Jeremy Hunt is hoping to recreate the Eighties “Lawson boom” with tax cuts in the March Budget, according to one particularly lurid splash headline in the Sunday papers.
Be careful what you wish for.
The Chancellor is old enough and — I assume — well versed enough in recent British economic history to know that it did not end well, either for the UK, or for the reputation of his Tory predecessor.
For younger readers... the Lawson boom refers to the sugar-rush period of rapid and unsustainable economic growth unleashed by remarkable reductions in personal tax rates at the back end of the Thatcher decade. In his 1987 and 1988 Budgets, Nigel Lawson slashed the standard rate of income tax from 29p to 25p, in two steps, and the top rate from 60% to 40%.
With the current straitened state of the public finances Jeremy Hunt is in no position to splurge such large-scale fiscal largesse, even in election year. And perhaps that is just as well. Lawson’s tax cuts — combined with signalling the end of multiple mortgage interest relief — poured petrol on an already red hot property market.
Within months of the 1988 budget, interest rates had doubled and the path was set for a nasty recession in the early Nineties that brought back the scourge of mass unemployment. The downturn also shattered the housing dreams of millions of homeowners when collapsing prices left them with deep negative equity that condemned tens of thousands to repossession.
Lawson had departed the stage by then, following his spat with No 10 adviser Sir Alan Walters in 1989. It was left to his unfortunate successor Norman Lamont to pick up the pieces.
Hunt has many difficult tasks ahead of him as he plans for the March Budget. But “doing a Lawson” is surely not a solution for any of them.
