Kwasi Kwarteng bets the house on old ideas
Despite the hype, the mini-budget isn't all that radical
If you believe George Monbiot in The Guardian today, then Liz Truss and her Chancellor Kwasi Kwarteng are about to turn Britain into a turbo-capitalist dystopia. Goodbye green and pleasant land, hello Blade Runner nightmare.
His evidence is that the government is stuffed full of free market liberals who used to work for think tanks like the Institute of Economic Affairs and the Adam Smith Institute. And he’s right: many of their alumni are now employed in Downing Street. Furthermore, Monbiot points out that these outfits are opaquely funded, that they coordinate their activities in private meetings, and hold ideological positions that fall outside of the mainstream.
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However, much the same could be said of groups on the radical Left of British politics. And in neither case is any of this illegal. This is a democracy in which people are allow to challenge the status quo from either direction. Indeed, the last general election in 2019 was a choice between the two sets of radicals — and the voters turned Right.
Of course, what the voters specifically chose was Boris Johnson and his get-Brexit-done boosterism — it wasn’t a vote for Blade Runner capitalism. However, science fiction was the last thing on offer from Kwarteng in his mini-budget today. As the Shadow Chancellor, Rachel Reeves, pointed out, what we actually got was a grab-bag of dusty old ideas: income tax cuts, low corporation tax, stamp duty reductions and the acceleration of infrastructure projects. There’ll also be another tightening-up of social security provision to squeeze more people into the workforce.
There was nothing truly shocking — for instance, the abolition of the green belt or the scrapping the net zero target. As for the newly announced ‘Investment Zones’, if they turn out to much more than a re-branding of similar (and ineffective) policies from the past, I’d be flabbergasted.
If there was any novelty in Kwarteng’s mini-budget, it’s that he’s dusted-off so many of these clichéd measures — and thrown them at a faltering economy — at the same time. There’s also zero embarrassment about the fact that these are intended as incentives for the already wealthy. Indeed, the scrapping of the levy on bankers’ bonuses and the refusal to impose further windfall taxes on energy company super-profits deliberately highlights the Truss-Kwarteng approach. The same goes for the decision to muzzle the Office for Budget Responsibility: absolutely nothing must be allowed to dilute the government’s pro-growth, pro-business message.
What we’ve seen today is an expensive gamble — not on genuinely new ideas, but on the old idea that the already wealthy will create more wealth if only they receive enough encouragement from the state. This isn’t quite what the Left caricature as ‘trickle-down economics’, but it does presuppose that the rich and powerful will return the favour and mobilise their wealth to get the economy growing again.
If they don’t, and this experiment leaves nothing behind but a further mountain of public debt, then consequences will be far-reaching. It will be a disaster for Britain of course — and an open goal for Keir Starmer at the next election. We can also expect an almighty ideological backlash within the Conservative Party.
If big business thinks it can simply take the government’s money without coming through for the British economy, then it is making a suicidal mistake.
“…It will be a disaster for Britain of course — and an open goal for Keir Starmer…”
Yes sure. But right now the entire graunosphere is having a collective apoplexy. There could well be a huge price to pay down the line, but right now the moment is delicious. We take our pleasures when we can, where we may.
Indeed we must! The last 12 years have been something of a nightmare. The lame Un-Tories Cameron May Johnson all exaulted the power of the State, from its welfarism and vast technocracy to its ugly Save Us First NHS. They joined the insane green eco assault on non renewable energy/,cheap power and gleefully intervened in and warped every major market into a semi socialist mess. But its degrowth, so thats ok! We now have to bailout millions to keep their heads anove water – pouring 30 billion into the dysfunctional housing market; the same into the labour market with ‘tax credits’ plus another 70bn on furlough. Now 150bn is blown on energy, half the 300bn on the Health Industrial Complex for covid. The entire super structure of our economy is bent horribly out of shape and immune to market correction and then suffocated by the weight of EU and Blob regulatory controls. We are more now akin to 1984 GDR than Thacherite 1984 UK. So enjoy this defiant bark from the depths about the benefits of enterprise! I hope their courage reaps some reward. But I fear it is a Thermopylae moment. Decades of risk averse EU statism, Net Zero and Zero interest Rate lunacy, Bank of England incompetence & Covid zealotry have triggered a super tsunami that may well wash the Kwazi lifeboat away in an instant. But how nice to have a day or two when Tories are Tories and the values of enterprise and entrepreneurship are celebrated and supported.
On the other hand shiny flashy modern policies appear to have had little success, so perhaps the return to old favourites is not such an experiment after all.
You could argue that a lot of the shiny flashy modern policies have so many qualifications and complexities that they were hardly worth trying. Stealth taxes not only didn’t appear on the public’s radar they didn’t appear to significantly change modern life either – apart from requiring more accountants and bureaucrats.
So, a bunch of free market absolutists announce a budget that stokes inflation and shoves up the public debt, while suppressing the OBR data that would analyse the impact.
And then they complain that the markets are wrong when in a single day the pound falls by 4%, the stock market falls by an additional 2% (it usually rises when the pound drops to remain constant in $ terms) and bond yields imply an expected interest rate of over 4%.
This is a disastrous failure in macro-economic terms with consequences for the real economy.
Households and small businesses will pay more in interest than they gain in tax cuts. The unions will try to defend their members falling living standards. Externally, markets and other governments will increasingly view the UK as weak, easy to ignore or push around, and to be treated like an emerging economy. The EU and US will double down on support for Ireland over the NIP. A former Fed economist has already made the emerging market claim.
It is also a disaster in political terms. Even if the gamble works, any growth will be too late for the next elections. Meanwhile bye bye Red Wall and levelling up in the north. Bye bye southern Nimbies over planning reforms. Bye bye mortgage payers everywhere. Bye bye families who rely on sufficient public spending for a functioning NHS, schools for their children, and social care for the old. Bye bye anyone who cares about the environment, farming and wildlife following the trailed reversal of Gove’s land use reforms and reversion to the old EU model. Bye bye communities under pressure from renewed migration surges for cheap foreign workers. Bye bye everyone struggling with higher energy bills, despite the cap, who wonders why there is no windfall tax on the massive unanticipated and unearned excess profits of energy companies.
Bye bye above all to future generations for years to come as the young will never afford home ownership while paying off the public debt needlessly incurred by covid lockdowns and now this irresponsibility.
Meanwhile the most liked comments on here are from a couple of people cackling about the short term thrill of sticking it to Graunistas even if a tsunami is upon us. Really?
“If big business thinks it can simply take the government’s money without coming through for the British economy, then it is making a suicidal mistake.”
Truss/Kwateng to big business:
“…Someday, and that day may never come, I will call upon you to do a service for me. But until that day, accept this justice as a gift on my mini budget day…”
I get confused. When George Osborne became Chancellor way back when and the economy was looking a bit shaky it was all about austerity, spending cuts and VAT rises. Now the economy is a bit shaky again and it’s all about tax cuts and spend, spend, spend.
But those policies led to Britain having one of the slowest economic recoveries after the credit crunch compared to other EU nations.
Thanks Billy, do you mean the austerity policy or the spend, spend, spend policy? Or both of them perhaps.
I have read that the austerity policy was founded on a false premise.
I was referring to Osbornes austerity, though to be fair Truss seems to be the worst of both worlds. Massively increase borrowing whilst simultaneously running down public services. At least Osborne was attempting to reduce a deficit, even if I disagreed with his methods I could understand his opinion
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