ALEX BRUMMER: Kwasi Kwarteng’s flawed defence


ALEX BRUMMER: Kwasi’s flawed defence – if Kwarteng really felt he was being railroaded, he had every opportunity to let it be publicly known

  • Kwarteng now says that he advised Liz Truss to ‘slow down’ 
  • He advised her to take a ‘methodical and strategic approach’ to boosting growth 
  • But by tradition, it is the Chancellor who draws up the Budget

Very occasionally, amid the torrent of data processed as a financial writer, one feels like a witness to a bit of history. 

This was the case when a political colleague gave me the details of Denis Healey’s Letter of Intent to the International Monetary Fund in 1976. 

I was also present at the Federal Reserve in Washington DC in 1979 when the newly appointed chairman Paul Volcker directly confronted inflation. 

Looking rum: Kwasi Kwarteng claims reservations about unfunded tax cuts in the mini-Budget as there were no plans to bear down on public spending

In 1985, I was at the Plaza Hotel in New York when the value of a runaway dollar was capped, and in the company of then Chancellor Norman Lamont when he admitted to ‘singing in the bath’ after Britain tipped out of the Exchange Rate Mechanism in 1992. 

There was another moment, a month ago, when, on a stormy Washington night in October, the Chancellor Kwasi Kwarteng briefly appeared at the UK ambassador’s residence to reveal he was heading back to London. 

Kwarteng thought he was returning to sort out the adverse reaction to his mini-Budget. By the time he touched down, his fate had been sealed. Kwarteng now says that he advised Liz Truss to ‘slow down’ and take a ‘methodical and strategic approach’ to boosting growth as Prime Minister. 

He claims reservations about unfunded tax cuts in the mini-Budget as there were no plans to bear down on public spending. It was Truss, he claimed, who decided that things should be done fast. 

All of this looks rum. By tradition, it is the Chancellor who draws up the Budget and often the PM – as was the case with Tony Blair and Gordon Brown – has little opportunity for input. 

As clumsy as Truss may have been, Kwarteng doesn’t throw light on several mysteries. Who was responsible for the dismissal of Tom Scholar, the Treasury’s most senior official? Why was the Office for Budget Responsibility excluded from the mini-Budget process after officials had offered to do a quick and dirty assessment? And why did Kwarteng (or was it Truss) foolishly mash together fiscal policy and financial services reform in one statement? 

The decision to cut the top rate of income tax from 45 per cent to 40 per cent (now reversed) was, in the context of the £163billion of budgetary largesse over five years, small beer. Hinged together with the release of the cap on bankers bonuses, a measure which should have been part of broader City and markets reform, it opened the door to attacks around a narrative of a Budget for billionaires. 

It was the contempt for normal institutional arrangements rather than the supply-side content which drove the markets into paroxysm. If Kwarteng really felt he was being railroaded, he had every opportunity to let it be publicly known.

Litany of despair 

Anyone tuning into Friday morning news bulletins might have surmised that the Four Horsemen of the Apocalypse were marching down Whitehall. The 0.2 per cent drop in national output in the third quarter of the year was portrayed as the start of the ‘long recession’, as forecast by the Bank of England. 

One cannot sugar-coat any decline in output. Nevertheless, it is worth pointing out that the 0.2 per cent drop was better than the 0.5 per cent decline that City economists had pencilled in. Moreover, half the fall was the result of the extra Bank Holiday caused by the Queen’s State Funeral. 

The drop was driven by lower household consumption. Following the UK numbers, the pound climbed to $1.17, the highest level it has been before Boris Johnson left office. 

The Bank’s negative forecast of two years of recession, based on flawed interest rate outlook, only adds to the despondency being spread by the Treasury heading into next week’s budget.

Wrong turn 

This column has been negative on cryptocurrency ever since a taxi driver advised me some years ago to visit a tobacconist in the East End of London who had a sideline in Bitcoin. The cabbie doubtless is a multimillionaire if he rode the escalator up to the peak price of $68,789.63 and managed to jump off in time. 

Pity the enthusiasts who trusted their savings to crypto exchange FTX, which has filed for bankruptcy in the US. An apology from departing founder Sam Bankman-Fried won’t bring their money back. 

None of this bodes well for the rest of a crypto industry built on emergency low interest rates and monetary largesse now that central bankers have crashed the party. 

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