Warning to Jeremy Hunt – No point to Tories if they behave like Labour
STEPHEN GLOVER: A pre-budget warning to Jeremy Hunt – there’s no point to the Tories if they simply behave like Labour
This country has been living beyond its means for years. Despite taxation being at its highest since 1950, the Government is forced to borrow billions of pounds to keep us afloat.
During the pandemic it went on an unprecedented spending spree, shelling out £407 billion in record time. God alone knows how much of that was squandered.
Perhaps former health secretary Matt Hancock could hazard a guess when he appears in the new series of I’m A Celebrity, which is about to hit our screens.
We’re in a pickle — and were before Liz Truss and Kwasi Kwarteng sent the markets into a spin, and the pound plunging, with their ill-conceived mini-Budget on September 23.
Many Tories will therefore have no complaint when the Chancellor announces spending cuts and tax increases two weeks today, in what is expected to be a bleak Autumn Statement.
Many Tories will therefore have no complaint when the Chancellor announces spending cuts and tax increases two weeks today, in what is expected to be a bleak Autumn Statement
He will inform us in sepulchral tones that times are grim. He’ll say there is a black hole of £50 billion in the public finances, which can be filled only by a combination of tax rises and reductions in public expenditure.
The markets, which are expecting such an announcement, will be pleased. The pound may tick up against the dollar. The rate at which the Government borrows money could fall further.
It is, of course, as vital for an inveterate borrower such as the UK Government to placate the markets as it is for those who run huge overdrafts to remain on friendly terms with their bank managers.
Nonetheless, I fear Jeremy Hunt is about to go too far. He is like a fanatical doctor called to a sick bed. Instead of getting the invalid into a state where a gentle walk around the ward might be contemplated, he seems hell-bent on finishing off the patient with over-drastic treatment.
This country is teetering on the brink of recession. The danger is that draconian spending cuts and new tax increases will tip us into an abyss, from which it will take years to climb out.
We can imagine it now. In his hangdog way, Mr Hunt will paint a vivid picture of the dismal state of the British economy and tell us that the £50 billion black hole must be filled.
He will then unveil forecasts supplied by the independent Office for Budget Responsibility. In 2023, the economy will contract, as will the economies of almost all advanced countries.
Perhaps former health secretary Matt Hancock could hazard a guess when he appears in the new series of I’m A Celebrity, which is about to hit our screens
By 2024 there may be a flicker of growth. In 2025, another. In 2026, perhaps a slightly bigger one. By 2027 — if we’re lucky and the gods don’t spring another shock — we may be back on a path of ‘trend growth’ of a mere 1 per cent a year.
In short, I expect the downbeat Chancellor will conjure up a familiar, and utterly depressing, portrayal of a semi-sclerotic economy spluttering and wheezing its way through the next few years.
At times like these one is entitled to ask: What’s the point of the Conservative Party? For we can be virtually certain that if Sir Keir Starmer were prime minister and Rachel Reeves chancellor, they would serve up identical measures. We might as well have Labour.
I long for evidence in Mr Hunt’s coming speech that he is a Tory who believes in low taxes, and is rather ashamed that, after 12 years of Tory rule, taxation is close to a record peacetime high.
I also yearn for proof that, as a Tory, Mr Hunt doesn’t believe in a burgeoning State that requires ever-increasing amounts of taxation to meet its endless demands.
As I say, he must convince the markets that he has a steady hand on the tiller, and isn’t going suddenly to yank it in another direction, which was the alarming impression given by Kwasi Kwarteng.
But Mr Hunt must not be entirely ruled by the markets. He should soothe them — and then set out a vision for faster growth than the bumping along of recent years. Why should the markets be unnerved by such a prospect?
How cross I am with Liz Truss and Kwasi! They had the right idea. Growth is the only way out of the mess we’re in. Lower taxes, which enhance growth, whatever some Left-wing economists may say to the contrary, are desirable.
How cross I am with Liz Truss and Kwasi! They had the right idea. Growth is the only way out of the mess we’re in
The two of them set about their plan in such a cack-handed way, like greedy children gobbling up all their sweets at once. They lacked patience and political guile. They wanted everything immediately, and weren’t prepared to work painstakingly for it.
Here are some of the things I’d like to hear from Jeremy Hunt on November 17.
I would like him to echo Rishi Sunak outside No 10 on becoming Prime Minister — that although mistakes were made by Truss and Kwarteng, their objective was the right one. Mr Hunt should do everything he can to promote higher growth.
I also hope he admits — though I don’t expect him to say this in his speech — that no other advanced country is implementing tax increases so soon after the pandemic and in the midst of an energy crisis.
Our debt as a proportion of GDP is one of the lowest among G7 countries. Now that the market panic of recent weeks has receded, it’s clear that Britain, despite its troubles, is in no worse a state than most of its competitors — and better than some.
Mr Hunt should also concede that the alleged £50 billion black hole may be a lot smaller. Even Rishi Sunak, though not denying the existence of the hole, is reportedly mystified by its sudden appearance. When he resigned as Chancellor in early July, he thought he had about £30 billion to spare.
Not only has that £30 billion seemingly vanished, the infamous hole has appeared. If these figures are to be believed, the Government is £80 billion worse off than it was when Rishi stomped out of No 11.
Even Rishi Sunak, though not denying the existence of the hole, is reportedly mystified by its sudden appearance
How can that be? Liz Truss’s reversal of the increase in National Insurance plus a reduction in stamp duty (neither of which Mr Hunt has yet undone) cost about £15 billion.
When the markets went haywire in late September and the start of October, the cost of servicing government debt shot up. But gilt yields have now come down, so that we’re roughly back where we were.
The other element in the supposed black hole is the cost of the energy bailout for consumers and businesses. As the price of gas plummets, the bailout could well cost much less than was originally feared.
My point is we don’t want to be dunned by Mr Hunt for extra taxes if the £50 billion black hole turns out to be smaller than is now accepted.
Admittedly, it’s possible the Government is playing games. It may be exaggerating our predicament so, a year before the election, it can suddenly declare modest tax cuts as a result of prudent management.
What I’m certain of is that if the Government hikes taxes on November 17 and makes injudicious spending cuts, it will demolish its already slim chance of winning the next election. There’s no point to the Tories if they simply behave like Labour.
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