We knew what was coming at the ‘Mini-Budget’ yesterday. Despite a hiatus in politics for the death and mourning of the Queen the Budget was well trailed. From the Bankers Bonus cap being lifted to the reversal in NI (which they all voted for a few months ago) it was all there in plain sight. Yes of course there were a few ‘surprises’ as any Chancellor feels they need up their sleeve. The early cut in income tax and the 45p higher rate amongst them. But they were all part of the same narrative.
I don’t really need to run through all the measures announced as there was wall to wall coverage yesterday, but a few key bits struck me economically and politically yesterday.
There is some good analysis as always from the IFS and Resolution Foundation
There is no mandate for any of this. This is a serious constitutional point. Our unwritten constitution does allow for the change of Prime Minister during a parliament. Quite often the faces at the top will change and there will be some tinkering around with the emphasis of government. But this time the government elected on the 2019 Levelling Up manifesto has abandoned the main thrusts of its approach and signed up to Reagonmic trickle down. I won’t even call it Thatcherite because she would never have borrowed money to pay for tax cuts.
Borrowing to pay for current spending. The £45bn of tax cuts for the richest mainly is a break economically but also politically and the Truss and the Chancellor don’t seem to want to hide this fact. The current Tories are not fiscally conservative or courting the Red Wall. Overall borrowing this year will be in the region of £130 billion. These are eyewatering sums of money
An attempt by government to try to tackle the UK’s lamentable growth and productivity rates are of course welcome.
However, putting all its eggs in the low-tax basket is high risk given limited evidence that tax changes like those announced at the fiscal statement make a significant difference to growth rates.
We saw what ‘The Markets’ thought of the Budget. The £pound sterling crashed yesterday. It is not jsu commentators or the opposition that has been spooked by this reckless budget
This was a Budget in all but name. By being dishonest about this ‘fiscal event’ allowed the Chancellor to avoid having the OBR scrutinises the figures.
There are now clear and obvious dividing lines in politics. This ERG dominated government has its hands on power and will use every trick and tool to get their way for the next two years. In that time they can do enormous damage. The fall in the £pound yesterday might just be the start. They are driving up demand led growth at a time that inflation needs controlling through higher interest rates from the Bank of England. Even the cost of their own borrowing shot up yesterday blowing their own forecasts out of the water.
Truss is happy to promoting a growth agenda predicated on the wealthy being rewarded. It simple doesn’t work and is ineffective. If you want to drive up demand you put money in the pockets of people who will spend not save or put it offshore! Truss sees herself as Thatcher tribute act. Claiming in the UN this week that she is willing to be unpopular has all the hallmarks of that idea she is willing to take ‘tough’ decisions. We often forget, and I am surprised it is not talked about enough, that Thatcher got away with a lot of her dogma because we spent all our North Sea Oli revenues keeping the economy afloat through her recessions and mass unemployment. The Norwegians invested their North Sea Oil revenues and continue to do so!
I am at a slight loss to see how Truss thinks she is going to gain politically by being so brazen about the tax cuts for the richest. I understand the politics of aspiration, but these cuts at a time of a cost of living crisis seem particularly ‘brave’. I don’t get the upside of this messaging.
The budget was also a complete demolition of the Tory record over the last 12 years in Office and the record of the government that Truss and Kwartang served in. Both this and leadership election has given enough ammunition for the Opposition to exploit at the election.
Mr Kwarteng is not just gambling on a new strategy, he is betting the house.”IFS
There was no mention of Public Spending. Plans made last year when inflation was just 3% are not going to last long against this backdrop. Cuts are likely and ideologically baked into these Tories plans.
We are in for a turbulent couple of years. When we all got excited at the prospect of a useless Truss premiership leading to a General Election defeat in 2024 or before, there was always a fear in my mind that a lot of damage can be done in two years. Unless something dramatic happens it looks like this may be the case. We have to remember that a minority of Tory MPs backed Truss. She is not widely supported across her back benches, and having stuffed the government with her supporters there may be trouble ahead with Party discipline. Certainly yesterday empty benches and half hearted support was noticeable.
The scene is set big political and economic battles ahead. It is something I relish as the battle of ideas is paramount in our political system.