Reading between the lines reveals a lot about Kwarteng
Kwasi Kwarteng was unhelpful to his fellow historians in his first interview since he and Liz Truss “blew up the chemistry lab”, in George Osborne’s phrase. He managed both to accept his share of blame for the disaster – he bore “some responsibility” for the timing of
the mini-Budget, he said – and to suggest that he had warned Truss against trying to do too much too soon.
“The prime minister was very much of the view that we needed to move things fast,” he said. “But I think it was too quick.” Except that he admitted in the next breath that this was with the benefit of hindsight: “Looking back I think a measured pace would have been much better.”
Indeed, a careful study of his words reveals that his warning to Truss came too late: “After the mini-Budget we were going at breakneck speed and I said, you know, we should slow down, slow down.”
And he failed to mention that it was on the Sunday after the mini-Budget on Friday 23 September that he went on television and said of tax cuts that “there is more to come”. Unfortunately, therefore, his interview with Tom Newton-Dunn on Talk TV sheds little further light on the burning question of Truss’s seven-week premiership, namely why she and he turned right rather than left at the critical junction of the Growth Plan, as they called it.
The roads leading to that point are reasonably well mapped out. Kwarteng himself wrote a good book in 2015 about the six months that made Margaret Thatcher’s premiership, from the controversial Budget of 1981 to the purge of the cabinet wets that autumn, in which his admiration for the boldness and clarity of the Iron Lady shines through.
She defied the economic consensus of the time, epitomised by the letter from 364 economists to The Times condemning her policy – even though Thatcher cut spending and raised taxes, the opposite of what Truss and Kwarteng tried to do 41 years later.
And it is straightforward to understand the frustration of Conservative Party members with Rishi Sunak’s tax rises, which shaped Truss’s simple policy of tax cuts during the leadership election campaign. We can also see how the closed bubble of the campaign became cut off from the dramatic changes in the
world economy, as natural gas prices continued to rise to ruinous levels.
By the time Truss held her meetings at Chevening, the foreign secretary’s country house, to prepare for government, she felt she had to adopt the Labour policy, copied from the Liberal Democrats, of subsidising gas and electricity prices. That was a huge unfunded spending commitment that cut across the central, if unspoken, assumption of her tax cuts pledge: that spending should also be restrained.
Instead of reconsidering her campaign pledges, to reverse the rise in national insurance contributions and to cancel the corporation tax rise planned for next year, she and Kwarteng decided to turn in the opposite direction. As chancellor, and sounding pleased that he had confounded everyone’s expectations, Kwarteng announced extra tax cuts, while disdaining scrutiny by the independent Office for Budget Responsibility.
That is the bit that we still do not understand, and Kwarteng’s interview on Thursday failed to explain it. It was clearly a joint decision, although Kwarteng has always and rightly accepted that the chancellor’s role is subordinate to the prime minister’s, and Kwarteng was notably reluctant in his interview to accept that it was a mistake in principle, as opposed to the timing and scale of “the things that were radical”.
He told Newton-Dunn: “You’re not going to grow an economy or incentivise economic growth by putting up our taxes.” That is so far from the point that it adds to our understanding of where
Kwarteng was notably reluctant in his interview to accept that it was a mistake in principle, as opposed to the timing and scale of ‘the things that were radical’
things went wrong only by accident, by emphasising how fixated he and Truss became on a binary choice between putting taxes up or down.
It is a truism that higher taxes don’t “incentivise economic growth” – although they don’t necessarily disincentivise it either – but cutting taxes without taking into account anything else is the mistake he made. The reason Rishi Sunak put taxes up, and is now putting taxes up again, is that the government borrowed so much money to spend on protecting people from recessions caused by lockdowns and high energy prices.
Most voters supported that spending, and most voters would like lower taxes too, but politics is about priorities and they couldn’t have both. Sunak was honest about this, while Truss and Kwarteng were not – but we still do not know why they thought they would get away with it.
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