The “Doomsday Cult” vs. the Trade Unions: Confrontation Builds in the UK
Faced with double digit inflation and runaway cost of living, the United Kingdom is facing a very hot autumn under the leadership of what some investors call a “doomsday cult” . On Sept. 23, Chancellor Kwasi Kwarteng and Prime Minister Liz Truss announced the government’s “mini budget”. It includes a tax cut for the rich, which will slash 45 billion pounds from state revenues, and an energy program which bails out the energy companies, while it foresees borrowing an extra 411 billion pounds over the next five years to fund “growth”. How the energy plan, which they optimistically claim will cost 60 billion, will be financed, was not presented.
The announcement virtually immediately sent the pound plunging nearer to parity with the U.S.dollar (spot-trading at 1.0552 to the dollar on Sept. 27). Many in the City speculate that it could go below parity by the end of the year. At the same time, yields on government bonds spiked to levels not seen since the 2008 financial crisis.
This led Paul Donovan, chief economist of UBS, to comment in his Sept. 26 blog: “Advanced economy bond yields are not supposed to soar the way UK gilt yields rose. This also reminds investors that modern politics produces parties that are more extreme than either the voter or the investor consensus. Investors seem inclined to regard the UK Conservative Party as a doomsday cult.”
According to British media, the Bank of England could intervene with a new interest rate hike beyond the current rate of 2.25% set less than one week ago.
In addition to widespread worker actions (cf. SAS 38/22), British trade unions are attempting to put forward their own proposals. The Trade Union Congress has called for creating a nationalized energy company that could save each British household up to £4,400 annually, while giving the government between £63 billion and £122 billion in revenue over the next two years. In a Sept. 24 report, the TUC demonstrates that a “public energy champion” could own low-carbon energy projects including wind, solar, tidal and nuclear power. Excess profits generated by such a public company, which might be modeled after France’s EDF, could be deployed to cut bills and insulate homes, improving their energy efficiency.
The study shows that a fully privatized energy generation market is responsible for the higher consumer bills, the non-modernization of the energy infrastructure and the shortage and lack of investment in the workforce. For TUC general secretary Frances O’Grady, “Privatization has led to higher bills and colder homes. We need a fairer, greener approach that stops energy companies using U.K. families like cash machines.”
Last July, the TUC made a proposal to nationalize five of the biggest energy companies, including E.ON, EDF, Scottish Power and Ovo, at an estimated cost of £2.85 billion. That would be far cheaper than bailing out private companies.