You are currently browsing the daily archive for September 29, 2023.
On Tuesday, September 26, 2023, Guido Fawkes alerted his readers to the Treasury’s request for the public to help write Chancellor Jeremy Hunt’s Autumn Statement.
Dear, oh dear (red emphases below are Guido’s):
With the Autumn Statement around the corner, His Majesty’s Treasury has called for policy suggestions from… the public. The Treasury took to Twitter/X last night to fish for ideas, perhaps because they don’t yet have any themselves. Desperate times call for desperate measures…
Entries close on Friday, October 13, at 5 p.m. (BST).
One of Guido’s readers gave his suggestions:
My ideas:
(1) Uplift out-of-work benefits by both less than inflation and earnings, to generate savings to …
(2) Make a substantial effort at tackling ‘fiscal drag’, for those paying income-tax at 20% and 40%.
(3) Knock a penny off the 40% rate and commit to dropping it down to 35%, over five years.
(4) Reduce corporation tax by a smidgeon and slash it for businesses in Northern Ireland, undercutting the ROI rate.
(5) Stop importing poor people.
There, not difficult, is it?
However, the web page states that such a contribution would be insufficient. Civil servants want detailed evidence that suggested policies would be credible (purple emphases mine):
HM Treasury welcomes comments on existing policy, or suggestions for new policy. In order to inform policy development for the Statement, your representation should contain policy suggestions for the upcoming fiscal event and explain the policy rationale, costs, benefits and deliverability of proposals. It should also be evidence based, providing clear arguments on how it contributes to the aims of the Statement.
Let’s look back through the past year and see where the public can help out Jeremy Hunt.
October 2022
On October 14, 2022, after Liz Truss felt forced to appoint Jeremy Hunt as Chancellor, The Telegraph‘s Matthew Lynn — always wise — wrote:
For a few days there, it looked as if the UK had the opportunity to reset its economy on a fresh and dynamic path, with higher growth and rising living standards …
Corporation taxes would be lower than any major competitor. Personal taxes would steadily take less and less of the average family’s income.
Entrepreneurs would be attracted by some of the lightest touch regulations in the world, and the state would gradually interfere less in everyone’s lives …
With the departure of Kwasi Kwarteng as Chancellor, and with Liz Truss’s battered government clinging miserably onto power by the most precarious of threads, we need to be honest about what the future holds.
The dream of a low-tax, pro-enterprise Britain has now died for a generation. In its place, we face a suffocating consensus of constantly rising taxes imposed on a dwindling, shrivelled economic base.
The markets might prefer that for now, and in the short-term so might the voters. In the medium-term, it will be a crushing failure. Free market dynamism will return eventually, but it will be at least a decade before it stands any chance of success.
Thatcher was the last Prime Minister to truly sell these ideals to the country and, after she left office, it was decades before the electorate was ready to entertain them again.
If nothing else, Kwasi Kwarteng managed to notch up one significant success. He just outlasted Iain Macleod, Edward Heath’s finance minister when he formed his government in 1970. He managed only thirty days in office before he unexpectedly died.
One of the big disappointments was Hunt’s reversal of Kwarteng’s pledge to lower corporation tax.
Keep in mind that on July 10 last year, Hunt ‘passionately’ defended a corporation tax cut. Guido has the clip from the relevant Sunday current affairs show:
Hunt also wanted it to go lower than 19%, Kwasi Kwarteng’s preferred level:
… only three months ago he was advocating even harder tax cuts, saying corporation tax should go to 15%, rather than the 19% Kwasi supposedly just lost his job over.
On October 14, the same day that Matthew Lynn’s aforementioned article appeared, The Telegraph reported that hotelier Sir Rocco Forte threatened to leave the UK over the corporation tax U-turn:
Sir Rocco Forte, the multi-millionaire hotel tycoon who helped bankroll the last Conservative general election victory, has threatened to leave Britain after Liz Truss U-turned on corporation tax.
The Prime Minister’s decision to raise taxes meant the so-called anti-growth coalition had “won the day”, Sir Rocco said.
It came as manufacturing chiefs warned that the £18bn tax raid would drive away foreign investment and make it impossible for British businesses to grow.
Sir Rocco attacked the Tories for transforming into a “soft Labour” government and added: “Here was a chance for this country to move onto a different footing, a different approach to the last 20 years that has led us nowhere, and it’s now been abandoned. I’m very very sad.”
“I think it is the most disastrous thing that’s been done for a long time.”
The 77-year-old entrepreneur donated £100,000 to the Conservative party during the 2019 general election campaign.
He said: “I feel like if we don’t have a Tory party which is based on growing the economy, [and we have] an alternative, ‘soft Labour’ or Labour, I am going to leave the country.”
However, it wasn’t just big business that was disappointed. The average Briton, the new Chancellor said, would not see any tax relief, either. The Telegraph reported:
In the Tory premiership race this summer, Jeremy Hunt told The Telegraph: “I would love to see income tax cut, but it has to be done in a way that is sustainable.
“It can’t be an electoral bribe and it depends on growth. What you’d need is an income tax cut that is for life, not for Christmas. That means starting by saying we’re going to get the economy growing, then you get yourself in a position.”
Hmm.
The following day, October 15, it looked to many of us that Jeremy Hunt was running the country. Guido has a video of Hunt warning of higher taxes and wrote:
Despite being eliminated on the first ballot of members, it seems Jeremy Hunt is now confirmed as the new Prime Minister…
Hunt, now widely seen as the most powerful figure in government, yesterday used a series of broadcast interviews to signal his plan to upend the prime minister’s economic strategy in an extraordinary rejection of the pledges that brought her into office.
The Telegraph said that Hunt was unlikely to increase defence spending, despite Liz Truss’s pledge to do so.
October 16 proved to be a big day for news about Jeremy Hunt.
The Telegraph‘s Matthew Lynn compared the United Kingdom to Italy, always a warning sign:
… In reality, we have been “turning Italian” for a long time. The trend is now starting to accelerate.
Start with the growth rate. According to figures from the World Bank, per capita GDP for Italy measured in 2010 dollars to allow for inflation hit an all time high of $34,000 back in 2007. Since then it has been in steady decline, dropping to less than $30,000 last year – back to the levels of the mid-1990s. In effect, Italy has been a zero growth country for more than 20 years.
And yet the UK is not much better. Using the same series of standardised statistics, we hit $44,000 per capita in 2007, and we are now at $46,000. We have grown only a miniscule amount over the last 15 years. With constantly rising taxes, stifling regulations, and a shrinking active labour force, it now looks inevitable that we will match Italy’s growth rate, and even that will take some luck. By the end of the decade, it will be impossible to tell the growth rates of the two countries apart …
The UK still ranks slightly better than Italy for the quality of our infrastructure – the WEF ranks us 11th in the world, behind key competitors such as Germany, France, Spain and the Netherlands – but we are steadily slipping even as the Government takes a larger and larger share of national income.
Does anyone think we will be building a new airport in London any time soon, or a railway connecting Leeds and Manchester or Oxford and Cambridge? In truth, we probably won’t even be widening the M6 or the M25. Countries stuck with permanently low growth cut back on infrastructure projects because that is the easiest thing to do. But the long term impact is that they become less and less attractive as a place to do business.
The Sunday Times pointed out, ‘Jeremy Hunt, with no Treasury experience, faces a steep learning curve as chancellor’:
Jeremy Hunt took to the airwaves yesterday, less than 24 hours after the announcement that he was taking over as chancellor. Hunt, with no previous Treasury experience …
That is important. The role of chancellor is one of the most complex and pivotal in politics. In many government departments, new ministers can read themselves into the job. Chancellors have to hit the ground running, with any slips likely to cost billions …
… Successful incumbents usually have one of two qualities; either they have been a junior minister in the Treasury or served as shadow chancellor.
Hunt was also a lousy Health Secretary and refused to take on board the need for a pandemic plan during his time in post.
On Monday, October 17, Hunt announced that he would:
reverse almost all the tax measures announced in the growth plan.
Guido later reported:
With Hunt shredding almost the entire mini-Budget, the free marketeer wonks have released horrified statements as the Chancellor bins almost all the tax cuts Liz promised for the last four months. The only silver lining is that the energy support will now be means-tested. Other than that, it’s brutal…
On Tuesday, October 18, The Times featured ‘My culture fix: Jeremy Hunt’, perhaps as a way of making up for the negative reporting from the previous few days. Amidst obscure political tomes and rock groups that most people of his generation enjoy, he told us about his favourite play:
It’s a cliché, I know, but King Lear would be my choice. No one is flawless and to see the greatest of people brought down so grindingly by pride or mistakes is moving and not just because I have seen it happen to five prime ministers in my time in office. All of them will be judged more kindly by history than they are now. Aptly, Shakespeare wrote this play while in quarantine from the plague — an experience that will resonate with all of us after the past two years. I wrote two books of my own in lockdown but am not quite expecting them to get the same response.
On Wednesday, October 19, Guido gave us more bad news about the UK with regard to other countries:
Research from the Centre for Policy Studies makes grim reading for those who want to see Britain as a leading hub of investment. The UK’s tax competitiveness was put at 26th of 38 OECD countries, with corporation tax at a more respectable 10th. However, any silver linings were crashed by the government’s U-turn on corporation tax. The UK has now fallen to a wretched 33rd position, both overall and on corporation tax. The number of OECD countries more welcoming to business than Britain has now trebled…
The figures mean that Britain is ahead of only France and Italy amongst the G7. They’re hardly the enterprising nations Liz “no new taxes” Truss would aspire to …
One week later, Guido told us that Hunt was gathering around him former Conservative Chancellors, none of whom were popular with voters:
… This morning, eyebrows were raised when George Osborne was spotted entering Downing Street. Far from George being the surprise pick for Rishi’s new ethics commissioner, Guido understands George had popped in for a meeting with Jeremy Hunt. Who better placed to give advice on a new austerity drive?
It doesn’t end there. Guido learns Hunt has been keen to talk to all his recent predecessors, including Philip Hammond and Sajid Javid – and, presumably, Rishi – as he scrambles to put together the November statement. Presumably Kwasi Kwarteng is not high up on Jeremy’s priority meetings list…
November 2022
The media and the public were gearing up for Hunt’s November Statement, i.e. interim budget, delivered on November 17.
On November 4, The Telegraph posted ‘How savers and investors can avoid Jeremy Hunt’s tax raid’, which remains useful, albeit complicated.
In another Telegraph article, Conservative MP Jacob Rees-Mogg expressed concern about increasing capital gains tax:
In one of his first interventions since resigning from the Cabinet last week, the former Business Secretary suggested that a planned rise in the headline rate of the tax (CGT) would put the property market at risk and damage economic growth.
His concerns were echoed by a chorus of business leaders and Tory donors including the Marks & Spencer chairman Archie Norman and Peter Hargreaves, founder of the FTSE 100 broker Hargreaves Lansdown.
Mr Rees-Mogg said: “CGT is an inefficient tax where people simply delay transactions when it is too high. Increasing it is, therefore, economically inefficient and leads to the poor allocation of capital. This weakens economic growth.
“There would be a risk to the property market, already affected by rising interest rates, of any change to CGT as landlords may seek to leave the market”…
Tory donors accused the Government of being un-Conservative over the plans.
Lord Cruddas, the founder of trading business CMC Markets, said: “Conservative governments should be looking to reduce tax not increase it, otherwise we might as well call ourselves Lib Dems or Labour, because our policies are their policies.
“You cannot tax your way out of recession. I fear that the Conservative Party is no longer Conservative but an amalgamation of Lib Dem and Labour and Remainers.”
Mr Hargreaves said that increasing CGT is “the best way to stifle the economy”, adding that it’s an “unfair tax” that “stops capital moving”.
Instead, he said ministers should target cuts to public spending, including axing a raft of civil service jobs …
How true!
The Telegraph‘s Matthew Lynn cast doubt on the £50bn black hole that Hunt was trying to fill. Lynn posits that the OBR’s — Office for Budget Responsibility’s — calculations differed to those of certain think tanks:
“One has to differentiate between a forecast and holy writ. And there is some extent to which the OBR is being viewed as holy writ, rather than a forecast, and that is a mistake,” said Jacob Rees-Mogg, the former Business Secretary.
“The Chancellor has to decide how much weight to put on these forecasts. The OBR’s forecasts are forecasts based on certain inputs into its model which are variable. Some changes in the variables lead to very different forecasts,” he added.
“We have seen this over the past few weeks with the size of the so-called black hole fluctuating by tens of billions of pounds, on movements in the gilt market and so on.”
In private, many more senior Conservatives, from all wings of the party, have plenty of sympathy with that view …
The Progressive Economy Forum put out a report on Thursday arguing that if you added up the numbers slightly differently the “black hole” completely vanished. For example, if the Treasury switched back to the rule used for calculating the way both the Government and the Bank of England’s debt is added up it would completely eliminate the deficit.
“If the ‘hole’ disappears with small changes in forecasts or accounting rules, it is not a reliable basis for economic policy changes, especially of the size the government is reportedly considering,” argued the Forum’s economist Jo Mitchell.
Hmm. It should be noted that, since 2021, the OBR have underestimated Britain’s financial health as a nation. Lynn’s article has a chart showing the OBR’s initial accuracy which veered off piste post-pandemic with four inaccurate forecasts.
On November 14, the Sun’s political editor Harry Cole posted ‘How will “Scrooge” chancellor Jeremy Hunt’s budget affect you — from stealth taxes to higher energy bills, we reveal’:
… recent weeks have seen an extraordinary number of leaks and authorised briefings from the Treasury as Mr Hunt looks to fix an estimated £60billion hole in the nation’s finances.
Understandably, this torrent of potential bad news flowing out of Whitehall has left people worried and confused.
The Chancellor, meanwhile, has appeared to be revelling in his role as the bearer of endless bad news about tax hikes – alarming low-tax Tory MPs in the process, who are worried he risks choking off growth.
Political Editor Harry Cole looks at the ideas he is considering and gives each a Tiny Tim’s crutch rating out of five for the pain it will cause . . .
Fiscal drag, although Cole did not call it that, came true in two instances. This is the first:
Mr Hunt is expected to cut the income level at which the top 45p rate of tax kicks in – from £150,000 to £125,000.
This will pull thousands more into the highest rate of tax over the next four years.
While it will allow him to say the wealthiest will pay the most, it raises only £1.3billion, roughly half the amount spent every year putting up asylum seekers in hotels.
Critics warn it will deter investment in the UK.
This is the second:
HIGHER-RATE taxpayers pay a 20 per cent rate on profits from assets such as shares and 28 per cent on second homes, above a £12,300 tax-free allowance.
Mr Hunt is considering reducing this threshold to £6,000.
On November 15, The Telegraph‘s Allison Pearson wrote that ‘Ebenezer’ Hunt seemed to have compassion for everyone except the middle class:
… Jeremy “Ebenezer” Hunt says “people with the broadest shoulders will bear the heaviest burden” after the “horrible decisions” he has had to make for Thursday’s Autumn Statement. We know what that means.
Sorry, your Government is too cowardly to cut the bloated and underperforming public sector because the Left and those people on TV will yell at them and say the Conservatives “lack compassion” … But they still need to fill that £58 billion black hole in the nation’s finances. So, that leaves us, the poor bloody infantry. The Government knows the middle classes can be relied upon not to take to the streets or go on strike or make an embarrassing fuss of any kind. That’s why, when the Chancellor outlines his tax rises and cuts at the dispatch box, it is we, the middle classes, who will be the designated … mugs.
… Why is the party of business – and of those who work hard and try to stand on their own two feet – capable of feeling “compassion” for everyone except their own voters? …
Attacks on a just-about decent standard of living come so thick and fast it’s hard to keep up. Now, middle-class families are squeezed out of child benefits while being asked to foot the bill for soaring childcare costs. As this paper reported, hundreds of thousands of families will lose their child benefit over the next six years, thanks to a stealth raid by Jeremy “£17 million net worth” Hunt. Under the current rules, households lose the right to claim child benefit if one parent earns more than £60,000 …
Middle class taxes are now funding services to which the middle classes are not even entitled. According to the IFS, the 50 per cent of households with the largest incomes contribute around 78 per cent of taxes. After above-inflation increases in the personal allowance to £12,570 a year, 23 million people – roughly half of British adults – pay no income tax at all. That leaves almost 31 million of us to foot the bill for running the entire country. Don’t get me wrong. It is absolutely fair enough to want to protect the poorest from strain and debt (although we may wonder why quite so many working-age people are economically inactive). What really isn’t fair is hanging lead weights around the necks of more and and more aspirational Britons in order to pay for mistakes made by their leaders.
On November 17, Guido published Jeremy Hunt’s Autumn Statement in full.
Hunt appears to still believe that more migrants lead to an improved GDP. However, if one looks at GDP per capita, the results are different.
The Telegraph told us more in ‘Why Jeremy Hunt is relying on a surge in migrants to boost Britain’s flagging economy’. Here is another OBR trope — one which they cannot forecast correctly:
Jeremy Hunt is relying on a surge in net migration to more than 200,000 people per year to help deliver economic growth as he oversees a sharp rise in the tax burden to its highest ever peacetime level.
The Office for Budget Responsibility (OBR) predicted net migration – the numbers entering the UK minus those leaving – will be 224,000 next year, before gently declining to settle at 205,000 a year from 2026 onwards.
This is dramatically higher than the OBR’s March estimate, when it predicted that net migration would be between 139,000 and 129,000 in the same years, some 80,000 lower.
It is also significantly higher than the long-term “ambition” of Suella Braverman, the Home Secretary, to reduce net migration to below 100,000 – similar to the target of Theresa May, one of her predecessors in the post.
The increase in migrant labour will help to buttress Britain’s economy as Mr Hunt imposes higher taxes on earnings, jobs and investment. The OBR said that an increase in migration would help add to the potential size of the economy.
The Financial Times reported that the aforementioned Conservative donor Lord Cruddas was still angry about the Conservatives’ anti-Conservative budget. It should be noted that Cruddas still supported Boris Johnson at that point.
On November 18, Lord Sumption wrote that the budget was about the cost of lockdown rather than Ukraine or global economic turmoil:
The UK’s public finances are in a worse state than at any time since the Second World War. Not the Government’s fault, says Jeremy Hunt. It’s the pandemic. It’s Ukraine. It’s world-wide interest rates. It’s just about anything other than the main culprit lurking in the background: the lockdowns of the last two years.
Let us look at a few sobering facts. First of all, government expenditure associated with the pandemic has been by far the largest contributor to the current deficit. The National Audit Office (NAO) has estimated the total cost at £376 billion, or £5,492 for every man, woman and child in the land.
Secondly, most of this expenditure was not in fact caused by the pandemic, but by the government’s decision to respond by locking the population down. Less than a quarter of the NAO’s figure represents the extra cost of health and social care. Most of the rest is the cost of supporting people prevented from working and businesses prevented from operating. At the height of the pandemic, the government was spending about twice as much per month on paying people to do nothing as the entire cost of the NHS.
Compare the modest financial hit experienced by Sweden, the only European country to see through the hype by which other governments sought to justify their measures. Sweden operated a largely voluntary system and refused to lock down. Pandemic-related measures cost 60 billion kronor in 2020 and 2021, according to government figures. This works out at about £460 a head, less than a tenth of the UK figure. Yet their results in terms of both cases and deaths were a lot better than ours …
The true cost of this terrible social experiment is now becoming clearer. Health professionals warned at the time that lockdowns would have a serious impact on mental health and on the diagnosis and treatment of other conditions. All this has come to pass as surely as Rishi Sunak’s warnings about the cost. Excess deaths are currently running at about 10 per cent above historic rates, almost all from conditions other than Covid. By far the biggest contributor is dementia, a condition aggravated by loneliness and lack of stimulation.
… An estimated million people have left the workforce, about half of them older people who simply gave up during the lockdowns.
All this is fundamentally a failure of government. It is what happens when radical decisions are made affecting every one of us, without looking at the whole picture.
That evening, Guido told us that Jacob Rees-Mogg appeared on Channel 4 News to say:
the former Business Secretary spoke out against fiscal drag and the absence of commitments on efficiency reforms. He added he was “simply making the case for conservatism”.
Hunt had earlier told Sky News:
There is nothing conservative about spending money you haven’t got. There is nothing conservative about not tackling inflation. There is nothing conservative about ducking difficult decisions… and that’s why this is a very conservative package.
On a somewhat related issue, The Times reported that Scottish convenience shop owners were struggling to meet the costs of an increased minimum wage. I put that in bold, because an increased minimum wage is often considered to be a good thing, yet, in reality, we have the law of unintended consequences:
Convenience stores in Scotland are at risk of closure after the large rise in the national living wage, the industry body has said.
The Scottish Grocer’s Federation (SGF) said that its members were already dealing with spiralling energy and food costs. The 9.7 per cent rise in the living wage to £10.42 an hour was announced in the autumn statement and will become law from April. Minimum wage scales for workers aged between 16 and 22 were also increased by a similar percentage.
SGF said that the changes would present a “significant challenge” for many convenience stores.
Pete Cheema, the chief executive of the federation, said: “The hike to the national living wage from April represents almost a double-digit increase and will hit retailers hard particularly as wage costs are a large proportion of shop costs.” He said the rise would jeopardise profitability, employment sustainability and ultimately the survival of businesses.
“This comes at a time when convenience retailing businesses are being confronted with an exceptionally challenging trading environment which is characterised by the industry being exposed to soaring energy costs, rising inflation, and rising interest rates and a cost-of-living crisis,” he said.
“While there are no easy answers, this latest increase to the national living wage will potentially prove a step too far for many retailers” …
Jeremy Hunt, the chancellor, announced a package of support that will allow eligible firms to claim up to £110,000 of relief on their rates bills.
The Institute of Fiscal Studies, the research institute, suggested the range of higher taxes being ushered in by Hunt were likely to persist for many years to come …
Paul Johnson, the director of the IFS, believes the chancellor’s plan means people should expect to pay more for longer. He said: “I would be most surprised if the tax burden gets back down to its long-term pre-Covid average at any time in the coming decades. Higher taxes look to be here to stay …
“After years of stagnation, household incomes are set to fall and then recover only gradually, while taxes rise and public services continue to struggle. The truth is we just got a lot poorer. We are in for a long, hard, unpleasant journey.”
The public were already aware of that, though.
On November 19, The Telegraph reported that Hunt’s Autumn Statement had rattled voters:
Almost half of voters say the Chancellor’s measures – which included tax increases and spending cuts – have made them feel more concerned about their own financial circumstances.
The poll, by Ipsos UK for The Telegraph, also found that the public supports Labour more over the economy than the Conservatives, with 34 per cent reporting that they trusted Sir Keir Starmer’s party, with 28 per cent for the Tories and 31 per cent trusting neither.
But between the two main party leaders, Rishi Sunak was trusted more than Sir Keir, with the trust of 36 per cent of the public, compared with 28 per cent.
The findings – which are among the first to account for public reaction to the statement on Thursday – will nonetheless make grim reading for Downing Street as ministers attempt to reassure the markets and public that they can deliver an economic recovery.
The Office for Budget Responsibility has forecast a recession that will last “just over a year” in the prediction that accompanied the Autumn Statement, as it said living standards in the UK would fall to their lowest level on record.
When asked about the effect of Mr Hunt’s measures on the overall health of the economy, 40 per cent of the public felt more concerned since his statement, while 25 per cent felt reassured.
Forty-six per cent of voters said they felt concerned about both Britain’s public services and their own personal finances after the announcement …
Almost a third (27 per cent) of Conservative voters said they opposed the tax rises, and 38 per cent said they did not believe the party had a “long-term economic plan”.
Respondents were asked which factors they blamed most for the economic problems the UK is currently facing.
The Covid-19 pandemic was the most common culprit, with 84 per cent of voters saying they felt it had a fair amount or a great deal of an impact on the economy …
On November 28, The Conservative Woman reproduced with permission an article that first appeared in Global Britain, Ewen Stewart’s ‘The magical thinking behind the Budget’. I hope he uses the aforementioned online Treasury form to attach full details for the Chancellor’s Autumn Statement:
… The three key assumptions they [OBR] make relate to GDP growth, CPI and employment levels. In each case I believe their forecasts border on magical thinking. Their optimism enables the fiscal deficit (amount HMG borrows) to rapidly evaporate over the next few years, thus giving Jeremy Hunt the green light for his brutal Budget.
First, the OBR sees a very shallow recession with a GDP decline of 1.4 per cent in 2023 then bouncing back strongly with by 2025 consistent growth above 2.5 per cent. Second, it assumes inflation (CPI) peaks now and begins to fall in 2023 – but from 2024 there is effectively almost no inflation at all and even some deflation. Third, it assumes, despite recession, that unemployment remains sub 5 per cent while the level of those actually in employment is steadily maintained.
Dealing with GDP growth – given the scale of the challenges from rapidly increasing mortgage and utility costs, to the unpredictability of war, to the highest tax burden since 1948, to the aftershock of lockdown and parlous levels of Government indebtedness – a shallow recession of that magnitude looks very optimistic.
Moreover, the UK has not grown consistently at above 2.5 per cent pa – as the OBR suggests will happen by 2025 and onwards – since the early 2000s. Where exactly is this growth to come from in a highly taxed, macro-managed economy? It’s not obvious to me.
Indeed this Government has done more than any to destroy the engine of growth – low and stable tax, modest and proportionate regulation and the rule of law. The converse simply undermines the UK’s competitive position and not many of the top 1 per cent, who pay 27 per cent of the income tax base, need to decide it’s sunny in Oporto with some decent wine before the domestic base is totally undermined. That does not look like a recipe of 2.5 per cent-plus growth to me.
On inflation, the OBR forecasts effective deflation from 2024 based on the view that higher carbon prices will wash through as a one-off, coupled with the dampening impact of recession. While I accept both factors, this analysis ignores some key counter-trends.
First, given HMG has confirmed it will increase out-of-work benefits in line with CPI (currently 11.1 per cent). This suggest that pay deals with public sector unions are likely to be on the generous side. While the nurses’ demand of 17 per cent might be opportunistic, does anyone really believe this Government has the stomach for a fight?
What signal is it to unions if the growing ‘can’t work’ sector get a CPI rise? Surely large public sector pay rises are on the way doubtless linked to rather dubious long-term public sector productivity targets? Higher wages can clearly be inflationary in themselves and with the state 48 per cent of GDP, with weak productivity, this must undermine the OBR case.
Second, regardless of what happens in Ukraine, Nord Stream 1 & 2 are no more and Russian gas is most unlikely to be tradable in the West in the long term. The recent price rises may be one off, but with hedging strategies and lead times it is surely naïve to believe inflation does not remain inbuilt in the system in the medium term? High carbon prices are most probably embedded.
Third, while interest rates have risen sharply, which is a clearly a dampener, real yields remain strongly negative, continuing distortions.
Fourth, the cancellation of Russia has extraordinarily accelerated the Net Zero agenda in the policy arena. This is also inflationary embedding even with higher energy prices.
Fifth, and critically, the aftershocks of lockdown remain in terms of labour availability, supply chain disruption and the like with producer price inflation well ahead of CPI throughout Europe.
And on unemployment to suggest, as the OBR seem to, that there will be no net decline in total employment is, in our view, eccentric.
All the foregoing really matters because it impacts both tax receipts and spending pledges …
January 2023
Jeremy Hunt remained obstinate as 2023 began.
On January 2, The Mail‘s This is Money reported that he refused to entertain a return to VAT-free shopping for foreign tourists:
Jeremy Hunt faced a fresh backlash from industry chiefs over his ‘crazy’ so-called tourist tax.
Opposition is growing among bosses from the retail industry to hotels, bars and restaurants over the removal of VAT-free shopping for international tourists.
In the latest intervention, the boss of Bicester Village [a luxury discount outlet mall] … renewed warnings that Hunt’s tax is driving shoppers away from Britain to European rivals.
James Lambert, who set up the Oxfordshire luxury shopping outlet’s owner Value Retail, said international shopping tourism across Europe has seen an ‘unprecedented’ jump this year.
But, he said, there has been no growth in international shoppers visiting the UK, suggesting the 20 per cent VAT tourists now have to pay has dampened the country’s appeal.
His intervention came days after Kurt Geiger boss Neil Clifford warned that the tax is ‘driving visitors to Paris and Milan’.
Clifford said he was ‘immensely disappointed’ when the UK gave up VAT-free shopping for international tourists.
On January 12, Hunt vowed to cut down on what Guido rightly called ‘woke waste’ in Whitehall, where London’s top civil servants work. It does not seem to have happened as Guido has had subsequent articles on sustained or increased waste in all the usual areas.
The following day, Guido told us that the Treasury held a Chinese feast. Would this have had anything to do with Mrs Hunt, Lucia Guo? According to a 2021 story in the Mail, she was regularly appearing on Sky TV’s China Hour.
Apparently, the Hunts were not involved. Guido has a photo of flags, fans and dragons decorating the buffet:
Co-conspirators won’t be surprised to see that the tofu-eating wokerati are making themselves at home in the Treasury, with “tofu, water chestnut and mushroom in black bean sauce” one of the meals on offer – for a modest £5.02. The meal went down well. A source claims the queue was the longest they’ve seen, adding that the dumplings “looked peng”. Guido’s just glad the Chancellor wasn’t behind the move. The coffers couldn’t handle the strain of subsidised sushi.
No doubt the taxpayer still footed the bill, though.
February 2023
On February 5, Telegraph columnist and GB News economics reporter Liam Halligan told us, ‘Jeremy Hunt should ignore the doom-mongering IMF and freeze corporation tax’ in advance of his Spring Statement on March 15:
“We need to turn ourselves from a high-tax, low-growth economy into a low-tax, high-growth economy”. So said Jeremy Hunt last summer, while vying to be Tory leader …
After Boris Johnson’s resignation in July, Hunt’s pitch for the premiership stressed that, as an entrepreneur who made his fortune before politics, he was uniquely placed to get the British economy moving.
… “We need to start up Britain now,” he declared. “To send a signal the UK is the most pro-business economy in the world”.
Spool forward seven months and …
Hunt now wants to stick with the hefty six-percentage-point hike in corporation tax due this coming April – a move Sunak announced and legislated for when he was chancellor in March 2022.
Yet raising corporation tax so sharply makes no sense. In his Spring Statement on March 15, Hunt should announce that the Government has changed its mind – and freeze corporation tax at 19pc after all …
… I don’t buy the Bank of England’s doom-mongering, nor that of the International Monetary Fund – which last week decreed the UK economy, alone among the G7 nations, will shrink this year.
This is the same IMF that predicted, just before the mid-2016 European Union referendum, that a vote to leave would spark an immediate economic collapse – which never happened. It’s worth noting, in fact, amid the relentless negativity surrounding the third anniversary of our formal departure, that since 2016 the UK has grown by 5.7pc, the same as Germany, despite our service-driven economy being hit much harder during lockdown.
Back in September, the IMF was warning, ahead of Truss’s mini-Budget, that the UK shouldn’t cut taxes, despite tax as a share of GDP hitting a 70-year high. Now, the same IMF shamelessly cites “fiscal tightening” as the reason it has slashed its UK GDP forecast for 2023 …
In the here and now, the case for reversing this corporation tax rise is overwhelming. For one thing, the official line that this tax increase will raise £18bn – promoted by the Office for Budget Responsibility (OBR) – is nonsense.
Why? Because such a sharp tax rise, on top of the ravages of lockdown, supply chain inflation and sky-high energy bills, will push countless firms over the edge. Far from raising revenue, hiking corporation tax from 19pc to 25pc will cost the Treasury money.
From 2010 to 2017, as UK corporation tax fell from 28pc to 19pc, receipts doubled from £31.7bn to £62.7bn – such was the incentive effect, the impact on investment that Whitehall mandarins ignore, as the headline rate came down.
That’s one reason to disregard warnings that Hunt “can’t afford” to avoid a corporation tax rise. Another is that official forecasters, just like the IMF, have become far too pessimistic – particularly now, with the economy through the worst.
In a little-noticed technical report last month, the OBR admitted that, compared to its March 2021 forecasts, it underestimated eventual 2021/22 income tax and national insurance revenues by £14.7bn (or 11pc) and corporation tax receipts by a massive £23.1bn (58pc). Having misread the economy completely, the OBR forecast of government borrowing was a mind-boggling £108.5bn too big – an over-estimate of no less than 46pc.
… OBR forecasts should be an aid to policymaking, not a straitjacket.
What matters far more is business acumen, judgement and leadership. I thought Hunt understood that. So what is he thinking?
On February 21, The Guardian splashed a headline, ‘Bigger public sector pay rises unaffordable, chancellor says’, however, the article revealed more OBR mistakes in forecasting:
… In the final snapshot of the public finances before next month’s budget, bumper self-assessed income tax receipts helped to bring in more money for the government than it spent, according to the Office for National Statistics.
The surplus was £5bn higher than the government’s fiscal watchdog, the Office for Budget Responsibility, had expected, although it was £7.1bn smaller than in January 2022. Analysts polled by Reuters were taken by surprise, having predicted that the government would have to borrow £7.8bn in January.
Public borrowing for the year so far was about £30bn lower than forecast by the OBR in November.
March 2023
As it happened, Hunt’s Spring Budget 2023 wasn’t all bad news. Guido has the main points — as well as the full statement. Hansard has his delivery to the House of Commons and the subsequent debate.
Positive headlines included:
-
- Hunt will abolish the lifetime allowance on pensions savings.
- Increase to pensions annual tax free allowance of 50% – from £40,000 to 60,000.
- 30 hours of free childcare for every child over the age of 9 months – worth £6,000 per year on average. To be introduced in stages.
- Government will continue the £2,500 energy price cap for another three months.
- The cost of energy pre-payment meters will be brought into line with direct debit payments.
- £63 million fund to keep swimming pools afloat in wake of high energy costs.
- Duty on draft beer sold in pubs frozen.
- Fuel duty to remain frozen. 5p cut in the price of petrol will remain intact.
- 12 new investment zones, including at least one in Wales, Scotland and Northern Ireland. £80 million in support to catalyse “new innovation clusters”.
- £400 million for new levelling up partnerships.
- Third round of levelling up find will provide £1 billion more to community projects and infrastructure.
- £8.8 billion funding over 5 years in next round of City Region transport settlements.
- Extra £200 million funding to fix potholes.
- £5 billion in funding for defence. Will add £11 billion to defence over the next five years – to 2.25% GDP by 2025 and 2.5% when circumstances allow.
- £30 million to support the Office for Veterans Affairs.
Hunt said that his economic plan was progressing as expected:
The UK will not enter a technical recession this year… we are following the plan, and the plan is working.
He also said that inflation was set to fall from 10.7% in 2022 to 2.9% by the end of 2023.
On the negative side, however, the April corporation tax rise went into effect.
July 2023
On July 19, Guido told us that inflation was going down, defying the forecasts:
Rishi Sunak has finally awoken to some good news – inflation for the year until June was 7.9%. This represents a drop of 0.8% on the previous month, which is more than economists had expected. Core inflation, which last month rose to a thirty-year high, also fell – it now sits at 6.9%. The drop was largely caused by falling fuel prices, as food prices increased by far less than they did in June 2022. Jeremy Hunt commented on the figures to Sky News:
It’s obviously welcome news that inflation has fallen. And it shows that if the government and the Bank of England are prepared to take difficult decisions, we can win the battle against inflation. But nonetheless, for families up and down the country prices are still rising much too fast – there’s a long way to go. If we look at inflation at 3% in the US, 5.5% in the Eurozone, you can see that if we stick to the plan, we can bring down inflation.
The Guardian‘s report of the same day was more pessimistic.
August 2023
On August 6, Liam Halligan criticised the Bank of England for raising interest rates again without giving time for the previous rate hikes to bed in:
The Bank of England was wrong to put up interest rates last Thursday – its 14th increase in 21 months. The Monetary Policy Committee voted to raise the Bank’s main benchmark rate by 0.25 percentage points – from 5pc to 5.25pc, the highest since April 2008 …
… the MPC … continuing to raise rates further than is necessary, imposing yet more pain on households and firms, compounding its earlier error in a bid to salvage its shattered credibility.
Inflation is coming down anyway and, while the misery for variable-rate mortgage holders is immediate, the impact of recent rate rises won’t feed through to the broader economy for around 12 to 18 months – by which time inflation could be below 2pc, perhaps even in negative territory …
… As business sentiment suffers, and bank lending falls, UK monetary aggregates are now contracting even faster than in the US and across the European Union – a historically extremely reliable sign that inflation is set to fall.
This column has been arguing since April that the Bank of England should stop raising interest rates. Increasing numbers of economists now agree – including one bold MPC member, who voted to keep rates on hold. The majority of the committee, though, seem determined to plough on, imposing rate hikes which, at this stage, are completely counterproductive.
On August 16, Guido had more good news about inflation falling for the third month in a row, although the consumer price index (CPI) remained unchanged:
Inflation for the year to July 2023 was 6.8%, down from 7.9% the previous month. According to figures released today by the ONS, it marks the third consecutive month of a fall which brings inflation down to its lowest point since February of last year. The drop was in line with forecasts and mostly due to falling energy and gas prices – which came thanks to the lowering of the energy price cap in July last year – though food price rises also slowed. It’s not all good news, core CPI remains unchanged on last month, whilst services prices, watched closely by policymakers, increased to 7.4%. Their highest rate on record.
Jeremy Hunt said:
The decisive action we’ve taken to tackle inflation is working, and the rate now stands at its lowest level since February last year. While price rises are slowing, we’re not at the finish line. We must stick to our plan to halve inflation this year and get it back to 2%.
Guido said that for Hunt to reach his goal:
CPI would need to fall to 5.3% by the end of the year.
That same day, Guido reported that the Netherlands followed Germany into recession, while the British economy grew, albeit only slightly:
First Germany, now the Netherlands. The Eurozone’s fifth largest economy unexpectedly fell into recession today, shrinking 0.3% on a quarterly basis in Q2. It follows a 0.4% contraction from January to March. Consumer spending fell 1.6%. Meanwhile the UK economy grew by 0.2%…
September 2023
On September 20, Guido reported that there was further good news on the inflation front:
The Office for National Statistics reports the Consumer Prices Index rose by 6.7% in August, down from 6.8% in July. Hunt is capitalising on the economist-defying decrease and said his plan is “the only path to sustainably higher growth.” The OECD predicted yesterday that UK inflation will fall to 2.9% next year. Buoying news for Rishi’s team…
Even better, the Bank of England did not raise interest rates. Had more members of the Monetary Policy Committee started reading Liam Halligan’s columns?
On Wednesday, September 27, Guido posted that business registrations were down for the first time in 12 years:
Office for National Statistics data out today tells a sorry tale for UK business start-ups as the number of registered VAT or PAYE businesses has fallen for the first time since 2011. From March 2022 to 2023 there was a 0.9% decrease in the number of companies. Every category of registered business saw a decrease, apart from local authorities and non-profits which rose by 2% and 0.8% respectively. Quelle surprise…
With public sector productivity already down 9.5% this year the new stats from the private sector don’t make happy reading for Hunt ahead of what looks to be a damp Monday Business Day at Tory Conference, especially as corporate executives are banging on Keir Starmer’s door and shelling out £2,520 just to attend a forum at Labour conference. Great timing for a corporation tax hike…
Conclusion
Whatever happens, the United Kingdom is surviving for now. Although this headline from UnHerd is pessimistic, ‘The white heat of Britain’s decline’, the article says that we are still positioned as a strong economy:
… even amid our own “orgy of self-criticism” today, Britain remains one of the foremost industrial nations in the world, overtaking France to become the eighth largest manufacturing nation in the world this year and the sixth largest economy.
Even better news emerged today, Friday, September 29. The Times reported, ‘UK GDP: Economy grew faster than Germany and France after Covid’:
The UK economy is far bigger than before the Covid-19 crisis than first thought, with the country’s growth outpacing Germany and France, new revisions to official data this morning revealed.
Gross domestic product is now estimated to be 1.8 per cent larger compared with the final months of 2019, just before the pandemic swept through the country, according to the Office for National Statistics (ONS). The revised figures mean that the economy has added about an extra £10 billion in output since the final quarter of 2019.
Under its initial estimates, the statistics agency thought the economy was 0.2 per cent below its pre-pandemic levels. The new figures come after the ONS said earlier this month, in a re-estimation of output, that Britain’s GDP reached its pre-Covid size in the final months of 2021. It was still thought to be lower only a few months ago.
That change meant the country lost its position as the worst performing economy in the G7, a title that has been handed over to Germany, whose economy is thought to be about the same size as before the pandemic. It also means that the UK’s performance has outpaced that of France …
Grant Fitzner, chief economist at the ONS, said: “ … Our new estimates indicate a stronger performance for professional and scientific businesses due to improved data sources.”
Access to richer information led the ONS to raise its estimation of output during the pandemic, with consumer spending and healthcare output receiving massive upgrades.
Excellent!
Anyone with more accurate models and economic policies than the OBR and the IMF should definitely let the Treasury know by Friday, October 13. The Treasury do not need to know anyone’s identity. The final question on the form requesting it says: ‘optional’.
Churchmouse Campanologist 