Britain moves closer to the brink

Some 300 years ago in the 1690s, merchants and aristocrats in Scotland had a big money-making idea. They would settle a Scottish colony in the “New World”. They chose Central America, a place called Darien and it turned out to be a disaster.

The Scots took warm tweed clothes to the tropics. The native people were not interested in the trinkets they brought. The Spanish navy tried to put an end to the scheme, as did rival merchants in London. Disease, especially malaria, helped wipe out hundreds of the colonists. About 20 per cent of the money in circulation in Scotland was invested and lost. This economic disaster brought about profound political change, as the Scottish parliament in 1701 voted to dissolve itself and instead send members to the English parliament in London.

Economic upheavals lead to unpredictable political upheavals. It happened in America in the 1930s during the Depression. By 1936 President Franklin D Roosevelt’s “New Deal” fundamentally changed the relationship between US citizens and the federal government. It happened again after the oil and financial shocks of the 1970s. In the 1980s former US president Ronald Reagan and former British prime minister Margaret Thatcher rolled back the state and created a new political consensus based on smaller government and the privatisation of state-owned enterprises.

Right now another economic upheaval has begun. The political consequences are unpredictable, but again the relationship between citizens and the state is likely to change profoundly. Coronavirus plus the economic dislocation it has caused has hit Britain as the further dislocation of Brexit is about to become a reality.

According to the British Office for National Statistics the UK economy shrank by 20.4 per cent in April, the biggest monthly contraction in history.

Astonishing though this sounds, it is hardly surprising when most shops, factories, schools, universities, offices and restaurants have been closed to fight the pandemic.

April, as the poet T S Eliot once put it, is the “cruellest month.” The economic impact in May and June will be less because the coronavirus lockdown has been eased. But then came news from the Organisation for Economic Co-operation and Development (OECD), which brings together the world’s 37 richest countries. Britain will suffer the worst recession of all 37 nations, according to OECD predictions. It forecasts up to a 14 per cent shrinkage with one in 10 workers unemployed.

France, Spain and Italy are also expected to perform badly. Of course forecasts may be wrong. The big unknown factor is whether OECD countries will suffer a second severe wave of coronavirus infections. But even without a second wave, the UK's dependence on services rather than manufacturing means Britain is particularly susceptible to economic dislocation this year.

Globally, in the OECD’s benign scenario with a limited coronavirus second wave, the world economy will shrink six per cent. The OECD’s chief economist Laurence Boone says that “by the end of 2021 the loss of income (globally) exceeds that of any previous recession over the last hundred years outside wartime, with dire and long-lasting consequences for people, firms and governments.”

The implications of all this, even in the best case, are that economic shocks mean world leaders will be forced to rethink what they have done well, and how to change things for the future.

Britain is specially vulnerable for another reason. We are supposed to leave the EU with a deal of some sort by the end of December 2020. The UK-EU talks appear to be going nowhere fast, possibly even going backwards, and “no-deal” seems likely.

Moreover, Britain’s Prime Minister Boris Johnson has been criticised for this country’s slow and confused reaction to the pandemic. One leading researcher has suggested if Mr Johnson had acted just a week earlier he could have saved half the lives lost to the disease. Discontent is not confined to those who are political opponents of the government. Internal criticism is privately fierce, though often muted, in public inside Mr Johnson’s own Conservative Party.

One Conservative politician told me he feared Mr Johnson’s shambolic style was fated to lead to disaster. A highly regarded Conservative writer and founder of the Conservative Home website Tim Montgomerie threw in an explosive commentary this week in The New Statesman. He said Mr Johnson simply does not listen to advice and that his own MPs are increasingly fed up with his lack of leadership. Mr Montgomerie wrote: “They no longer believe in the Prime Minister in the way they did. They still want their faith to be restored, but does Johnson realise the scale of what will be required to ensure that? I hope so. I fear not.”

The Darien scheme failed because those who led it did not know where they were going, what they were doing and what they needed to make the grand scheme work. Brexit since 2016 has had the same problems. Coronavirus, the dire economic predictions and Brexit taken together suggest that Britain is heading for both economic shocks and a profound political re-evaluation. In the political market Mr Johnson’s reputation risks being downgraded to junk-bond status.

Gavin Esler is a journalist, author and presenter