In 1984 three hundred and sixty four economists wrote to The Times to denounce Mrs Thatcher’s economic policy and predict disaster. Events proved them wrong.
I certainly hope that the same fate awaits all those economists, forecasters, pundits and journalists who have been almost hysterical in their denunciation of Kwasi Kwarteng’s Economic Statement to the Commons last week.
Previously in this column I have expressed my misgivings about the Government’s largesse and, most recently, its willingness to pay our energy bills (though I am persuaded that politically it had no alternative. Equally, the economic damage of recession as businesses and consumers retrenched in the face of their rising bills, would have been much greater than the costs of the relief package).
A number of correspondents have sought to goad me with the charge that the Government has now found the ‘magic money tree’ notwithstanding having denounced Jeremy Corbyn on account of his belief in its existence. I reply by pointing out to them that our scope to borrow eye-watering sums to address energy bills, is based on our comparatively healthy debt to national income ratio. And that this relative health is entirely the consequence of the fiscal restraint of the 2010-2015 Coalition Government which inherited an economic basket case and fixed it. They really did fix the roof, even though the sun wasn’t shining. It hurt but it worked.
I share entirely the free-market ideology that underpins the Chancellor’s statement. I support his vision for enterprise and investment to drive economic growth. My only reservation is that reduced taxation should be matched by reductions in government expenditure: A bigger role for free enterprise ought to be matched by a smaller role for the state.
There are risks: The higher borrowing might spook financial markets and drive up the costs of servicing our debt. The tax cuts might, with so many supply constraints still present as an overhang from the pandemic economy, add fuel to inflation, to which the Bank of England will respond with further interest rate increases. Nevertheless, alternative courses were hardly attractive with the prospect recession and stagnation. The Chancellor was right to be radical.
What particularly upset my correspondents was the abolition of the cap on banker’s bonuses. I am glad he grasped this socialist nettle. It is grotesque to limit the pay for people simply because we do not like them. It’s like cutting the pay of Premier League footballers just because we think they earn too much. We’d soon regret it when they went to play elsewhere. The Financial crisis of 2008 was caused by a confused and ineffective regulatory environment and not by bonuses. We want successful bankers to come back to the City of London, earn here, make a success of it here, and pay their taxes here. I rejoice at the two fingers the Chancellor has raised to socialist dogma and envy.