T.Promises of government tax cuts continue to pile up. We already knew that Friday’s big reveal would lead to a cut in national insurance contributions and the elimination of the expected corporate tax hike. Now, it has been reported, a giveaway on stamp duty on home purchases is being planned.
The timid phrase “tax event” does not cover it. This is a full blown budget in all but name. And most importantly, it’s launched against the backdrop of a blank check to freeze household energy bills for two years, plus a parallel promise to support businesses, charities, and public sector organizations for six months – measures that, together, they could conceivably add £ 150bn to public lending over the next two years.
What does all this mean for public finances? Well, the Budget Responsibility Office (OBR), the body that matters most, will not tell us, at least not immediately. The independent watchdog was effectively gagged until the actual budget – which will almost certainly be a smaller fiscal deal – arrives later this year.
Treasury Select Committee Conservative Chairman Mel Stride is furious and right. The economic climate has been transformed by the latest OBR forecasts for March. If fiscal policy is to be rewired, a thorough analysis of its effects on the major moving parts of finances – growth, deficit, debt, debt service costs – is essential.
Chancellor Kwasi Kwarteng’s appeal that the OBR would not have time to do its job is weak and deceptive. OBR officials aren’t lazily waiting for perfect data. They constantly evaluate and refine. In an exchange of letters with Stride last month, Richard Hughes, president of the OBR, said that forecasts that meet legislative standards could be produced by mid-September. The numbers would not be the definitive version but would represent “the most complete and up-to-date picture possible of the economic and fiscal prospects”.
It is surprising that Liz Truss and Kwarteng do not see that it is in their own interest to invite control. The will to be open goes hand in hand with explaining the new economic way of thinking and gaining credibility in the financial markets, markets that have the power to block their project.
In the early days of the new administration – about a fortnight ago, in other words – economic advisors were commendable and sincere that markets would be a key audience for a recipe for expansionary fiscal policy and tight monetary policy. “The new government must be aware of the feverish state of the markets,” wrote Gerard Lyons, senior fellow of Policy Exchange, on the ConservativeHome website.
Since then, the markets have gotten slightly more feverish. We must not exaggerate: the collapse of the pound is four-fifths a story of dollar strength; and being able to borrow at 3.3% for 10 years, as the UK government still can, is not that bad when inflation is 9.9%. Yet the nervousness is undeniable. Investors can see that UK debt is about to rise, but they still can’t find a credible path to Truss’ promised land of a permanently higher growth trajectory of 2.5%. The points must be joined – and then some. Checking by the OBR would normally be part of the test.
Truss and Kwarteng could get away with dodging the microscope this time around because markets have other things to worry about and the OBR cannot offer a single insight into the war in Ukraine. But the refusal to publish a better analysis available sends a horribly weak signal. Invite the suspicion that you are afraid of what an independent body would say.
If the pound and the markets react badly, which is entirely possible, Truss and Kwarteng can only blame themselves. Hushing the OBR, even for a couple of months, is a step backwards. It’s a mistake they didn’t need to make.
Good all-round sports
“I am delighted that we have been able to achieve this friendly and constructive way with Peter,” said Andy Higginson, president of JD Sports, announcing a £ 5.5 million compensation for the company’s former executive chairman, Peter. Cowgill.
It is suspected that “friendly and constructive”, in this context, means lawyers crawling on every clause in the two-year non-compete terms representing £ 3.5 million of the agreement. It could hardly be otherwise: Cowgill abruptly left in May after 18 years and amidst bitter government controversy.
Regarding the £ 2 million three-year advisory agreement, we hope Higginson updates shareholders in time on the number of consulting hours that actually occur. Note the conspicuous absence in the stock announcement of a positive quote from Cowgill about how much he looks forward to recommending his successors. Maybe a few friendly words would have cost JD another million.