TThe government’s tax cut promises continue to pile up. We already knew that Friday’s big reveal would bring a cut in national insurance contributions and the removal of the planned increase in corporate income tax. Now, is reporteda gift on the stamp duty on the purchase of homes is at stake.
The coy phrase “tax event” doesn’t cover it. This is a complete budget in all but name. And, importantly, it is being launched against the backdrop of a blank check pledge to freeze household energy bills for two years, plus a parallel pledge to support businesses, charities and public sector organizations for six months – measures that, taken together, could potentially add £150bn to public borrowing over the next two years.
What does all this mean for public finances? Well, it won’t tell us, at least not right away, the Office for Budget Responsibility (OBR), the body that matters most. the independent guardian has been gaggedin effect, until the actual budget, which will almost certainly be a minor fiscal matter, arrives later this year.
Treasury Select Committee Tory Chairman Mel Stride is furious, and he’s right. The economic climate has transformed since the last OBR forecasts in March. If fiscal policy is to be reconfigured, a full analysis of its effects on the main moving parts of finance (growth, deficit, borrowing, debt service costs) is essential.
Foreign Minister Kwasi Kwarteng’s plea that the OBR would not have time to do its job is weak and false. OBR officials don’t sit idly by waiting for perfect data. They constantly value and refine. In an exchange of letters with Stride last month, OBR president Richard Hughes said forecasts that meet the legislative standard could be generated as early as mid-September. The numbers would not be the final version, but they would represent “the most complete and up-to-date picture possible of the economic and fiscal outlook.”
it’s amazing that liz truss and Kwarteng do not see that it is in their interest to invite scrutiny. The willingness to open up goes hand in hand with explaining the new economic thinking and gaining credibility in the financial markets, markets that have the power to stop your project from the start.
In the early days of the new administration, a fortnight or so ago, in other words, economic advisers were commendably outspoken that the markets would be a key audience for a prescription for loose fiscal policy and tight monetary policy. “The new government must take into account the feverish state of the markets”, Gerard Lyons wrotePolicy Exchange senior member, on the ConservativeHome website.
Since then, the markets have become a bit more feverish. One should not exaggerate things: the fall of the pound is four-fifths of the history of the strength of the dollar; and being able to borrow at 3.3% for 10 years, as the UK government can still do, isn’t too bad when inflation is 9.9%. However, the nervousness is undeniable. Investors can see that UK debt is about to rise, but cannot yet spot a credible path to Truss’s promised land of a permanently higher 2.5% growth trajectory. The dots must join, and something else. OBR scrutiny would normally be part of the test.
Truss and Kwarteng can get away with dodging the microscope this time because the markets have other things to worry about and the OBR cannot offer a single view of the war in Ukraine. But the refusal to publish the best available analysis sends a terribly weak signal. It invites the suspicion that you are afraid of what an independent body would say.
If the British pound and the markets react poorly, which is also entirely possible, Truss and Kwarteng have only themselves to blame. Silencing OBR, even for a couple of months, is a step backwards. It’s a mistake they didn’t need to make.
good sports in general
“I am pleased that we have been able to get down this friendly and constructive path with Peter,” said Andy Higginson, president of JD Sports, in announcing a £5.5m payout for the company’s former chief executive, Peter Cowgill.
One suspects that “friendly and constructive”, in this context, means lawyers tracking every clause in the two-year non-compete terms representing the £3.5m deal. It could hardly be otherwise: Cowgill departed suddenly in May after 18 years and amid acrimonious disputes over governance.
As for the £2m three-year consultancy contract, let’s hope Higginson will update shareholders in time on the number of consultancy hours that actually take place. Note the conspicuous absence in the stock announcement of a nice quote from Cowgill about how much he longs to advise his successors. Perhaps a few friendly words would have cost JD another million.