The City has seen its share of audacious schemes, but this one is pure California dreaming with a distinctly British accent. Steve Hilton, the former Downing Street aide turned Silicon Valley evangelist, has announced a bid for governor of the Golden State. And he is bringing Tory money with him.
Hilton, once David Cameron’s chief strategist, has spent the past decade as a Stanford academic and tech entrepreneur. Now he wants to import a dose of Thatcherism to a state synonymous with progressive excess. “California is a failed state,” Hilton declared this morning, citing crippling bureaucracy, rampant homelessness and soaring living costs. His prescription is a radical overhaul: deregulation, lower taxes and a brutal pruning of public spending.
Behind the scenes, the financial engine is already humming. Sources close to the campaign confirm that several prominent Tory donors have already wired funds into Hilton’s Super PAC. Names include hedge fund managers and venture capitalists who made fortunes during the early 2000s boom. The logic is simple: California’s economy is the fifth largest in the world, but its governance is a shambles. If Hilton can replicate even a fraction of the UK’s 1980s efficiency gains, the returns could be immense.
But let us not be naive. California is not Britain. The state’s debt load is staggering: over $500 billion in unfunded liabilities, with a credit rating only a notch above junk. Property taxes are already capped by Proposition 13, a relic that Hilton wants to abolish. His plan to slash corporate taxes and eliminate environmental regulations will face fierce opposition from a legislature that is 80% Democrat.
For investors, the Hilton candidacy is a high-risk, high-reward bet. Short-term volatility is guaranteed. Gilt yields in the UK barely budged on the news, but California municipal bonds saw a spike in trading volume. The market is pricing in a 20% chance of victory, according to Betfair.
Fiscal purists will note that Hilton’s platform relies on an assumption of rapid growth to offset revenue losses. That is a dangerous gamble in a state that has already seen capital flight to Texas and Florida. Moreover, his donor base is heavily exposed to the very sectors he promises to deregulate: technology and real estate. The whiff of crony capitalism is hard to ignore.
Yet there is a method to the madness. Hilton understands that California’s problems are not just political but structural. The state’s high cost of living is driving out middle-class families, while its generous welfare system traps the poor in dependency. His proposal to replace the state’s entire welfare framework with a single cash transfer is genuinely radical, and if implemented, could serve as a model for other high-cost jurisdictions.
Central bank watchers should pay attention. If Hilton wins and enacts his agenda, the ripple effects could be felt in global bond markets. A deregulated California would boost US GDP growth, potentially forcing the Federal Reserve to tighten more aggressively. That would be bullish for the dollar but bearish for emerging market debt.
For now, though, this is a sideshow. The City remains focused on the Bank of England’s next move. But Hilton’s gambit is a reminder that political risk is once again aligning with market inefficiencies. Investors who ignored Brexit at their peril should not make the same mistake with California.
