Hunt’s high-tax plan hangs on a knife-edge
We can’t say we have not been warned. Jeremy Hunt, the Chancellor, has been as forthright as he could possibly be in preparing the country for the pain of this Thursday’s financial statement. He reaffirmed yesterday that deep spending cuts and tax rises across the board are in the pipeline as the Government struggles to bring the public finances under control.
Such has been the expectation management that anything less than a severe jolt would alarm the markets by suggesting that all the tough talk was a bluff. After the turbulence caused by Kwasi Kwarteng’s mini-budget, his successor’s principal aim is to reassure the UK’S lenders that the Government is serious about reducing debt. It was Mr Kwarteng’s attempt to generate growth while borrowing to fund tax cuts that spooked the markets and pushed up interest rates.
The danger for Mr Hunt and Rishi Sunak is that they now overcompensate for that mistaken strategy with another series of errors, strangling the economy just as it is about the enter a potentially deep recession.
In a series of weekend interviews, Mr Hunt said his intention is to ensure any downturn is shortlived and shallow, though it is hard to see how what we know of his plan will not damage business confidence and hit consumer spending.
The Chancellor is right to say that the economy needs to be on a sound financial footing both to combat inflation and to reassure investors that sensible decisions are being taken. Moreover, while the mini-budget may have exacerbated the country’s economic worse, it was not responsible for them. Heavy state and domestic indebtedness were not the consequences of Liz Truss’s ill-starred 45-day premiership.
They are partly the legacy of shutting down the economy during the Covid pandemic and spending hundreds of billions paying people not to work. The reckoning is now due and how it is handled in the UK will be watched carefully around the world by finance ministers who will have to do the same.
Anti-brexiteers say the UK is the only G7 nation to have a smaller economy post-covid than before and attribute this to the decision to leave the EU. This assertion is impossible to prove one way or the other, but it is true that any benefits from being outside the EU regulatory framework have yet to be realised. If Mr Hunt is going to inflict pain he also needs to show how and when it can be relieved.