I was going to title this one The Budget, but then I decided I wanted ‘The’ to be read ‘Thu’ as in Thud but with a silent ‘d’, and all three syllables to have equal weight, i.e. Thu Bud Jet. That’s because it sounds heavy and clumsy and odd and unbelievable, like Kwarteng’s debut (deh bew?) budget à la Trussonomics and the reactions to it.
What is Trussonomics?
In outline, Thu Bud Jet ticked the right boxes for economic growth: cut taxes (including that top rate cut, which was economically sound but politically stupid), simplify regulation and facilitate private investment. A stronger economy will increase tax revenues over time and more than make up for tax cuts. The alternative, i.e. higher taxes for the rich, windfall corporation taxes and other favoured solutions of the left raise peanuts and actually drive away investment and tax receipts.
In outline, Thu Bud Jet ticked the right boxes for economic growth: cut taxes (including that top rate cut, which was economically sound but politically stupid), simplify regulation and facilitate private investment. A stronger economy will increase tax revenues over time and more than make up for tax cuts. The alternative, i.e. higher taxes for the rich, windfall corporation taxes and other favoured solutions of the left raise peanuts and actually drive away investment and tax receipts.
Where did the budget go wrong?
Until growth delivers, there’s a funding gap which has to be filled by a combination of spending less and borrowing more. Where Kwarteng chiefly erred was in not spelling out what he’d cut where and exactly how he’d firstly fund and then pay down the extra borrowing needed for Covid, Energy Price Caps and the short-term tax-cuts. Saying 'when the economy grows' wasn't specific enough. Neither did he spell out how he’d support those on lowest incomes. Trickle-down economics doesn’t work. That’s one of the economic orthodoxies beloved of the centrish-orthodoxy: by making the rich richer (areas of the country as well as people) wealth will percolate through all geographical and social strata. In reality, the south-north and rich-poor divides have grown progressively wider over the years.
Until growth delivers, there’s a funding gap which has to be filled by a combination of spending less and borrowing more. Where Kwarteng chiefly erred was in not spelling out what he’d cut where and exactly how he’d firstly fund and then pay down the extra borrowing needed for Covid, Energy Price Caps and the short-term tax-cuts. Saying 'when the economy grows' wasn't specific enough. Neither did he spell out how he’d support those on lowest incomes. Trickle-down economics doesn’t work. That’s one of the economic orthodoxies beloved of the centrish-orthodoxy: by making the rich richer (areas of the country as well as people) wealth will percolate through all geographical and social strata. In reality, the south-north and rich-poor divides have grown progressively wider over the years.
To compound Kwarteng’s detail-vacuums, he didn’t present an analysis by the Office for Budget Responsibility (OBR), the independent body that scrutinises Government economic policy. Why didn’t he? I’m guessing the OBR didn’t like what he'd produced. So what? Just look at the number of things they get wrong. I’ll mention just one – they sided with SAGE in favour of Covid lockdowns on the flimsiest of evidence, when many others, including me, were doing The Scream impression, warning about the catastrophic impact on the economy and mental health issues (although I have to admit, I loved the lockdown tranquillity).
The OBR is supposed to be independent; they are politically, not economically. Peopled by ‘Sons of Keynes’, the OBR is part of the stuck-in-their-ways establishment groupthink that also includes the Bank of England (BoE), Treasury, IMF and EU. Collectively they’ve caused the problems (which Truss and Kwarteng are trying to get us out of) by sticking to their Keynesian orthodoxy, unable to think outside
Why did traders sell off the pound?
As it was, despite most budget measures being signposted beforehand so as not to take the markets by surprise (markets hate surprises), the pound plummeted. To be clear, this short-term sell-off of sterling does not mean that the budget trashed the economy; a negative market reaction is not the same as poor economic health; it’s herd-mentality jitters. So why were the markets jittery?
- As I’ve already said, the lack of detail and an OBR commentary
- The top rate tax cut, lack of clear support for the least well off and perceived threat to the environment just before the Labour Party conference got the markets thinking that Labour might win a general election, so speculators sold sterling and the price dropped.
- Anticipating a rise in interest rates to protect sterling, speculators realised that this might push us into a recession, so they sold yet more pounds.
- The price of Government gilts therefore rose rapidly, exposing pension funds and their risky ‘liability-driven investing strategies’, requiring a bail-out from the BoE, who had known since 2018 that something like this might happen one day, but didn’t do anything to prevent it. Sigh.
- When the markets saw what damage they themselves had done on the back of the budget, they lost faith in the Government’s ability to manage the economy and drove sterling even lower. I know it sounds daft but, honestly, if speculators make their money by saying the pound’s going to fall, then sell the pound in anticipation of it falling, thus causing it to fall, all in a legal day’s work, they can reason anything.
- Finally the IMF had their twopenny-worth and dissed the budget, further undermining confidence. Yes, that IMF – just google “IMF criticism” and see why they’re as unreliable as the OBR, and part of the problem.
Environmental deregulation?
Alongside the budget was an intent to review planning policy and environmental regulations, prompting most (not all) eco-organisations to have a collective cow, including the vegans. They claim that the Government is going for a development free-for-all at the expense of anything green and pleasant. What the Government has actually said is, not a lot. They’ve hinted that they want to streamline rather than slash the rules and that “Key planning policies to … maintain national policy on the Green Belt [and] protect our heritage … will continue to apply.” This of course is not an adequate guarantee of environmental protection, and eco-organisations are right to vociferously raise their concerns, but there’s vociferous and then there’s downright hysterical, which is how they have behaved. Such an overreaction was bound to raise eyebrows, and suspicions. Ya see, many eco-organisations fear losing lucrative sources of income from advising planning authorities and developers on technical and legal eco-complexities. They’re trying to whip up support (and donations) from supporters they lost when they originally decided to sleep with the enemy.
Alongside the budget was an intent to review planning policy and environmental regulations, prompting most (not all) eco-organisations to have a collective cow, including the vegans. They claim that the Government is going for a development free-for-all at the expense of anything green and pleasant. What the Government has actually said is, not a lot. They’ve hinted that they want to streamline rather than slash the rules and that “Key planning policies to … maintain national policy on the Green Belt [and] protect our heritage … will continue to apply.” This of course is not an adequate guarantee of environmental protection, and eco-organisations are right to vociferously raise their concerns, but there’s vociferous and then there’s downright hysterical, which is how they have behaved. Such an overreaction was bound to raise eyebrows, and suspicions. Ya see, many eco-organisations fear losing lucrative sources of income from advising planning authorities and developers on technical and legal eco-complexities. They’re trying to whip up support (and donations) from supporters they lost when they originally decided to sleep with the enemy.
Even without the worst-case-scenario bonfire of environmental regulations, plenty of damage can still be done: at the very least, no more damage than at present might be done but at a faster pace. This of course is still unacceptable. We need more environmental protections, not fewer or tweaks. It’s now widely accepted that a healthy environment is crucial for human well-being and indeed for the economy: e.g. tourism, niche ‘industries’ and products, sport and recreation, food-security, education and research, performing arts, better health means less strain on the health service.
Measuring success or otherwise
To better reflect the overall wellbeing of the nation that doesn’t stop at the pounds in our pockets, we need a measure other than or in addition to Gross Domestic Product (GDP). The House of Commons Environmental Audit Committee recently recommended that GDP figures be presented alongside statistics on environmental impact, because “the narrow scope of the GDP indicator does not encompass other measures of wider prosperity and well-being such as environmental statistics and social capital”. The ONS has since committed to publishing carbon emissions statistics alongside quarterly GDP figures. It’s a start, but we also need metrics and targets and proper plans for biodiversity, water quality, air quality and so much more.
We also need to weight the measures that focus on those least fortunate in our country, because the health of an economy, of a country, should be assessed by how those least fortunate are faring. So how about tempering GDP with social as well as environmental statistics: for the homeless, the number of domestic abuse victims, the number of child carers, the number of repeat offenders, the number considered to be voluntarily jobless. Sobering.
Conclusion
It’s taken me a lot of waffle to get this far: Trussonomics is good for economic growth, but not for wealth-distribution or the environment. For that, we need to go back to the drawing board.
It’s taken me a lot of waffle to get this far: Trussonomics is good for economic growth, but not for wealth-distribution or the environment. For that, we need to go back to the drawing board.
Apologies for any spelling mitakes in the below, trying to type with fat fingers on a small screen whilst riding a bus is not conducive yo accuracy. (Shut up Rach!)
ReplyDeleteOK, so I don't understand enough or know enough about the worlds of economics or the environment. He'll I can't balance my own budget, what smattering of I gained during studying for the AAT is long gone and my own humble abode is an environmental disaster waiting to happen, I thought the 5 fire prevention visitors I've hosted really were going to go into apoplectic shock, it wasn't so much the piles and piles of flammable materials piled around the place, the fact all door are wedged open I think it was the multiple plug adapter hanging perilously off the wall by reams of Gorilla tape. But I digress. Being a life long Science Fiction fan I recognise utopiias and dystopias and what leads to the creation of these extremes, (Alien invasion not a factor here. Though this has brought otherwise waring factions together and got everyone working to the same end, unfortunately that only works for Aliens from out of space not illegal or otherwise aliens from our own world. And even If we did face an Alien invasion from outer Space Putin would no doubt side with them on the hope they'd help him against Ukraine.
Like like minded people I've stopped supporting the lifeboats as they use their resources to go out to immigrant boats, not to turn them back or pick them up and take them back to where they came from, oh no. They bring them here to leach of our resources. Now before all the arms go up in abject horror, I know there are some bloody good workers come from such landings but I suspect the majority just want the benefits they can get while giving nothing in return. I've digressed that much I've lost my thread.
The Kwart-Truss up will prove itself, or not in time with or without the market manipulators.
I'll give them 10 out of 10, not for content or lack thereof but for timing, the day before the Labouredparty conference. Nothing like providing the enemy bullets to fire.