This week we are facing a ruinous budget. A bit like a seventeenth-century quack applying blood-sucking leeches as a cure, this government is driven by the belief that we need a dose of austerity coupled with an injection of blame directed at the previous mini budget to cure our ills. It is difficult to know where to start but this narrative is riddled with power play, and technocratic establishment orthodoxy – a concert party of vested interests. It is an Emperor’s New Clothes budget, and it begs to be called out.
The so-called fiscal “black hole” is nothing more than a construct and the resultant policy a choice that the administration have made. Indeed, who in business would attempt to seek to repay borrowings within such a short timescale? Following previous global shocks, such as wars, we have paid down debt over long periods of time, decades in fact. The need for growth in the face of recession is manifest, yet it has been rubbished by the leadership of the country.
There are also questions to be answered with respect to the motivation of institutions towards this direction of travel. The black hole, mini budget narrative is a convenient one when used to cover others’ tracks – the Bank of England failed to raise rates, the Governor having given pension funds permission as head of FCA to go for risky, illiquid investments . It is this that likely led to the pensions fund melt down and played a part in the market reaction. It also prevented the Bank from raising rates as fast as it should, as fast as the US Fed was doing and following that, the fall in the Pound. The Governor was quick to blame Truss/Kwarteng, probably not least because Ms Truss had declared for reform of the Bank. Kwarteng had also declared for reform of establishment central, the Treasury Department.
One must also remember Sunak’s part to play in this recession, albeit under orders of the Johnson administration, adding to the problem of inflation and debt with his massive lockdown stay at home rather than work subsidy.
Even if there were a black hole, keeping on digging by depressing the economy and thus tax receipts, is madness. Taxes increases on business, by stealth or otherwise, will kill growth & create a deep recession; business failures, job losses, etc. Taxes on people will depress demand and cuts will kill growth.
This is the opposite of the Keynesian budget presented by Kwarteng. We have empirical, historical evidence, much more significant and reliable than any model that ‘growthenomics’ works .
If cuts have to be made, why are the government not instead addressing the enormous cost of Net Zero and driving to produce cheaper, home grown fuels to bridge the gap to Net Zero? There is a host of other alternatives to cutting essential services. Cancelling HS2 would avoid up to £100 billion, or even cutting overseas aid could yield several billion per annum.
And what about other supply side reforms which would encourage enterprise and boost tax receipts like cutting regulation ? Or unilaterally cutting tariffs ?
This administration are making choices that are not reacting to imperatives. They are choosing to align with the more with the EU, choosing austerity & deepening recession. To any rational entrepreneur, it beggars belief.
All of this is contrary to the manifesto and Sunak’s promises. The greatest tragedy is that for a moment we had the possibility of a government who would crystallise the economic and enterprise benefits of Brexit. Instead we now have a government who appear hell bent on wrecking the economy and with it destroying the Conservative Party.