Keir Starmer to arrive to Downing Street as an economic bomb blows

Most of them did not even bother to turn up at the polling stations, with or without their ID.

But the problems run deeper than the raw sore of the Middle East or what the SNP does next. For starters, there is a looming financial crisis that hasn’t even made it to the front pages yet.

Let’s start with the economic time bomb. Last week the cost of government borrowing went up like a rocket in America and Europe. The “so what” is that high interest and mortgage rates are here to stay. And that means there will be an inevitable economic slowdown.

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In the UK this will arrive just as Sir Keir gets his feet under the table at Number 10. So don’t expect anything exciting from a Labour administration. Starmer is not a second Tony Blair, he’s a second David Cameron.

After the General Election, the defeated Tories will likely dump Dishy Rishi and install a mad populist who demands (like Liz Truss or Donald Trump) more borrowing and spending to reboot the economy.

In other words, we are looking at the final death of the old Conservative Party and the emergence of a free-spending Faragist affair, maybe led by Nigel Farage himself. The looming economic crisis means British politics has moved permanently, irrevocably to the right. What that means for Scotland, I’ll come back to in a moment.

Why is the cost of government borrowing shooting up?

For starters, the US government under Sleepy Joe Biden has started to borrow dollars by the bucketload in order to subsidise American industry, in a bid to bring production back from China.

Last week, the financial markets woke up to just how much cash Joe wants to borrow. The markets got cold feet and started to charge a lot more for the privilege of lending Uncle Sam more greenbacks. And if US borrowing rates go up, they shoot up in Europe, too. When Sir Keir becomes boss, he’ll discover that he has to pay a lot more in interest rates on government debt, meaning less for the NHS.

Then there’s the Chinese connection. China is actually America’s biggest creditor. That’s right – Beijing is actually lending money to the US government because it’s the safest place to keep your cash. Except that the US has declared economic war on China and has made it virtually impossible for its high-tech firms to invest there.

Guess what? Beijing has retaliated by selling off its holdings of US government debt – to the tune of around $100 billion this year.

By selling this off cheaply, Beijing thereby forces the US Treasury to pay more interest on new debt. Quite why Sleepy Joe did not see this coming is another matter.

But there’s a lot more. Since the big financial crisis back in 2008, banks in America and Europe have been under tighter regulation. And a good thing too, you reply.

Yes indeed. But the way this regulation works is that high street banks are made to keep bigger reserves (savings) for a rainy day.

Translation – by law banks have to buy and hold lots of government debt. Governments like this because it gives them a guaranteed source of funds. And banks are reasonably happy because holding government debt (bonds) is fairly safe. Until now, that is.

The upshot of the present economic wobble is that financial institutions want higher interest rates on new loans to governments.

That means that old loans are less valuable. In other words, the value of the regulatory reserves held by the banking system nosedives. Of course, these are paper losses that would only crystallise if the banks had to sell off their reserves.

But that’s the point. These reserves are a nest egg. That nest egg just shrank. Expect banks to lend less as they build up new reserves. And expect some banks to go bust.

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Ww had a premonition of this problem in March last year when Silicon Valley Bank (SVB) in the US went bust after depositors pulled out their funds. SVB had invested heavily in US government debt, but the value of these holdings had collapsed as interest rates rose. SVB was suddenly short of cash to meet depositors’ demands.

That could happen again but on a wider scale.

Then there was the near-collapse of the UK insurance sector after the Liz Truss mini-budget spiked UK interest rates. UK insurers had engaged in a series of complex and risky bond investments that suddenly lost value as rates jumped. The Bank of England had to bail out the entire insurance industry. Oops! But it could happen again.

What next? Sir Keir has announced that Labour will unleash a tide of economic growth.

It’s his Big Thing. But the UK economy is trapped in a cycle of low productivity that could take decades to escape. Besides, the only way to spark growth is to borrow and invest – the one thing Starmer and his shadow chancellor Rachel Reeves have pledged not to do.

Against all predictions, the US economy has seen a growth explosion. In fact, the US is outstripping everyone in Europe. But only because first Trump and then Biden poured money into the economy and cut taxes. That’s the very opposite of Labour’s proposed strategy.

Which means Scotland is going to be at the fag end of a fag end economy under Starmer. He is going to trample over the rights of the UK’s constituent nations into the bargain.

Witness his pronouncement that Labour will not grant a border poll in Northern Ireland – which is not actually his to reject, under the Good Friday accords. We are facing a hyper-centralist Labour government that will flail about in desperation as it faces economic disaster.

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Of course, the SNP will then tack to the left in these circumstances. But the lesson of Rutherglen is that the SNP at Holyrood can no longer rely on promising big and delivering small if it wants to turn out its vote. The SNP’s economic record is anything but exciting.

It needs to start now and prioritise economic growth over redistribution and social engineering.

That’s not because redistribution is unnecessary or because social reforms are not needed. But we desperately need to turn the Scottish economy around and that is where action by the Scottish Government will have the biggest impact.

Yes, there is a debate to be had about wellbeing. But if there is to be a green economy, then investment has to be led by the Scottish Government, not left to the market.

Only Holyrood can spearhead a massive social housing plan and create jobs at the same time. Only a Scottish government can prevent our natural resources from being gobbled up by foreign capital and instead retain economic sovereignty for the benefit of the Scottish people. Only a Scottish government can create the skills base we need to re-industrialise.

The lesson of Rutherglen is that there are whole swathes of Scotland that need rebuilding – and immediately. Sir Keir will never deliver on that.