Speakers Matthew d’Ancona, is an award-winning political columnist for The Sunday Telegraph, Evening Standard and GQ. Previously, he was Editor of The Spectator, steering the magazine to record circulation. In 2007, he was named Editor of the Year (Current Affairs) at the BSME Awards. In 2011, he won the award for ‘Commentariat of the Year’, the highest honour at the Comment Awards.
Sarah Sands is a Board Advisor at Hawthorn. Prior to this she was editor of the Today programme, Radio 4’s flagship news and current affairs programme. She was previously editor of the London Evening Standard, the first woman to edit The Sunday Telegraph and deputy editor of The Daily Telegraph. Sarah is an honorary fellow of Goldsmiths College, University of London, Lucy Cavendish College Cambridge and a visiting fellow to the Reuters Institute. She is chairwoman of the political think tank Bright Blue, a patron of National Citizen Service and was chair of the Women’s Prize for Fiction.
Sarah Sands spoke to The Rt Hon Caroline Flint about managing change in business and politics.
Given her former position as Shadow Secretary of State for Energy and Climate Change and her current role as co-Chair of the “Getting to Zero” project for the “Onward” think tank, Caroline spoke about how businesses formulate and deliver their ESG strategies.
Listen to the replay of Sarah Sands in conversation with the Rt Hon Caroline Flint.
Speakers The Rt Hon Caroline Flint, during twenty-two years as the Labour MP for Don Valley, Caroline Flint served six as a Government Minister and five years in the opposition Shadow Cabinet before joining the Commons Public Accounts Committee and the Intelligence & Security Committee. A familiar voice on news and current affairs programmes, Caroline has made numerous appearances on Question Time and Radio 4 Any Questions and is a regular political and policy commentator. She chairs the Advisory Board of the Institute for Prosperity, is an Advisory Board member for public service think tank Reform and an Associate for Global Partners Governance. Caroline co-chairs the ‘Getting to Zero’ project for the Onward think tank.
Sarah Sands is a Board Advisor at Hawthorn. Prior to this she was editor of the Today programme, Radio 4’s flagship news and current affairs programme. She was previously editor of the London Evening Standard, the first woman to edit The Sunday Telegraph and deputy editor of The Daily Telegraph. Sarah is an honorary fellow of Goldsmiths College, University of London, Lucy Cavendish College Cambridge and a visiting fellow to the Reuters Institute. She is chairwoman of the political think tank Bright Blue, a patron of National Citizen Service and was chair of the Women’s Prize for Fiction.
Policy preview: boundary review blues Britain is overdue for a parliamentary constituency boundary review. Two efforts to do so since 2010 were both ultimately abandoned, following opposition from both sides of the floor and amid the tumult of the 2016 Brexit vote and its aftermath. In 2021, however, the process is due to get off the ground, with potential major implications for the next general election.
The groundwork for the new boundaries has already been laid by the Parliamentary Constituencies Bill 2019-2021, which received Royal Assent last December. It abandoned previous plans to reduce the number of MPs from 650 to 600 and set the boundary review to be completed by mid-2023, on the basis of registered electorates from last December. Constituencies aim to be within 5 per cent of 73,393 voters, meaning that more than half of the current parliamentary constituencies will have to be redrawn.
This work is to be undertaken by the Boundary Commission, which is non-partisan. Nevertheless, the moves are certain to raise opposition from affected MPs and parties. These tensions may play out in relation to the centrifugal sentiment prevailing in parts of the UK, particularly Scotland, which is set to lose at least one, more likely two, of its 59 MPs. Wales may lose as many as eight of its current 40 seats (though the constituency of Ynys Mon / Anglesey was enshrined as a protected constituency in last year’s Parliamentary Constituencies Bill).
The redistribution of seats around urban-rural divides is likely to have the most significant impact on the political fortunes of the Conservative and Labour parties. While the continued trend towards urbanisation and growing population in London and other major cities may help Labour where new seats are created, population shifts in other areas may help the Conservatives. A number of so-called ‘Red Wall’ seats won by Prime Minister Boris Johnson in the 2019 election, in many cases bucking decades of consistent Labour victories, are areas that have seen population decline. While this means some seats may fall by the wayside entirely, the geographical footprint of the remaining constituencies is likely to expand, picking up rural and less-populated areas, where historically voters have been more Conservative-leaning.
Although Johnson has also vowed to do away with the Fixed-Term Parliaments Act, his sizable majority means that it is more likely than not that the next election will only be held after the new seats come into effect.
Dollars and sense : A (r)evolutionary framework In February, Zambia became the first country to request that it be allowed to restructure its debt under the so-called Common Framework. The nation’s fiscal and economic challenges are not new, and it had already fallen into default last November, setting the stage for a clash between its private creditors and China, by far Lusaka’s largest creditor, over how to make Zambia’s debt sustainable. The International Monetary Fund also started talks with the Zambian government last month, further complicating the picture. But it is the test of the Common Framework that will have the most far-reaching implications.
The Common Framework of the Group of 20 Nations is one of the various initiatives that governments have taken over the last year to help one another through the Covid-19 pandemic. The first major such effort – also organised through the G20, with the support of the IMF and World Bank – is the Debt Service Suspension Initiative (DSSI). This was launched last March and has seen debt repayments to the G20 creditors from 45 developing countries suspended, with a further 28 countries eligible for such relief.
The DSSI has been so significant because China has agreed to take part, although it had historically refused to cooperate with the informal grouping of mostly Western creditors known as the Paris Club. There has been significant concern in recent years over Beijing’s use of ‘debt trap diplomacy’ following its assumption of control of the Hambantota port in Sri Lanka, strategically located in the Indian Ocean, in 2017, but fears that the pandemic would see it seek to escalate such efforts have so far proven unfounded.
The Common Framework was announced at last November’s G20 Summit in Saudi Arabia and builds on the DSSI by establishing a unified set of rules for how sovereign nations’ debts such be restructured. Though the summit was held largely virtually due to the pandemic, supporters of the framework have insisted that support for it among G20 members is strong and unified. They will have to be for the framework to succeed. There has never before been lasting international agreement on sovereign debts, despite repeated attempts to set up a sovereign bankruptcy court. is Zambia presents a strong early test case for the Common Framework.
Private holders of Zambia’s bonds have telegraphed that they hold a blocking share of the debt, which could hinder any restructuring. They have demanded the terms of Chinese debt restructuring be disclosed before agreeing to any of their own. The Common Framework should enable this, although Beijing has demurred from publicly stating how its loans to Zambia are even constituted. If the Common Framework can even make moderate progress in bridging this gap, however, it may prove a key tool in government bankruptcies, particularly in the developing world, going forward.
Power play: Dutch days Dutch voters go to the polls on 17 March, following the resignation of Prime Minister Mark Rutte’s government in January, prompted by the revelation that it wrongly accused thousands of families of welfare fraud. However, Rutte’s People’s Party for Freedom (VVD) has only built its lead in polls in subsequent weeks. 35% of voters appear poised to vote for the VVD, up from the 21.3% it received in 2017. Only Geert Wilders’ far-right Party for Freedom (PVV) is also above 20 per cent in the polls, and then just barely, but as with other previous Dutch elections, most other parties have ruled out considering a coalition with the PVV.
Rutte therefore appears set to head another government, almost 11 years after he first became prime minister. With German Chancellor Angela Merkel not standing for re-election as chancellor in Germany’s federal elections, expected on 26 September, Rutte is poised to become the elder statesman of the European Union.
If Rutte’s VVD performs as well as current polls predict, it will have its choice of coalition partners, but the most natural allies would be those with whom he formed the previous government and who have overseen the interim cabinet in the run-up to the current vote. These are the liberal D66. centre-right Christian Democratic Appeal (CDA) and centrist Christian Union. Some polls indicate the CDA will win enough votes to open up the possibility of a two-party coalition between the VVD and CDA. The centre-left and left are unlikely to play a major role at all, with the Dutch Labour Party (PvdA) a shadow of its former self, having never recovered from the global financial crisis and Eurozone crisis.
Heading a unified centre-right government would set the stage for a more conservative agenda, and if past evidence is any indication, Rutte would likely seek to carry this over into his unofficial role as Europe’s elder statesman (and formally on to the European Council, which guides the EU’s policy agenda). Rutte’s governments had traditionally been allies of the British in their opposition to the idea of ‘ever closer union’ while the UK was still an EU member. More recently, he led resistance to the ‘coronabonds’ mutualising EU debt amongst members, and if a government of only his centre-right allies, would further increase support for Dutch leadership of the ‘Frugal Four’ within the EU. With Merkel set to leave the scene, and Rutte set to secure his position, Europe’s leadership itself may soon be changing to a more cautious tack.
Policy preview: monetary policy and the Treasury Indications of government policy do not always come from ministers briefing journalists or from whispers in Whitehall – occasionally they come via the civil service’s job board. To that effect, earlier this month HM Treasury posted a call for applicants for a new role as the department’s Head of Monetary Policy. While the posting may seem anodyne, it in fact raises serious question about how Prime Minister Boris Johnson and Chancellor of the Exchequer Rishi Sunak view the independence of the Bank of England.
Monetary policy is traditionally the remit of central banks. Economic orthodoxy for most of the last century has held that central banks’ ability to set monetary policy independently of the government is crucial to ensuring the long-term economic stability. The thinking has long been that if governments had the ability to set interest rates, they would be motivated to do so in a myopic manner designed to boost their electoral performances, such as by slashing interest rates to stimulate growth ahead of elections.
The breakdown in the relationship between unemployment, interest rates, and inflation – which has failed to run at an average of 2 percent or higher in developed economies despite over a decade of near-zero interest rates – has left many economists scratching their heads. However, so long as serious deflation is avoided, there are not many political opponents of low inflation. Yet concerns abound about how the poorly understood nature of this relationship is impacting monetary policy, most clearly evidenced by the conclusion issued by the Independent Evaluation Office on 13 January that the Bank of England did not have an explanation for how its quantitative easing policy worked, hindering its ability to build “public understanding and trust” in the programme.
Given the centrality of quantitative easing to not only the UK’s response to the COVID-19 pandemic and its economic impact but that of every other major central bank, renewing research efforts regarding monetary policy is indeed something that the Treasury and other Finance Ministries should prioritise. While the QE that followed the global financial crisis failed to result in inflation, the government has a responsibility to not just assume it will continue to have a non-inflationary impact.
The pandemic portends a crisis driven by a downturn in the real economy, whereas the post-2009 economic impact was demonstrative of the financial economy’s ability to precipitate a crisis in the real economy. Modelling how monetary policy may respond – in the face of renewed inflation or if it continues to remain absent – will be central to developing the government’s decision on whether austerity or continued deficit spending is preferable in the pandemic’s aftermath. The Bank of England’s independence will not go away, but with monetary policy to set to remain the driving tool in shaping the economy, the Treasury official tasked with interpreting its impact will prove extremely influential.
Dollars and sense: trust and the Troika The global container shipping industry stands in a remarkably healthy position as the rollout of a number of vaccines means there is an end to the COVID-19 pandemic on the horizon. After being caught up in market turbulence as the virus spread across the world in the first quarter of 2020, shipping rates recovered substantially in the second half of 2020. As an billions faced unprecedented lockdowns, one common theme emerged – they still wanted to consume even if they could not venture out or splurge on services.
The resulting demand has proven a boon to the shipping industry, which had faced a torrid decade in the aftermath of the global financial crisis. Global trade peaked as a share of GDP in 2008 and has not recovered even as the world appeared to have put the worst impacts of the global financial crisis behind it before the pandemic and the industry was hampered by overinvestment on extremely large container ships that proved less adaptable to the new economic paradigms that emerged. Dozens of major businesses filed for bankruptcy, leading to industry-wide consolidation.
Some 85 percent of global container shipping is now controlled by three shipping alliances. Maersk and Mediterranean Shipping operate an alliance responsible for roughly one-third of container shipping. China Ocean Shipping Company, France’s CMA CGM and Taiwan’s Evergreen make up another alliance, responsible for nearly another third. The tie-up between Hapag-Lloyd and Ocean Network Express, Yang Min and Hyundai Merchant Marine controls another 20 percent.
If the promise of vaccines bears fruit, these firms stand to benefit further. Little new investment into container shipping has been made from outside these alliances as financing has proven hard to come by and the capacity glut caused by the long time-horizon of ship-construction has only begun to fade away.
Meanwhile the demand for shipping is likely to grow further as manufacturers seek to prioritise optionality, constructing multiple supply chains to hedge against the risk of further trade wars. While such a scenario should spell a return to boon times for the industry, the sector’s consolidation raises the spectre of renewed scrutiny.
In 2017, the US Department of Justice launched an antitrust probe into the global shipping industry. It quietly dropped the investigation in 2019, a result of political pressure and concerns that action could further strain the impact of trade tensions. While such a new probe is not likely until the pandemic is in the rear-view mirror, expect regulators in Washington and elsewhere to re-examine the industry’s competitiveness over the coming years.
Power play: spotlight on the Senate Parliamentarian
The post of US Senate Parliamentarian rarely garners significant attention. The officeholder’s role is to interpret the Senate’s own standing rules as well as its ethics and practices. Only six people have held the post since it was introduced in 1935. The incumbent, Eizabeth MacDonough, has held the post since 2012 when she replaced Alan Frumin, under whom she had previously served as senior assistant parliamentarian. The 50-50 divide between seats held by Republicans and those held by Democrats in the Senate, however, will see the role take on a significance not seen in the 20 years at least until the 2022 midterm elections.
MacDonough is not seen as party-political. Appointed by then-Senate Majority Leader Harry Reid, a Democrat, she was retained in the post by Mitch McConnell after Republicans took the Senate majority in 2014.
MacDonough may have successfully navigated the increasingly poisonous political environment in the Senate in recent years, but her largest challenges are still to come. Perhaps the parliamentarians’ most influential role relates to the interpretation of the so-called Byrd Rule, a longstanding Senate convention that allows certain bills to be approved by a simple majority rather than the 60-vote threshold required to overcome a single senator’s filibuster. Legislation is only eligible for passage under the simple majority if its primary impact is on government outlays, typically over the next ten years, rather than policy.
MacDonough faced a handful of rebukes from those on the Republican party’s right wing in recent years as they sought to repeal the Affordable Care Act through such a simple majority, which she ruled against. However, the ruling that most portends events in the coming Congress was the approval, then denial, of a motion brought by Republican Senator Josh Hawley last June. She initially ruled in favour of a move that he had brought requiring a Senate vote on withdrawing from the World Trade Organzation last June, although it rested on a technicality. Yet two weeks later she reversed her position, after the senior Republican and Democratic Senators on the Senate Finance Committee shared a new analysis of the move.
Hawley has since become a household name in the past month for his vocal endorsement of attempts to stop the certification of Joe Biden’s win in the November 2020 election. He has refused to apologise for his perceived role in fomenting unrest at the Capitol on 6 January, having welcomed the crowd as it gathered outside Congress. Hawley and his allies are likely to further seek to challenge the Senate’s established practices, and potentially seek to politicise the parliamentarian’s role. The fact Democrats lack a substantive majority, relying on incoming Vice President Kamala Harris, to serve as the tie-breaker will only heighten the importance of MacDonough’s interpretations of the Byrd rule and other Senate procedures.
Policy Preview: Batteries for Britain Batteries are the new diesel, or so the proponents of electric vehicles would have us believe. Governments across the world – from Australia to China to Germany – appear to have embraced this mantra as well. Britain has attempted such a strategy for over three years now, with then-Business Secretary Greg Clark launching the £246m Faraday Challenge and QUANGO Faraday Institution in 2017.The government seeks the development of a domestic battery industry as part of its promised Brexit dividend. Among the many areas of dispute in the ongoing EU-UK trade negotiations talks are ‘rule of origin’ requirements around the battery industry and electric cars. Rules of origin often depend on the value of components, and EU and UK negotiators have apparently acknowledged the reality that neither has sufficient battery-producing capacity at present for the lion’s share of the value of electronic vehicles to be the result of production from either bloc. But leaked documents indicate that the rules would tighten from 2027, when only some 35 per cent of the value could originate outside the EU or UK to qualify for tariff-free trade between the two.
While neither the EU or UK has sufficient capacity at present, both are already in a race to ramp up such production, deal or no deal. Elon Musk’s Tesla has pledged to build batteries at its planned ‘Gigafactory’ in Brandenburg, outside Berlin, while in in May AMTE Power and British Volt signed a memorandum of understanding to build a roughly equivalent battery-producing factory in the UK. Yet no significant progress has followed the MoU, and the government has also faced criticism for failing to join up its policies, for example with the seemingly counterproductive move of raising VAT on home batteries from 5 to 20 percent this October.
The government may, however, have ideas in mind to jump start the sector related to another more prominent area of the Brexit negotiations, namely state aid. Brussels is reportedly willing to make concessions here if media reports are to be believed, in return for Britain’s reported concession that it will include its terms for such support in the final agreement. There is precedent from Brussels for allowing state aid in the sector, with the European Commission having approved last December a joint research effort by Belgium, Finland, France, Germany, Italy, Poland and Sweden, authorising them to spend €3.2bln in supporting such efforts. In 2021, expect a similar package from Westminster.
Dollars and Sense: Deal with Japan hints at Data Plan On 22 October, Trade Secretary Liz Truss inked Britain’s first post-Brexit trade deal, flying to Tokyo for the occasion. Truss dubbed the deal historic and a sign of the benefits that will finally begin to flow from the years-long process of exiting the European Union. The new Japan-United Kingdom trade deal has unsurprisingly become a lightning rod of debate amongst erstwhile Remainers and Brexiteers, with significant debate over the extent to which it is different from the recent EU-Japan Trade Agreement to which Britain would have been party had it not left the bloc. Critics have noted that Britain has already signed agreements with some smaller Eastern European nations to continue trading under the free trade terms they secured from Brussels in years past, and that the minor differences Truss secured from Tokyo in relation to the EU deal will benefit Japanese manufacturers far more than it will benefit UK exporters.
But there is one key element of Truss’ deal that is noteworthy, even if it is perhaps while perhaps a small victory for now. Unlike the EU-Japan deal, British firms operating in Japan will not face data localisation requirements. Such rules are certainly a technical matter but, suffice to say, data is already a key commodity in modern economies, and is only set to grow more significant. In layman’s terms, British firms will be able to sell services, and software-as-a-service subscriptions, without the need to invest in expensive local servers and related staffing and infrastructure in Japan. If this technical detail of the UK-Japan trade deal can be repeated in others, it could set Britain on a path to become a larger tech and startup powerhouse.
Such data localisation rules require other foreign firms to store data locally in Japan. Japan is not the only country to have instituted such requirements. Russia prominently introduced extremely stringent rules on data localisation in 2016, and the global protectionist wave – combined with the realisation of how valuable data has become – means more countries are likely to implement them in the coming years. Brazil has recently advanced legislation imposing such requirements. Yet while Truss’ talk of the deal promoting a ‘Singapore-on-Tyne’ in relation to the video game industry is primarily aimed at garnering positive headlines from friendly media and the concession may not be enough to significantly impact GDP projections, it sets a significant precedent for other talks. If Britain secures similar provisions in other future trade deals, it will secure a key advantage in the data industry and make it a more attractive hub for tech start-ups.
Power Play: The Keys to US Trade Agenda Markets have welcomed the simultaneous election of Joe Biden as the next President the United States and Republicans’ apparent continued hold on the Senate, where they hold 50 seats. Divided government makes it highly unlikely Democrats will be able to reverse the Trump tax cuts, but the partisan split throws up other challenges. Among the most immediate of these is whether Congress will renew the Trade Promotion Authority (TPA) that allows president to negotiate trade deals and for Congress to review them in a straight yes-or-no vote, without amendments. The current authority expires 1 July 2021.
Also known as fast-track trade, the authority requires the President to present a new trade deal to Congress 30 days before it votes on the pact. For Britain, which has seen a bilateral trade deal with Washington as key to its post-Brexit economic regime, that leaves a realistic deadline of 1 June – just 132 days into the Biden Administration to negotiate such a pact without an extension of the TPA. Such a tight deadline is highly unlikely to be met. Although talks with the outgoing Trump Administration formally began this May, the Biden Administration will have different demands – and Biden has said he does not envisage seeking trade deals in his first year in office.
The TPA was last re-authorised in 2015, albeit narrowly in the House, where Democrats initially refused to co-sponsor relevant legislation. Ultimately the move had to be included as part of a bill addressing issues with pensions for federal law enforcement and firefighters – an issue neither party was keen to obstruct. It also preceded the rise of Donald Trump and his challenges to free trade orthodoxy.
Whether the TPA is renewed could come down to the fight for the final two Senate seats, both in Georgia, to be determined in a runoff election to be held on 5 January. Incumbent Republican Senator David Perdue supported the 2015 extension and has expressed some, muted, support for renewed trade deals during the latest campaign. However, the other Republican candidate, Kelly Loeffler, has taken a more Trumpian approach, though this was likely motivated by her need to see off a challenge from her right. Democratic opponents Jon Ossoff and Raphael Warnock, respectively, have little public track record on where they stand on the matter – highlighting just how absent discussion of trade has been in the US election thus far.
Victory for either Perdue or Loeffler would allow Mitch McConnell to retain the bully pulpit of the chamber’s chair. Trade is among the few areas on which he was occasionally willing to rebuke the Trump Administration and the previous TPA one of the few areas he was willing to work with the Obama administration. His stance on the TPA and trade negotiation with Britain will shape the direction of the Republican party on trade for at least the next four years.
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