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ALEX BRUMMER: Reality check for Truss and Kwarteng


ALEX BRUMMER: Reality check for Truss as Britain faces a £60bn bill to get the general public funds back on target

The dash for growth by Liz Truss and Kwasi Kwarteng faces intense scrutiny this week from non-believers in well-intentioned supply-side tax cuts.

Here in Washington, the International Monetary Fund, already a public dissident, is unlikely to supply much comfort when it releases its World Economic Outlook report today.

The organisation’s managing director Kristalina Georgieva makes no secret of her agenda of prioritising government support for those affected by the disastrous war on Ukraine.

U-turn: Prime Minister Liz Truss and Chancellor Kwasi Kwarteng on the Conservative Party conference 

In Britain, analysts are attending to grips with the fiscal impacts of each the Truss bailout of the nation’s energy bills, for households and business, and the tax cutting mini-Budget. 

Suffice to say, the U-turn on the tax cut for 45 per cent highest band payers is essentially symbolic and represents small change in the general scheme of things.

There may be finally a date for the Office for Budget Responsibility scrutiny of October 31. An evaluation by the Institute for Fiscal Studies (IFS) is not going to make for pleasing reading in Downing Street. 

The bill for getting the general public funds back on target is £60billion and getting there’s going to require tough spending decisions. 

Even when inflation- indexing of advantages were to be suspended, the savings could be lower than 1 / 4 of the figure required. Within the IFS’s view, there would have to be a rollback of already announced spending plans.

The one hint of optimism within the document is that the tax cuts could add to growth by around 0.5 per cent a 12 months, and this might eventually yield an additional £28billion improvement in the general public funds by 2026-27. 

Other independent forecasters (notably the National Institute of Economic and Social Research) are more optimistic.

US banks have turn out to be a part of an American narrative, which is pessimistic on Britain’s growth, inflation and prospects despite shards of sunshine. 

Defenders of fiscal orthodoxy are making no public allowances for the truth that the UK’s debt-to-GDP (national output) ratio is best than many advanced countries including the US. 

In wartime conditions in Europe, it needs to be acceptable for presidency balance sheets to take the strain. If this was true of Covid-19, then it’s actually true of the energy fallout from Ukraine.

More realpolitik among the many number crunchers could be welcome.

Doubling down the shock to Britain’s defined advantages pensions, brought on by the surge in gilt yields after the mini-Budget, is removed from over. 

An original £65billion bailout by the Bank of England was interpreted as a macro-economic intervention designed to calm markets. 

But when the layers of obfuscation were stripped away, it was clear the aim was to resolve a money problem at the guts of the UK’s pension system created by reliance on derivatives.

Because the guardian of economic stability, the Bank didn’t do enough to regulate the upsurge in the usage of liquidity-driven investments (LDIs). 

These were a clever ruse dreamt up by investment bankers, designed to make UK government stocks (gilts) work harder and shut the funding shortfalls. 

They were fiddling with fire and regulators have been caught short, putting the pensions of as much as 10m people in danger.

With days to go before the present lifeboat ends on October 14, the Bank is raising its limit of £5billion a day of gilt purchases in an try and halt the crisis liquidation of funds. 

It has also created a latest emergency facility, beyond its original deadline, which allows those operating LDIs to swap assets, reminiscent of index-linked gilts and company bonds, for money each Tuesday. That is acknowledgement that the threat will not be fully contained.

Because the LDI debacle plays out, it could be too soon to demand an inquiry beyond that commenced by the Treasury select committee. 

It’s a moment for David Roberts (formerly of Nationwide), latest chairman of the Bank’s non-executive Court, to show his metal with an internal probe of what went flawed contained in the Bank.

Spare time

Good to see not all UK consumers are down within the dumps. 

That American indoor favourite ten-pin bowling is on a roll with Hollywood Bowl reporting a 42.3 per cent jump in revenues, an identical increase in earnings and an expansion programme which has brought latest alleys to Belfast, Birmingham and Harrow. 

Finally, a leisure company that’s striking the proper note.


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