Regrets about rushed, ‘Kamikwasi’ Budget? It was but an emergency
What about the market meltdown? If MPs were good at reading markets, they’d be traders Worried about Labour’s 33pt lead? Polls come and go A U-turn on cut in 45p tax rate? No, we HAD to reset the debate
WHEN the British economy crashed on Black Wednesday in 1992, the Tory Chancellor at the time, Norman Lamont, was derided for saying that he had been ‘singing in his bath’, before declaring: ‘Je ne regrette rien.’ After the week he has endured at the mercy of the markets, the current Chancellor, Kwasi Kwarteng, is not risking a similar insouciance. ‘I wasn’t singing,’ he says. ‘I’ve got a terrible voice.’
In his first full interview since his miniBudget – dubbed ‘Kamikwasi’ after it crashed the pound, spooked the markets and sent Tory MPs into a tailspin after one opinion poll posted a 33-point Labour lead – Mr Kwarteng offers a modicum of ‘regrette’.
‘Look, hindsight is a beautiful thing,’ he says. ‘The whole thing was done at speed, there’s no doubt about that. The Prime Minister kissed hands with Her Majesty on September 6 and the mini-Budget was delivered on September 23, and we had a period of national mourning. So it was all done at very high speed, that’s true.’
Beyond that, there is not yet any sign of a U-turn over the abolition of the 45p top rate of tax. The move only accounted for £2billion of the £45billion package of measures he announced – in addition to £150billion of help to cap energy bills – but contributed to the slump in sterling as markets worried about the sophistication of the costings.
It is the havoc this has wreaked with the mortgage market – as interest rates have been forced on to an alarming upward trajectory – which has most unsettled MPs, casting
Hindsight is a beautiful thing… but I’m convinced this is the right plan
serious doubt over whether the 45p measure will survive contact with the Commons when the Finance Bill is introduced.
The turmoil has also contributed to feverish talk in Westminster about toppling Liz Truss and installing the fourth Tory Prime Minister in the space of little over three years.
A decade has elapsed since Ms Truss and Mr Kwarteng first set out their radical tax-cutting vision in the book Britannia Unchained, which proposed the shock therapy of free-market reforms to stop Britain’s ‘inevitable slide into mediocrity’.
The rocky transition from this thesis to reality has been dubbed ‘Britannia Unhinged’ by their backbench critics, who say the chaos could have been averted entirely if the mini-Budget had been restricted to the energy bills help, the reversal of April’s National Insurance rise and abolition of corporation tax rises – all of which had already been ‘priced in’ by the market.
The Chancellor, whose PhD in economic history from Cambridge after studying as a King’s Scholar at Eton and a Kennedy Scholar at Harvard makes him arguably the Cabinet’s most highly educated Minister, admits to being shaken by the reaction of City traders.
‘It’s very difficult to anticipate how markets react to anything and if politicians were really good at reading markets, I suggest they probably would be market traders,’ he says. ‘I think what we’re seeing now is more stability and I’m hopeful that we can build on that.
‘I’m absolutely 100 per cent convinced that this was the right plan. We have a high tax model, we have high spend; that is not sustainable. We had a 70-year high in taxes and we had to reset the debate and we’ve done that.
‘No one is suggesting that we should increase corporation tax, no one is suggesting that we should undo the reverse to NI increase.
‘The energy intervention was crucially important. Our people were facing £6,500 on their energy bills and this intervention essentially meant that the average household would pay £2,500 and that is really, really good.’
So, why not restrict the miniBudget to those announcements?
‘We had to reset the debate. It wasn’t just about the energy intervention, it was about getting supplyside reforms.’
Mr Kwarteng, 47, also denies that the markets would have been calmer if he had accepted the offer from the independent Office for Budget Responsibility (OBR) to provide an economic forecast alongside his statement, arguing it was ‘too soon’. But he does accept ‘we could argue’ he should have made more mention of spending restraint.
‘There was a massive urgency in terms of the energy intervention [which] had a fiscal impact. We had to act quickly and we did, but if we had had a longer period, we would have talked to more people and engaged in the normal way,’ he says. ‘This was an emergency situation brought about by the fact we were facing very high energy prices.
‘I am convinced the growth plan is the right thing. There is going to be controversy, markets are moving and I want to stabilise them. I want to have a calm, reassured approach to this and I absolutely think this is the right thing we’re doing.’
The first foretaste of the political problems the Chancellor’s miniBudget unleashed came from the queasy silence on the benches behind him when he announced the abolition of the top rate.
He now faces a fierce battle to pass the plan through the Commons, particularly if the turmoil increases the pressure to cut public spending on areas such as benefits or pensions. ‘We’ve got a majority. We’d expect people to vote for Finance Bill measures,’ is all Mr Kwarteng will say on the battle ahead.
Those who study Westminster’s machinations have been speculating about whether the Prime Minister ‘bounced’ her Chancellor into making the 45p decision, or the other way round. A post-mortem held by Downing Street officials concluded that the ideological bedfellows had gone into an office together on the eve of the miniBudget and concluded: ‘Let’s go for it.’ Mr Kwarteng says: ‘I think we were agreed on that. We worked closely together to come up with the policy. I speak to the Prime Minister every day, we get on very well and we share ideas all the time. We are absolutely as one and we have come through a challenging period.’
Although glimmers of his custom
ary ebullience remain intact, Mr Kwarteng – described as ‘brilliant’ by some colleagues and ‘arrogant’ by others – admits that it has been a testing period.
‘I used to read that politicians don’t read newspapers and I can see why. I think it’s difficult, but that’s the nature of high public office.
‘One of the things that really ruined my sleep is the markets. That sort of thing is trying. I’ve had difficult times reacting to what’s happening but you know, I am very confident that this is the right thing to do and I am a really, really great believer in Britain.
‘I think what we can achieve is extraordinary and that’s why I have been drawn to politics, it’s because I want us to be at our best.’
The YouGov poll giving Labour its biggest lead for over a quarter of a century can’t have helped, though.
‘Yes, of course we’re concerned about polls, we want to get back on our feet, but over the past six years, polls have come and gone.
‘I remember in 2017 we were 40 points ahead of Jeremy Corbyn and then in the Election we were four points ahead of him.’
On seeing the latest polling he says: ‘I thought “This is concerning” but we can get out of this, if we’re united and focused. Lots of people want to see this fail because what we are trying to do is reset this country to be pro-growth, prowealth creation, pro-dynamism.
‘The number of messages of support I’ve had from people is extraordinary. You hear all the negatives from the Left and the BBC and all of that, but actually people are saying stick to the course, you are doing the right thing, you’re setting Britain on the right path for growth, lower taxes, greater productivity, greater innovation, supply-side reforms, just energising this economy – and that’s what we’re focused on.’
Mr Kwarteng was speaking to The Mail on Sunday in his No11 office after he and the Prime Minister held a meeting with the OBR, which coincided with a stabilisation in market conditions and the pound rising back to its pre-Budget level.
The rest of the Government’s economic plans will be published on November 23, alongside an OBR forecast.
The Chancellor says that the Government ‘had a very good conversation’ with the OBR, adding: ‘They are a key part of the financial institutional framework we’ve got.
‘Investors like the fact that, even though the forecasts can often be wrong, the fact the OBR [exists] is a good thing.’
Mr Kwarteng is also keen to build bridges with Bank of England Governor Andrew Bailey. During the Tory leadership contest, Ms Truss vowed to examine the Bank’s mandate, amid her private concerns that it had been ‘asleep at the wheel’ in the battle to curb inflation.
Mr Kwarteng says: ‘I think volatility is a feature of markets and I want to reassure markets.
‘I work closely with the Governor of the Bank. I’ve found him really easy to deal with. I think he’s a public servant of a high standard and I actually enjoy talking to him.’
Some Tory MPs were alarmed by Mr Kwarteng’s first action in
Negative voices from the Left and the BBC... lots of people want us to fail
office being the dismissal of the Treasury’s Permanent Secretary, Tom Scholar. It was seen as signalling the new Government wanted to challenge civil service ‘orthodoxy’, with the assumption that the mandarin would have restrained the new Chancellor from rushing out all his measures at once.
‘I don’t think Tom Scholar is relevant to this at all,’ he says. ‘Officials don’t dictate what is in the Budget.’
When Mr Kwarteng is asked how he thinks Ms Truss’s predecessor Boris Johnson, or her vanquished opponent Rishi Sunak, will have viewed the events of the past week, he says: ‘I have no idea what they’re thinking, you should ask them… We had a fair contest, he [Rishi] lost and now we’re moving on.’
The Chancellor is acutely aware that Mail on Sunday readers will be worried about rocketing mortgage rates, but insists that cutting taxes is the answer.
‘I think that by not taking their taxes, by dealing with the energy intervention, it actually reduces the inflation rate and that will have an impact on their cost of living,’ he says. ‘We are absolutely focused on helping our people, your readers.
‘And the other thing I would say is that it is a difficult global environment. I’m a historian, I love British history, I love this country and that’s where we are at our best, in that we have got incredibly creative people, we’re dynamic, we’re forward-thinking, we absorb different ideas and we are great innovators.
‘That’s what I want to see in the UK.’