmistakable. If Nigel Farage could be Prime Minister then democracy is broken.

The media struggles for a narrative. One moment we’re told Reform lacks the experience to govern and we face five years of failure. The next we’re warned they’ll rip up the fabric of Britain. It’ll either be a total disaster or a complete take-over. Except it’s not going to happen.

Support for Reform is similar to that for the Rassemblement National in France. It won the first round of the 2024 legislative elections. Then the electorate chose candidates most able to defeat it in run-offs. The result is an unworkable patchwork of parties in government that have little in common other than dislike of RN. This is what to expect in Britain after the next general election.

A functioning two-party system does not prevent a diversity of opinion in the UK. The leading parties are coalitions of interests formed before the election. They compromise on policies and present them to the electorate. Then there is then a winner-take-all election between two sides who have had their sharp edges blunted.

Under proportional representation voters choose the party whose policies suit them best. Coalitions come together after the election. It takes time to form a government and there is no advanced knowledge of its policy programme. The assumption is that more radical ideas are diluted in favour of consensus. In principle, both the British and Continental systems reach a compromise.

At least they did. Starmer has withdrawn the whip from 11 Labour MPs and expelled hundreds of party members. While this gives him greater control it reduces Labour’s range of opinions. Alternative views are now expressed by a variety of left-wing parties. There may no longer be the votes for Labour to win an election outright.

Proportional representation works where there is a leading party to corral the coalition after an election. When the parties are in balance there is a lack of leadership. This is the current situation in France where successive governments have fallen because they cannot agree a budget.

Britain faces a similar scenario if the deciding issue of the next election is for or against Reform. Tactical voting in 2024 ensured the Conservatives were beaten. Swap Tories for Reform and a repeat performance is possible, even without a formal coalition of the left.

There are enough votes to keep Reform from power. Yet a combination of Labour, Green, Your Party, pro-Palestine independents, and Scottish and Welsh nationalists will not agree on much. Voters will only know that they are not getting Reform. In its place will be a mishmash of pet projects requiring extra funding. Where will that take us?

How Countries Go Broke

In Ray Dalio’s book How Countries Go Broke he explains the Big Debt Cycle that plays out over a human lifetime. The current cycle started in 1945 and is now on its last legs.

As with all cyclical theories, the predictions are imprecise because short-term factors can delay the reckoning. Reality won’t be avoided forever, however. Dalio lays out the warning signs for us to understand when crisis is coming.

The first is when debt service payments become excessive. The UK now spends more on interest on debt than it does on defence and education combined. Raising taxes does little to dent this because of the scale of the spending. What’s more, higher taxes may make the situation worse if they act as a disincentive to work, invest and even to live in the country.

The second sign is a low savings rate that leaves the country dependent on foreign borrowers. The Office of Budget Responsibility estimates that 28% of UK government debt is in foreign hands. This is 10% points more than the average for advanced economies. There is a huge advantage in being a country that attracts international investors. This lasts only as long as they are confident they’ll get their money back.

A third signal is central bank monetising of the debt. This is what has been happening in all major economies since the financial crisis of 2008. In effect, private debts were nationalised to the point where states are now struggling to balance the books.

The final sign is weakening of the currency. This happens when foreign investors take their money back and domestic funds follow them overseas. A weak currency and a falling share of foreign debt ownership indicates a country has hit the skids.

Dalio paints two broad ways in which countries may negotiate the end of the Big Debt Cycle. His preferred way is with a combination of increased money supply, central government spending, and economic and regulatory reforms. It seems counterintuitive to suggest that more debt and money printing is the solution as well as the cause. The phrase economic and regulatory reforms hides a raft of tough choices.

Economic spending must be productive. Widening welfare payments, hand-outs to unemployed immigrants and growing the bureaucracy, are all unproductive. Building infrastructure and investing in new technologies are better ideas. This is what the centre left means by embracing abundance. Yet the electorate is not getting the message and appears ready for Dalio’s alternative route.

The end of the debt cycle is often tumultuous. At home, the government turns away from capitalism under the banner of common prosperity. Political divisions give rise to stricter and more authoritarian leaders of left and right, whose appeal is they can get things done. There is increased tension with other countries, which are often experiencing their own version of the debt cycle. This leads to economic and, on occasion, actual warfare.

This story of the emerging strongman is how many people see Trump. We’ll hear the same argument in Britain. Farage the authoritarian will be the common currency of social media and the nightly news. Expect a ramp up in the spittle-flecked cries of fascist and racist. Starmer’s comments about the “shocking racism” of Reform MP Sarah Pochin are the small arms fire that herald a far larger conflict.

A Simple Choice

Reform is your party if you oppose environmental taxes, the transgender agenda, and open borders. This was home turf for the Conservatives, but they chased the educated, metropolitan middle-class drift to the left and became irrelevant. At the last election those people voted Labour. At the next they might go Green.

Voters have a choice between social conservatism and big government, or social liberalism and big government. There is no viable option offering economic restraint. Talk of balancing the books will end in failure, as Rachel Reeves is about to find out.

The left is attacking Reform’s economic plans. But they are straight from the socialist playbook. More welfare spending and nationalisation of critical infrastructure. If Reform will bust Britain then so would any party of the left. As long as someone’s shouting tax the rich to solve the problem, the public won’t care about overspending.

This means attacks on Farage for being a Thatcherite fall flat. He may be, but his party is not. Older voters who back Reform liked Thatcher, while to the young she is a distant bogeyman used to scare small children.

Blaming Brexit for Britain’s woes will also fail. Those who backed it do not like politicians pointing fingers because they can’t fix problems. Some notice that Britain has outgrown Germany since 2016. Lost decades due to overspending on posturing are a European-wide issue. Blaming Farage for Brexit’s failure is a non-starter, as he wasn’t anywhere near government at the time.

This leaves the social agenda as the core battleground. Here the fighting will be vicious with minorities caught in the cross-fire. The debate will polarise. One side characterises opponents as heartless, while the other sees them as spineless. The voice of the centre will be drowned out.

The Crisis Will Come

Ray Dalio is not alone in pointing out that we are close to a turning point in history. Britain is far from alone in experiencing a collapse of both centre right and left. The electorate is sending a strong message that it expects the state to do more for ordinary people.

France shows that keeping the right out of power does nothing to alleviate economic problems. There the left stymies Rassemblement National but internal squabbles mean it is powerless to address economic challenges. The one difference is that in France a centrist Prime Minister attempts a measure of restraint. A populist patchwork of leftist parties in the UK will lack that influence.

The crisis will come. It may be forced upon Britain by events elsewhere. The preferred route out is productive government spending on infrastructure, money printing to push down the real cost of paying off debt, and a weaker pound. Were any party to adopt such a strategy, it may struggle to be heard above a cacophony about Reform.

Even with a favourable outcome there will be losers. Savers and pensioners will suffer because interest rates and investment returns will be kept below the rising cost of living. Dalio argues the transfer of wealth from savers to debtors and old to young is inevitable.

An unfavourable outcome might mean financial collapse. This happens when investors lose faith in a country’s ability to repay its debts. Then we might remember Hemingway’s description for how we go broke. Gradually and then suddenly.

The already affluent are in a flap about the possibility of Prime Minister Farage. He threatens their social agenda. They’d do well to ask instead what happens to affluence at the end of the debt cycle.