Fed up: Jeremy Hunt did not restore the economy
We have the right to feel full. Jeremy Hunt fixed the bond markets, but he certainly didn’t fix the economy.
While there are good reasons to believe that the upcoming test will not be as difficult as expected, the idea that the government is doing a lot to improve the long-term prospects for the economy as a whole looks extremely unconvincing.
So, first about the markets, then what can be reasonably said about losses, and then what a real growth program might look like.
Markets matter because financials need to look acceptable to institutions that will have to lend us money to finance the deficit. It’s done: 10-year bonds closed at 3.25% on Friday, comparable to the equivalent US Treasury rate of 3.8% and German bonds of 2%.
Approximately where we should have expected: below the US, but above Germany, where yields are still artificially low by the policy of the European Central Bank. At least we don’t pay a big premium.
Syllable? Well, if the government is spending billions to support people during a pandemic and a spike in energy prices, eventually someone has to pay the bills.
You can delay repayment by borrowing a little more, and you can negate the real value by clicking on the liners. But now we are faced with the uncomfortable truth that taxpayers have to pay the price, and since it is the rich who already pay most of the taxes, they will suffer the most. (In 2019-2020, the top 1% paid 29.1% of income tax revenue, and the top 10% paid 60.5%).
Then the question is less: “Who pays the bill?” and more: “What can make a bill smarter?” Here the only answer is growth is better than expected.
Turning my head, I think the Office of Financial Responsibility’s forecasts will turn out to be too bleak. To be sure, their views are in line with those of other mainstream forecasters, and they could not be trusted if they were the optimistic exceptions. But there are two reasons to believe that they may well be wrong.
First, the UK economy may be in somewhat better shape than is commonly believed. It is very difficult to understand what is really happening when the numbers are skewed by double-digit inflation.
Technically, the economy may be in recession, but if so, why are employers still requiring people to fill jobs? Why is the housing market still holding up? Why is it so difficult to rent a house in London? Why are retail sales okay? Tax revenue isn’t too bad either.
Second, the global economy may fare better in the next couple of years than mainstream economists expect. They’ve all been so wrong that they’ve lost confidence in themselves, and now they’re making up for it by adding to the gloom. The global economy is surprisingly coping with big hits. I think it will turn out to be more sustainable than economic models predict.
If this modest optimism about the drudgery is justified, then the government may find that it doesn’t need all the tax increases it has planned for mostly 2024 and beyond. It’s a smart policy: tell them it was terrible, but your brilliant handling means it’s not as bad as everyone thought. Not a bad line for the general election.
This is by far a better line than the chancellor’s line in terms of long-term growth. References to Big Bang and Nigel Lawson? The big bang was an inevitable step in financial deregulation, but it doesn’t matter now. Nigel Lawson lowered the top tax rate, not increased it.
HS2 and Sizewell C? HS2 is New Labor’s vanity project, it’s belated and well over budget. Sizewell C is similar to Hinkley Point C, but years late and overpriced. They won’t do much growth, so don’t trumpet them.
A real growth agenda must include other, more thoughtful elements. It would start with listening to business people about the obstacles they face. This would help remove bureaucratic barriers to trade, including with Europe.
He would comb through all this huge pile of rules that interfere with smaller firms. This will make taxation easier, not harder. This would eliminate scheduling delays. This would support genuine on-the-job training. This will raise his own productivity. And, above all, he will adhere to the Hippocratic Oath (in its abbreviated form): “First, do no harm.”
Others will have suggestions, but I think we can all agree that there was quite a lot of damage on Thursday.
Credit: www.thisismoney.co.uk /