ALEX BRUMMER: Liz Truss and Kwasi Kwarteng made a huge mistake when they decided they didn’t trust the OBR enough to listen to their proposals
Mistake: Prime Minister Liz Truss
At the heart of the recent volatility in financial markets has been a battle of ideas. On one side was the orthodoxy of the Office for Budget Responsibility (OBR), the IMF, the OECD, the Treasury before Kwarteng, and now Keir Starmer’s Labor Party.
On the other side are the Thatchery Institute of Economic Affairs, monetarist economists such as Patrick Minford and those who believe that lower taxes and more creative regulation can boost growth.
The truth is that these two approaches are less far apart than you might think. As Oxford economics guru Professor Dieter Helm points out in the New Statesman, the combination of energy subsidies and tax cuts is like Keynesianism on steroids.
Because of the growth targets set by the chancellor, a bit of central Chinese planning has gone into it.
After all, it was John Maynard Keynes who came up with the idea that if the private sector doesn’t increase demand, the government should.
Take, for example, the idea of reforming planning laws so that in the name of expansion, industrial zones can be freed up and more houses can be built.
This often plays badly because no one wants HS2 to sweep past their garden or estate on the edge of their conservation village. That’s usually the case, even if it means more derrieres for agricultural workers in pub and home settings.
The idea that the existing order cannot be broken is ludicrous. The main thing is to share the profit. If local mechanisms could be found to benefit not only the landowner and the private developer, then planning consent would be expected.
In a pinch, a ten-year free or heavily discounted HS2 pass for all those homes affected by the disruptions could well change their minds. Or, in the case of newer homes, a gleaming state-of-the-art gym with an Olympic-sized pool and/or pool when the summer heats up might be just the thing.
Tesco boss Terry Leahy recognized the need to share the benefits of planning when he was charged with concreting this green and pleasant land of post-millennium shops. It’s amazing how supportive the opposition became when a school and affordable housing were added to the project.
Liz Truss and Kwasi Kwarteng made a huge mistake when they decided they didn’t trust the OBR enough to put their proposals to a hearing. However, previous chairman Robert Choate told the Commons Treasury Committee at the start of Covid that in wartime conditions such as a pandemic, a balloon loan was acceptable.
Ukraine, the next energy disaster, rising inflation, and the interventions proposed by the Trus administration fall into this category. A simultaneous tightening of fiscal and monetary policy would be a mistake.
The government had little to fear. But leaving an assessment for ten weeks if you are an administration in a hurry should be a blunder.
While on the economy, a few words about the Bank of England promising to do whatever it takes to revive the gilts market. The time-limited £65 billion intervention was widely interpreted as Andrew Bailey’s intervention to help the pound and the waistcoat market.
There was nothing like that. The bank, the Treasury’s insurance policy, saved itself.
It was during the watch over financial stability that British pension funds were tempted by sophisticated derivative strategies from City banks and institutions that took some of their money offshore: out of sight and out of mind.
The fact that the pound recovered and long gold yields fell sharply was a side benefit.
This was not the purpose of salvation.
On your brand
Who says Britain is no longer an attractive investment destination?
The most iconic of British car brands, Aston Martin, with all the perks that come with being James Bond’s car of choice, has suffered a series of failures as a public company.
No problem. Saudi Arabia, Britain’s oldest friend in the Persian Gulf, and Chinese car giant Geely came to the rescue, taking on part of the £654m fundraising challenge.
It’s good to have supporters – even if politics and human rights are not to everyone’s liking.