Money

Sam Ashworth-Hayes

What do the Tories have to show from their time in power?

After 12 years in Downing Street, four prime ministers (so far), two monarchs, and one mini-budget, the public are starting to drop hints that it’s time for Tories to head home. As Conservative conference kicks off, it’s as good a time as any to take stock: what do the Tories have to show for their many years in office? The truth is that the party’s legacy amounts to little, but it has done one thing well: keeping Labour out of power. This is hardly something to boast about. The 2010 Conservative manifesto opened with the declaration that ‘our economy is overwhelmed by debt’. The public finances would dominate David Cameron’s

Is this a Black Wednesday moment for the Tories?

Kwasi Kwarteng delivered his mini-Budget one week after the thirtieth anniversary of Black Wednesday, when the markets forcibly ejected sterling from the Exchange Rate Mechanism (ERM). There’s one measure that makes recent market turmoil seem modest and even manageable by comparison with Black Wednesday. According to the Bank of England’s database, the pound fell 2.16 per cent against the euro on the day the Chancellor delivered his fiscal statement. By last Thursday, the pound was down only 1.91 per cent against the euro. Black Wednesday and its immediate aftermath saw sterling fall 13.9 per cent against the Deutschmark. In all other respects, however, the economic and political situation is more

What Liz Truss should do now

Markets are nervous and they are right to be. The government has announced a huge, open-ended package of energy subsidies expected to cost over £100 billion but that could cost over £200 billion if energy prices rise and stay high. At the same time, the Bank of England is making large losses on its QE bond-holdings as government bond prices fall as an automatic result of current and future-expected interest rate rises – by some estimates costing potentially another £200 billion. This leaves a possible £400 billion hole in the nation’s finances. The government says it will spell out how that will be paid for in November. From a policymaking perspective

Kate Andrews

Can Liz Truss regain market confidence?

When the Liz Truss camp floated the idea of side-lining the Office for Budget Responsibility for her government’s first fiscal statement, the argument went that the announcements would be targeted at the energy crisis – and they couldn’t wait. As anticipation around the fiscal event grew, and it became clear that it would include much more than an energy update, MPs started to suspect foul play – that this was an overtly political attempt to avoid scrutiny of Kwasi Kwarteng’s growth plans and spending splurge. This suspicion is only going to grow now that the OBR has confirmed that draft forecasts were presented to the Chancellor on his first day

Kate Andrews

Liz Truss’s mea culpa moment

The fallout from last Friday’s mini-Budget has been bigger and more volatile than almost anyone expected, with sterling hitting an all-time low against the dollar; runaway gilt yields; a U-turn from the Bank of England on its plans to start quantitative tightening. And that was all by Wednesday lunchtime. Will things be looking up anytime soon? The pound has recovered to pre-mini-Budget levels, hovering around $1.11, a point the Prime Minister’s supporters are keen to emphasise. But the pound has always been a secondary part of this story: with soaring borrowing costs the primary indication of the market’s confidence (or lack thereof) in the government’s tax cut-and-spend strategy. The real

Patrick O'Flynn

The Liz Truss survival guide

If you can keep your head when all about you are losing theirs and blaming it on you then, as Rudyard Kipling almost wrote, there is a strong possibility you haven’t appreciated the gravity of the situation. Or as Corporal Jones put it more pithily in Dad’s Army: ‘Don’t panic!’ It is undeniable that Liz Truss is in a bind. Her first big play following national mourning for the Queen – the ‘fiscal event’ of last Friday – has not gone well, contributing to a meltdown about UK prospects in financial markets and emergency intervention by the Bank of England. Two successive opinion polls have put Labour 17 points ahead –

Freddy Gray

Ten handy phrases for bluffing your way through the new financial crisis

Aggggghhh! Woooaaaah! Urrrggghhhh! Those screams you hear are ten thousand self-appointed financial experts howling into the existential abyss. The Bank of England this morning announced its ‘operation’ in the gilt market, and every pundit with a social media account is thrashing around in the ever greater ocean of economic jargon and incomprehensible data. It’s hard enough to remember what a gilt is: now we are all expected to comment knowingly on how gilt yields operate, how government interventions shape the bond market, and how markets will react. ‘It’s unprecedented. Then again, we are living in an age when the unprecedented is the precedent’ Seasoned bluffers need not be afraid, however.

James Forsyth

Why is the Bank of England buying gilts?

In a dramatic about-turn, the Bank of England is now intervening in the gilts market to try and calm the reaction to Friday’s fiscal event. It will buy long-dated government gilts for the next two weeks, which will lower the cost of government borrowing. It is also postponing quantitative tightening (i.e. selling the securities it bought during QE). My understanding is that the Bank’s intervention was to prevent the pension market from imploding. The rise in gilt rates meant that traditional pension funds were becoming forced sellers to meet collateral demands from banks. This risked a doom loop. The Bank’s actions have stopped the bleeding but there will likely be

Wolfgang Münchau

Britain’s economic crisis is a warning to the world

A falling exchange rate and rising bond yields are the typical characteristics of a financial crisis in an emerging market. Those who never forgave the UK for its decision to leave the EU like to remind us of this fact right now. But an emerging market crisis doesn’t even begin to capture what is going on. This is a macro financial crisis story; EU membership is not the issue here. The UK had its independent macro policies when it was still in the EU. What is happening in the UK, and worldwide, is the realisation that fiscal and monetary policies have run out of our control. You can’t have 4-5

Kate Andrews

Will Liz Truss take on the IMF?

Tonight the International Monetary Fund has weighed in on the UK’s mini-Budget, offering a direct rebuke of Liz Truss and Kwasi Kwarteng’s tax cuts. ‘We are closely monitoring recent economic developments in the UK and are engaged with the authorities,’ its spokesperson said, in reference to the fluctuating pound and rising borrowing costs. ‘Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture’ – suggesting some concern that the measures could be inflationary. The IMF seems more frustrated with the ethics of the policies rather than their economic impact It’s the kind of intervention that does little to

John Ferry

Trussonomics shows that Scottish independence doesn’t add up

As the pound fell to a record low on Monday on the back of Kwasi Kwarteng’s ‘mini-budget’, the pings on SNP MPs and MSPs private WhatsApp groups must have ballooned in line with Gilt yields. There were many aspects to consider: the challenge of responding to the 45 per cent rate of income tax being scrapped and cuts to stamp duty, and how this new tax competition will impact Scotland’s budget; the impact on cost-of-living challenges; international concerns that the volatility induced in financial markets could destabilise the global economy. All too predictably, the messaging from senior SNPers focused on this being yet another reason for Scotland to exit the

Kate Andrews

Can the Bank of England inspire confidence?

It has dawned on the government that last week’s mini-Budget might have been a bit too one-sided: £70 billion worth of extra borrowing and not a single mention of spending cuts or efficiency gains has seen borrowing costs spike (up by 0.3 per cent just today). As James Forsyth reports on Coffee House, this afternoon’s announcement that a ‘medium term fiscal plan’ will be announced next month is an attempt by the Treasury to reassure markets – and convince them that fiscal responsibility has not totally disappeared from this government’s agenda. Emphasis is being placed on previous promises to make sure debt falls as a percentage of GDP in the

Kate Andrews

The miscalculations exposed by Kwarteng and Truss’s Budget

The Chancellor’s first ‘fiscal event’ has revealed two major miscalculations – one by most of the political class and the other by the government. The political class broadly didn’t think Liz Truss’s government would actually push forward with its campaign pledges. It did. The government, for its part, appears to have badly underestimated the sceptical reaction of the markets to its economic agenda. Let’s take these in turn. First, anyone who is shocked by discussion of higher interest rates wasn’t paying attention during the leadership campaign. The attacks on ‘Treasury orthodoxy’ were frequent and explicit. Rishi Sunak insisted it was inappropriate to take aim at the Bank, while Truss called

Robert Peston

The Bank of England has no good options

How will and how should the Bank of England, and the Treasury, react to this morning’s continued fall in the value of the pound? I’ve been talking to former Bank of England executives and ex-Treasury officials, who make clear that the stakes are incredibly high and that reassuring markets will not be easy. This further devaluation in the currency is a serious problem for Chancellor Kwasi Kwarteng after his maxi ‘mini-Budget’ on Friday because it means the price of imports will continue to rise, stoking already-high inflation. And it raises the spectre that the government will struggle to borrow what it needs at acceptable interest rates, because of the falling

Sam Leith

In praise of the speeding crackdown

We all needed a laugh, what with the pound tanking and inflation running away, my old pal Kwasi delivering a Budget, probably for a bet, like Milton Friedman’s last cheese-dream, and the threat of nuclear annihilation starting to seem like a welcome turn up for the books. Said laugh has just been obligingly provided by the Metropolitan Police. They have just, without broadcasting the fact, decided to enforce the speed limit with the tiniest bit more rigour – and as a result, they’ve nicked more than two and a half times as many people for speeding in the first six months of this year than they did in the last

Kwasi Kwarteng’s growth gamble is a risk worth taking

New Chancellor Kwasi Kwarteng’s first ‘fiscal event’ was always going to be quite provocative and exciting. But in the end it went quite a lot further than expected. Far from pulling back when faced with the practicalities of being in office, Truss’s new administration did everything it had signalled, controversial or not, then threw in some even more controversial policies just for good measure. The centrepiece is the huge energy price package. The government estimates that this will cost £60 billion over the first six months. But since the policy involves capping wholesale prices and government subsidies to make up the difference, that £60 billion estimate is entirely subject to

Kate Andrews

How worrying is the falling pound?

How are markets responding to Kwasi Kwarteng’s mini-Budget? A sharp fall in the pound today has plenty of critics arguing that the tax-slashing announcements have already proved a failure. Sterling fell this afternoon to $1.09, bringing the currency to another 37-year low against the dollar. This is more than a 3 per cent dip in just one day. The euro took a hit too, but a smaller one at 1.5 per cent. It’s difficult to separate this new record low from today’s announcements – but also near impossible to draw direct correlation, as the pound and euro have both been in freefall against the dollar for weeks now. With the

Kate Andrews

Truss and Kwarteng borrow their way to tax cuts

Levelling Up secretary Simon Clarke described today’s fiscal event as a ‘game changer’ for Britain’s economy. Was he right? The announcement from Chancellor Kwasi Kwarteng was not so much an ‘event’ as a major Budget, which ushered in £45 billion worth of tax cuts – the ‘biggest tax cutting event since 1972’, according to the Institute for Fiscal Studies. It’s a remarkable tax-cutting Budget, with praise coming in thick and fast from the free-market think tanks All that was expected was announced: the National Insurance levy brought in for health and social care – which came in back in April – will be scrapped from 6 November. The planned corporation tax

Nick Cohen

Labour’s debt binge dilemma

Labour has a populist argument against Liz Truss’s spendaholic plans to borrow money from the international money markets and direct it into the bank accounts of the privileged. ‘What do you get?’ Rachel Reeves and Keir Starmer will ask the public. ‘And who picks up the bill?’ For the overwhelming majority of the population the answer to ‘what do you get?’ is ‘not much’. And to ‘who picks up the bill?’ is ‘me, people like me, and our children and grandchildren’. The Conservative class interest in rewarding its supporters looks like a gift to the opposition. But the gift is not as generous as it appears. For two months now,

Fraser Nelson

The audacity of Kwarteng’s tax cut for the rich

George Osborne dreamed about it and Rishi Sunak told friends that he’d like to do it if everything went well and he was feeling brave. But this morning Kwasi Kwarteng has gone ahead and done it.  The ‘additional rate of tax’ – set up by Gordon Brown as a trap for the Tories in 2009 – has just been abolished. Right now, those earning more than £150,000 per year will pay 48.25 per cent on every pound they earn (45 per cent income tax plus 3.25 per cent National Insurance). From April next year, it will fall to 42 per cent (40 per cent income tax plus 2 per cent NI).