The government’s tax-cutting pledges continue to pile up. We already knew Friday’s big reveal would bring a cut in national insurance contributions and a scrapping of the planned hike in corporation tax. Now, it is reported, a giveaway on stamp duty on house purchases is on the cards.
The coy phrase “fiscal event” doesn’t cover it. This is a full-blown budget in all but name. And, critically, it is being launched against the backdrop of a blank-cheque pledge to freeze household energy bills for two years, plus a parallel promise to support companies, charities and public sector organisations for six months – measures that, together, could conceivably add £150bn to public borrowing over the next two years.
What does it all mean for the public finances? Well, we won’t be told, at least not immediately, by the Office for Budget Responsibility (OBR), the body that matters most. The independent watchdog has been gagged, in effect, until the actual budget – which will almost certainly be a smaller fiscal affair – arrives later this year.
The Tory chair of the Treasury select committee, Mel Stride, is furious and is right to be. The economic weather has been transformed since the OBR’s last forecasts in March. If tax policy is to be rewired, a full analysis of its effects on the main moving parts of the finances – growth, the deficit, borrowing, debt-servicing costs – is essential.
Chancellor Kwasi Kwarteng’s plea that the OBR wouldn’t have time to do its work is feeble and disingenuous. OBR officials do not sit idly waiting for perfect data. They appraise and refine constantly. In an exchange of letters with Stride last month, Richard Hughes, the OBR’s chairman, said forecasts that meet the legislative standard could be produced by mid-September. The numbers wouldn’t be the final version but would represent “the most complete and up-to-date picture of the economic and fiscal outlook as possible”.
It is astonishing that Liz Truss and Kwarteng don’t see that it is in their own interests to invite scrutiny. Willingness to be open goes hand in hand with explaining the new economic thinking and gaining credibility in financial markets – markets that have the power to stall their project at the off.
In the early days of the new administration – about a fortnight ago, in other words – economic advisers were commendably frank that markets would be a key audience for a recipe of loose fiscal policy and tight monetary policy. “The new government needs to be mindful of the febrile state of markets,” wrote Gerard Lyons, a senior fellow at Policy Exchange, on the ConservativeHome website.
Since then, markets have become slightly more febrile. One shouldn’t overstate matters: the plunge in the pound is four-fifths a story of dollar strength; and being able to borrow at 3.3% for 10 years, as the UK government can still do, ain’t so bad when inflation is 9.9%. Yet nervousness is undeniable. Investors can see that the UK’s debt is about to surge, but can’t yet spot a credible path to Truss’s promised land of a permanently higher growth trajectory of 2.5%. The dots need to be joined – and then some. Scrutiny by the OBR would normally be part of the test.
Truss and Kwarteng may get away with dodging the microscope this time because markets have other things to worry about and the OBR cannot offer unique insight into the war in Ukraine. But refusal to publish a best-available analysis sends a horribly weak signal. It invites the suspicion that you’re scared about what an independent body would say.
If sterling and markets do react badly, which is also entirely possible, Truss and Kwarteng can only blame themselves. Silencing the OBR, even for a couple of months, is a backward step. It is a mistake they did not need to make.
Good sports all round
“I am pleased that we have been able to reach this amicable and constructive way forward with Peter,” said Andy Higginson, chairman of JD Sports, as he announced a £5.5m pay-off for the firm’s former executive chairman, Peter Cowgill.
One suspects that “amicable and constructive”, in this context, means lawyers crawling over every clause in the two-year non-compete terms that represents £3.5m of the agreement. It could hardly be otherwise: Cowgill departed suddenly in May after 18 years and amid acrimonious rows over governance.
As for the £2m three-year consultancy agreement, let us hope Higginson updates shareholders in time on the number of hours of consulting that actually occur. Note the conspicuous absence in the stock exchange announcement of a feelgood quote from Cowgill about how much he is looking forward to advising his successors. Maybe a few friendly words would have cost JD another million.
