Liz Truss continues to do a lot of heavy lifting for the Labour party. The former prime minister’s mini-Budget featured more in the election – as a Labour talking point – than any piece of policy implemented by Rishi Sunak. Chancellor Rachel Reeves is determined to present the next round of spending cuts and tax hikes as an extension of Tory policy, rather than the start of Labour policy. The narrative that, under Truss, the Tories ‘crashed the economy’ is part of what’s being used to justify all the ‘tough decisions’ Labour has coming up in its first Budget at the end of October. The perceived wisdom of what the mini-Budget did to the economy is crucial for pointing the blame.
This morning’s update from the Office for National Statistics tells a different story. The revised growth figures for 2022 show a better year than previously estimated: a 0.5 percentage point increase, from 4.3 per cent to 4.8 per cent. Critically, the revised figures for Q3 and Q4 also show a revision upwards: the dip of 0.1 per cent in Q3, when Truss announced her mini-Budget, has disappeared and turned into a small increase of 0.1 per cent. Q4, which originally showed slight positive growth, has also been revised up from 0.1 to 0.3 per cent.
The revisions announced today are fairly normal for the ONS – ‘only slightly larger than the historical average’ and explained with routine reasons. More comprehensive data showed growth in certain sectors – including transport and business support services – to be stronger than originally calculated, leading to an overall upward revision. But new figures also don’t change the story much: the economy never ‘crashed’ in 2022. There was no recession that took place around or after the mini-Budget. What today’s figures provide is slightly more reinforcement that the talking point has always been exaggerated. In the first full year post-pandemic restrictions, Britain’s economy grew: not at a pace that’s much to celebrate (a point that Truss herself made at the time, ironically leading to her not-so-mini mini-Budget), but there was improvement nonetheless.
None of that’s to say the mini-Budget didn’t cause damage. It caused a lot of damage, as you would expect a massive borrow-and-spend fiscal event to do – especially in the wake of surging interest rates. Homeowners who were looking to renew their mortgage around the time of the mini-Budget were victims of higher rates than might have otherwise been necessary: these costs would have eventually gone up, as they were doing internationally, but probably not so quickly or aggressively as they did, once the UK made itself stick out for a reckless attempt to borrow more money. And perhaps the longest-term damage was to the reputation of free-market, supply-side reforms. What was dressed up as a small-state agenda was actually a £100 billion borrowing scheme to usher in price controls for energy. Now, likely for years to come, that is what will be associated with tax cuts and attempts to roll back interference from the state in Britain.
The difficulty in explaining – at least in bite-sized debate formats – the difference between market jitters and an economic crash has substantially helped Labour. But what happened in September and October 2022 was the former, triggered by the mini-Budget and made significantly worse by a pensions crisis brought on by a lack of preparation for fast rate hikes. It wasn’t a crash – something today’s figures only help to reaffirm.
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