What is the price of Truss’s mini-budget calamity?
Here is one way of seeing the price of the mini-budget’s incompetence.
The interest rate set by the Bank of England (BoE) may now peak at 5% rather than 6% - IF all goes to plan with Jeremy Hunt’s unwinding of that mini-budget’s tax cuts today and imposition of public spending reductions in two weeks.
That means the interest rate paid by all of us - on mortgages, on personal and business loans - would have been a full one percentage point higher than it needed to be without Hunt’s humiliating evasive action.
That would have had excruciating consequences for the prosperity of millions of people and businesses, which will anyway be squeezed by the coming recession.
In fact, Hunt and the Treasury thought it could have been worse still. Today’s emergency statement by the chancellor reflects fears in the Treasury, BoE and Debt Management Office that investors' anxiety, about the UK’s weakened public finances, would have led to a crash in government bonds - gilts - when markets opened this morning.
They will be relieved that the announcement of imminent additional tax U-turns has had the desired result. Gilt prices have risen, and the yield or de facto interest rate on them has fallen by more 25 basis points on average - or a full quarter of a percentage point.
So crisis over?
That cannot be taken for granted.
It is hard to over-estimate the damage to the UK’s reputation for sound economic stewardship caused by the decision of the last chancellor, Kwasi Kwarteng, and the still PM, Liz Truss, to manage the nations finances as though it was the trading book of a cowboy hedge fund.
To have slashed tax rates without finding the revenues to pay for the cuts was bad enough. Doing so without using the independent Office for Budget Responsibility to advise on the consequences, and having sacked her permanent secretary at the Treasury, Tom Scholar - who would have advised caution - was wildly reckless.
Kwarteng could not survive such wilful carelessness. It is more than moot whether Truss can and will.
And there are also questions to be answered by the top civil servant, Simon Case, for sanctioning such a breach of normal practice at a time of global financial instability.
Rebuilding the UK’s reputation for a competent government will be slow and painful.
Since the catastrophe of the UK’s IMF bailout in 1976, every successive Labour and Tory administration has vowed that never again would the UK risk losing the confidence of investors which provide vital credit to the government.
That was until September 6 when Liz Truss became PM.
Some Tory MPs and her colleagues say the fact that she has “listened” to what the markets have told her and “learned” is good enough, and that she can survive this.
Others tell me that’s bonkers, she’s lethally wounded herself.
Here’s the nightmare for her and us. When I saw that 6am emergency statement from the Treasury, I had a flashback to my frenetic time reporting on the financial collapse of Greece, during the global financial crisis 14 years ago.
The UK is still a long way from being in the kind of hole that Greece was in. But I genuinely never thought I’d see this kind of rolling series of tax and spending U-turns by any British government - a crisis caused exclusively by the ill-judgement of that same government.
Probably the best case Liz Truss can argue for keeping her job is that the damage she has wreaked to her party’s reputation will be hard if not impossible for any successor to mend.
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