At the end of May 2016, people in the UK owed £1.479 trillion, up by an extra £773.78 per UK adult on May 2015.
Newly-appointed Chancellor of the Exchequer Philip Hammond has said that he’s prepared to “re-set” the government’s economic policy in the autumn, if it becomes clear that the country is suffering after-effects from its departure from the European Union. This is a wonderful piece of sleight of hand, a means of shifting the blame for the coming, even worse financial woes onto those poor, ill-advised voters who put their ‘X’ in the Leave box. The truth is, our economic problems are deeply embedded and have been gaining momentum for decades.
Having said that, it’s true that Britain needed Brexit like a hole in the head. The titanic struggle to keep the country afloat has been going on for longer than any of us can remember. Now Brexit has arrived to torpedo any hopes of an early recovery; and the good ship Great Britain will once again find herself keeling over, lurching at yet another crazy angle, but this time without the luxury of lifeboats.
Eighty years ago, John Maynard Keynes published his seminal work, The General Theory of Employment, Interest and Money. Although there had been quite a lot of theorising about economics before that time, the book did for economics what Einstein‘s General Theory did for physics. An increase in public spending would lead to more investment and jobs and thus more income, in a virtuous circle. Henceforth, government policies would lean heavily on theory, whether interventionist, such as the Attlee government’s carefully-planned reconstruction policies after the Second World War, or non-interventionist, such as Margaret Thatcher‘s approach.
Margaret Thatcher, together with her Chancellor, Nigel Lawson, saw Keynesianism as stifling. Her watchword was de-regulation; she viewed government involvement in industry and commerce as damaging interference in the workings of the capitalist “machine”. Laissez faire “Thatcherism” included de-nationalisation of key industries, legislation to curb trade union powers and the de-regulation of financial markets. In order for the machine to work smoothly, it was critical to keep production lines running, to enable what is known as “Fordism” to flourish.
But while Thatcherism sought to radically alter collective bargaining arrangements that had been an important cog in the machine, tying the hands of union negotiators, it let loose the shackles that were seen to be restraining financial markets. The theory was that removing barriers to private investment, such as inadequate availability of money and the perception that trade unions were too powerful, would increase profits and stimulate investment, in a (non-Keynesian) virtuous circle. (Although Thatcherism has been characterised as a personal project of Margaret Thatcher, in reality it was simply a somewhat more extreme version of traditional Conservative policies).
1986 saw the implementation of the financial ‘Big Bang‘. De-regulation of various controls on the activities of financial institutions led quite swiftly to much greater globalisation of financial marketplaces and the establishment of London as the world’s leading financial centre, made all the easier by concomitant improvements in computer networking.
I watched all this with great interest. I knew from personal experience that banks (in particular) had been hemmed in, historically, by both legislative controls and the need to maintain an image as being almost immune from the workings of day-to-day commerce – above it all, as it were. Things had already been changing, though …
In the mid-‘seventies I’d worked on the launch of the Lloyds Bank ‘Black Horse’ advertising campaign, as a media planner at the McCann-Erickson ad. agency. The campaign commenced with a two-minute commercial at Christmas, bringing to life, with all the impact of the colour, sound and dramatic music that TV advertising could muster, a logo that had gone virtually unnoticed next to the doorways of the bank’s high street branches. From a purely academic point of view, it’s fascinating to see the very recent change of advertising strategy by Lloyds, in ditching their cutesy cartoons and again harnessing the kind of powerful imagery that was so successful when they first embarked on brand-building …
Lloyds wanted to be seen as more approachable, more friendly. The strategy back then was to run ads. that emphasised the various ways in which it could be helpful. But there were still limits. At the end of one meeting at the bank’s HQ, when the creatives had presented the latest batch of ads., they pulled out an advertisement that they just wanted to ‘bounce off’ the client. It was a press ad. that would sell the idea of Lloyds as a place to go for advice about insurance. The marketing manager looked stunned – “I’m sorry, old boy. There’s no way we’ll ever be able to sell insurance. More than my life’s worth …” Lloyds had begun a ‘humanising’ process that would soon spread to other banks and other financial institutions. But for all their attempts to appear more open-handed with their funds, there were still major constraints on what they felt able to do for their customers.
In tandem with all this, the Access credit card, launched in 1972, gained a hold; people started to warm to the idea of easy credit; new credit cards appeared; and the “I Want It Now” culture began to develop.
The financial Big Bang was an event. It happened on a specific day – 27th October, 1986. Its effects wouldn’t just be felt in the world of finance, of course: it had implications for the whole of UK industry and across the globe. I could see that it also had profound implications for advertising, creating all sorts of opportunities for various kinds of clients. I wrote a piece for the advertising industry journal Media Week, covering that very topic.
But, in the intervening years, we’ve seen precious little evidence that anyone has the answer to the conundrum of how to maintain steady growth and a stable economy. Along with all the economic theorising, the ability of media coverage to magically transform ordinary elected politicians into powerful and convincing brands has hoodwinked us all into believing that it will all come right soon.
That, at least, has tended to be the way of the world until now. But if Brexit tells us anything, it’s that a lot of people don’t buy the imagery any more. They’re concerned that nobody knows what the hell they’re doing. As they stand on tiptoe, feeling the cold tide of debt rising remorselessly around them, they look around for a lifeline – some person, some theory, some way out. “Out” sounded good at the time of the referendum. “Taking back control” – hmm …
To protect our pensions, jobs and way of life, the economy needs to grow. We need people to spend money, companies to invest and exporters to sell goods and services abroad. Printing money (“quantitative easing”) appears to mean that banks simply grow their own store of funds, without passing it on in loans. Very low interest rates don’t seem to be doing the trick either. On this front, all the talk currently is of the looming threat of negative rates. As of March 2016, the European Central Bank has been imposing a negative rate (currently – 0.4%) on a small number of commercial banks. So funds they deposit with the ECB shrink by that amount over a year, rather than gaining interest.
The Bank of England and its central bank cousins in other countries want their domestic banks to lend more money, to increase liquidity in their economies and stimulate spending of all kinds. The old bugbear of inflation was zapped many years ago. Oil prices seem stuck in the mud. People just won’t spend enough. And now we’re faced with the unthinkable prospect that the capitalist machine is slowly grinding to a halt. There are even whispers that, in the not-too-distant future, negative rates will be imposed on personal deposit accounts, in an effort to get more retail customers to go out and splash the cash. I don’t know about you, but I’d find it pretty infuriating to open my online deposit account statement one day to find that it was costing me money to keep my savings in the bank.
But wait … with such low interest rates, is it really true that people are cowering in their bunkers, watching every penny, frightened to spend? Well yes, many are; but the corollary of low interest rates is that for some it’s pretty easy to get their hands on a loan. Those whose financial situation is rock solid are in a more powerful negotiating position than ever before. The world could be their oyster; but in an economy that is so unpredictable, even the well-off are tending to look to the longer term. And that means they spend less than they would otherwise have done. At the very top of the market, they invest in property in London, though even that safe haven may be at risk, judging by recent price trends.
With banks worried about potential bad debts and holding onto what they’ve got, the Chancellor’s only real option this autumn may be helicopter money. The image is of a government helicopter circling overhead and dropping money onto the population below. In reality, this would involve the Treasury circumventing the banks and giving people the equivalent of a tax rebate, directly into their bank accounts, to go out and spend. But would it build confidence? Would it reassure people that a steadying hand is finally on the tiller?
This situation doesn’t seem to be one that is going to improve anytime soon. According to the Office for Budget Responsibility’s July 2015 forecast, total UK household debt will reach £2.551 trillion by Q1 2021, with average household debt rising to £94,481. That forecast was made well before Brexit, of course.
Women and children first …