This was a mini-budget for the election campaign

This was a mini-budget for the election campaign

The British government may have just made me richer. I’m not sure how long. Even if Britain’s bonfire of fiscal rules doesn’t lead to a run on the pound, it’s hard to see how my children could end up wealthier. An iceberg of debt lurks beneath the bonanza of unfunded tax cuts announced by the Chancellor.

This was a rail budget, an election campaign budget, driven through a raucous House of Commons with a bristling snarl. Kwasi Kwarteng has never seemed further from his bland PhD in economic history. As his opposite number Rachel Reeves playfully tried to respond, Pat McFadden, shadow chief secretary to the Treasury, looked grim. So did Paul Johnson, the usually indomitable director of the Institute for Fiscal Studies, who had to make an impromptu comment moments later.

These are sober people who worry about institutional stability and the impact that a massive stimulus could have on inflation. But warning people that the party can lead to a hangover can lead to you being portrayed as a party pooper.

Part of me admires the chutzpah of a Prime Minister signaling a brand new administration, stripping away the orthodoxies she believes are holding Britain back. Liz Truss espouses a brand of conservatism that abhors Treasury “managerialism”, and is desperate to boost sluggish national productivity. I welcome the decisions to finally talk seriously about tax simplification, reform the cap on pensions to stop doctors fleeing the NHS, face Nimbys over onshore wind farms and end the atrocious IR35 rule for freelancers.

The biggest part of me, however, is consumed with rage at the hand. By calling this huge financial event a “mini-budget”, the chancellor has escaped without a forecast from the Office for Budget Responsibility. But that means we’ve been kept in the dark about the loan implications. The energy price guarantee announced earlier this month was rushed, but there was no reason to deliver this budget so quickly without scrutiny – especially as the energy package was essentially a blank cheque.

Ministers are clearly looking to gain political momentum, and boost business and consumer confidence, in what feels like a belated acknowledgment that Brexit has shackled our economy. But markets may not like the disregard for institutional norms or sound monetary principles. The early signs are not good: the pound hit a 37-year low on Friday as borrowing costs rose. Although other Western nations have also run large deficits during the pandemic, they are not pushing the boat out in this way, and Britain remains terribly dependent on the kindness of strangers to borrow, against a backdrop of market anxiety, rising interest rates and protectionism.

Truss’ aides have made much of the fact that she has never been afraid to be unpopular – a welcome change from her predecessor Boris Johnson. But this package is likely to be very popular in the short term, as it provides huge tax cuts and avoids the difficult questions of how it will all be paid for.

Despite the claims made during the Tory leadership contest, Truss is certainly not the reincarnation of Margaret Thatcher, who believed in balanced budgets. She is closer to Ronald Reagan, who delivered a huge tax cut in 1981 at a time when inflation and interest rates were high. The difference, of course, was that Reagan acted at a time when the American labor force was growing and the dollar, a reserve currency, was strengthening.

Can the measures Kwarteng announces get us to the ambitious target of 2.5 per cent growth? It doesn’t feel that way. Stamp duty has certainly put a brake on mobility in that people are reluctant to move house. But raising the threshold will not get more houses built. Investment zones generally tend to shift growth around between different locations rather than having a significant impact on national productivity. Deregulation could encourage more smart entrepreneurs to come to the UK, strengthening the city’s status as a world financial centre, which would be good. But the bigger picture is that the UK workforce is not growing and too many people are not looking for work at all.

Logically, the spending cuts must come eventually. Unless you believe that tax cuts pay for themselves, which I don’t, something will have to give. Truss has already committed to increasing defense spending. I wouldn’t be surprised if she cuts HS2 and other infrastructure, including the 40 new hospitals that Boris Johnson boasted about, but not all of which are needed. The fact that Deputy Prime Minister Thérèse Coffey was previously Minister of State for Work and Pensions makes me wonder if we will also see welfare reforms. But all these things, which are perhaps less popular, are hidden.

Who benefits from the Chancellor’s package? Most obviously high earners, financiers who have shorted the pound, foreigners buying London property and people with very large homes who are now being paid to keep wasting heat. Who will pay? The next generation. That is if inflation doesn’t wash us all away before long.

One thing is clear. The stage is set for a head-to-head battle between the Treasury and the Bank of England, as the government calls for growth and the bank raises interest rates to tame inflation. The chancellor was right to confirm the bank’s independence, but he will need all his skills to navigate the hangover ahead.

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