Britain, Italy Without The Weather

28th Jan 22

Equity businesses keep calm in political turmoil

We like to see ourselves as a solid, stable, reliable country really. Different from certain, shall we say more volatile, nations. We think of Britain as representing consistency. Personified in many ways by Her Majesty, The Queen, embodying calm and continuity in a world open to madness. The sort of place where those individuals brave enough to run a business could go to bed each night with confidence about what matters will be like when they rise again for the next working morning. There may be many matters for a company to consider but political instability is not one of them.

It has not felt quite like that recently. If we are candid about it, this has not been that true for some time. We did, in fairness, have a more certain order for the better part of three decades, with an 18 year stretch of Conservative Party rule followed by a 13-year run of a Labour Government that did not, as a norm, appear to want a serious dispute with the business community. There were some bumps, particularly during the time when the Major Government saw its majority erode badly amid multiple embarrassing moments, but that felt like the exception, not the rule. Business carried on.

The past 12 years or so have been an awful lot more turbulent. Superficially there has been stability and the appearance of continuity because the Conservative Party has been in office for that period. It has, though, managed that outcome in a bewildering variety of arrangements. We had a coalition between the Conservatives and Liberal Democrats without precedent in British history (the only example of such a peacetime alliance between two whole political parties, not one big one and faction of another one). That was followed by a Conservative Government with a small majority for two years. Which in turn rolled the dice and found itself a minority administration at the behest of the Democratic Unionist Party for survival. Act IV finally produced a Conservative Government with the sort of majority familiar from the Thatcher and Blair eras, but which now appears to be at odds with itself over what is a booze-up and who should have been able to spot one and shut it down.

It is not, though, merely interpreting the Fifty Shades of Blue of recent years that business has had to contend with. It has also endured two national referenda, one on the electoral system in 2011 that had such a lop-sided result that almost everyone has forgotten that it happened at all and another on Brexit which was and still is utterly seismic. We have had a referendum in Scotland where the fate of the United Kingdom itself was on the line but which, in the opinion of the SNP clearly, has not settled the matter. For the record there was one in Wales in 2011 on the powers of its Assembly too. Oh, and for more than four years the Labour Party had a leadership which overtly loathed capitalism.

We have reached a point at the start of 2022 where who the leading political personalities will be and what policies they will adopt by the end of the year is truly something of a mystery

In short, there have been times when Britain has felt like Italy without the weather. Italy used to be the symbol of instability that we saw ourselves as the polar opposite to. Italy had endless changes of government (even if certain parties always appeared to hold most of the cards), it had shameless populists, regional separatists, surreal scandals and destabilising referenda. We had none of that. We were boring by comparison. Yet we have reached a point at the start of 2022 where who the leading political personalities will be and what policies they will adopt by the end of the year is truly something of a mystery, while Italy has just been named ‘Country of the Year’ by The Economist. Whether the UK will still be a single nation by 2025 is a matter of debate. What our relationship with the rest of Europe will be by then is one for the crystal ball, possibly a set of Tarot cards. Strewth. Covid, especially with the Omicron variant seemingly contained, looks like the least of our issues.

The link between political predictability and commercial capabilities is actually a pretty weak one

So, what should the respectable and sensible finance director or other corporate leader do in these circumstances (besides the obvious, investing in one of those stylish looking wine fridges that was smuggled into Downing Street along with a sturdy suitcase to keep it topped up on a regular basis)?

The perhaps counter-intuitive answer is, like the white wine in question, be chilled about matters. The link between political predictability and commercial capabilities is actually a pretty weak one. Take Italy. Virtually every adult there seems to have had a turn at being Prime Minister. It just so happens that they have had the fortune to find a serious grown-up in charge at the moment (Mario Draghi, the former head of the European Central Bank), but he will probably be moved on before the next scheduled election (no later than June 1 2023) for committing the crime of being too successful. Yet almost 75 years of what, until recently, the British would have viewed as the sort of uncertainty that would never be witnessed here, have not stopped swathes of northern Italy being consistently among the wealthiest areas in Europe. Milan simply disregards what it views as frivolity in Rome.

Nor is this an isolated incident. If the American economy depended for its health on the coherence of the American political system, then California would today have a GDP about the size of Chad’s. Washington is beyond dysfunctional. Gridlock does not begin to describe the dire culture that exists there. There is the expectation that the Republicans will probably win back control of the House of Representatives in November and matters will be even worse as absolutely nothing happens for the two years thereafter. Will this lead Silicon Valley to shut up shop? That does not seem very likely.

A business based on strong fundamentals will be able to cope with the fact that we are living in an era of British politics which makes In The Thick Of It look like a model of public administration. The most important decisions affecting the UK economy in 2022 were not the responsibility of any set of ministers at all but the recommendations of the Vaccine Taskforce in mid-2020, which mean that we are probably better placed to make the transition towards living with COVID-19 on a long-term basis while restoring robust economic growth than any other comparable country in Europe.

There are, in short, multiple reasons for those at the helm of a UK company to be an optimist. The single biggest menace out there involves energy prices, but that is broadly the case internationally. That our politics appears to have become the one example of a pantomime season that never stops is, admittedly, not ideal, but is an even bigger argument for a CFO looking at the accounts, not the news. If Italy can cope with upheaval for decades on end, then, we too can surely deal with a degree of disruption. Just a shame that we cannot import Italy’s climate to assist us in coming to relax about it.