Budgets, or as they are increasingly designated in Newspeak. ‘fiscal events’ need to be judged in their historical context. They are, after all, designed to have a lasting effect on our prosperity in the long term. This isn’t always the case, as we discovered with Kwasi Kwarteng’s autumn statement, all which was largely reversed within weeks.
Yesterday’s budget needs to be judged in the context of events dating back to 2010 when the Coalition Government inherited the most disastrous state of the public finances in peacetime, and a recession worse than any since the 1930ies. Incoming Treasury ministers were left a leaving note by their predecessors announcing that ‘there is no money left’.
Of absolute necessity, there followed the most significant cuts in public expenditure in order to ‘fix the roof’ as the Chancellor, George Osborne put it, and which he accused Gordon Brown of not doing during the much more advantageous economic circumstances that he had inherited in 1997 – when “the sun was shining”.
The Coalition’s financial policy was dubbed ‘Austerity’ by the opposition and it was predicted that it would lead to mass unemployment. On the contrary, as Jeremy Hunt boasted yesterday, it generated 800 new jobs per day, for every day that Conservatives have been in government since 2010.
And It put UK economic growth ahead of the other G7 wealthy economies.
Without the successful delivery of that financial policy, Britain would never have been able to access the billions that were needed to keep employment and the economy stable during the pandemic and to weather the economic impact on energy prices delivered by Russia’s invasion of Ukraine.
Without the ‘headroom’ created by the Coalition’s policy we would have faced the most disastrous of outcomes from either of those shocks to the economy.
That we were able to deal with them by hosing them with money, now provides the immediate context for this present budget. The phenomenal costs of business support and furlough, together with the eye-watering bill for subsidising energy bills are the explanation for the level of taxation being at a peacetime record: Record sums spent to get the economy through a pandemic and Russia’s war required record taxation.
The task of the Chancellor yesterday was to use what little room to manoeuvre that he had, to plot a path to lower taxes and reduced debt without spooking the markets.
In my estimate, he made a reasonable fist of it with a second recent reduction in direct taxation.
No doubt, my critics will complain that I have omitted two important factors from the context in which this budget fits: Brexit, and the short-lived Truss premiership.
I addressed the economic outcome of Brexit previously in this column Brexit Freedom Day (desmondswaynemp.com) . In a nutshell, our relatively good performance in growth, inflation and interest rates compared to the EU suggests that Brexit is not part of the problem.
I remember well, that was on a train to Oxford to defend the Government’s record at the University debating Union when I heard the news that Kwasi had been dismissed and that the measures that he had set out were to abandoned. Clearly it was a poor wicket on which to go out to bat.
The spike in interest rates, most unwelcome to those of us with mortgages, were on the way up in any case, and their trajectory has been similar to those experienced internationally.
As I said here at the time Two fingers to Socialist Dogma and Envy (desmondswaynemp.com)
I approved of all the measures individually and I want to see them all implemented as soon as possible. Kwasi’s mistake was to spook the markets by attempting them all at once, and at the same time as announcing the most generous energy subsidy entertained by any jurisdiction.
The modest measures set out yesterday are designed to get us to the same desirable high growth
destination to which Kwasi aspired, but -this time- by a secure route.