[James Malloch]

Not as far as I'm aware no.

I was wrong, finance bill to be voted on in the commons either just before or just after the new year. Still think the markets will puke so much next week that it gets shelved.

Cheers, Pete. It would seem crazy for it to go though without one. Hopefully it gets shelved…

Sounds like they are scrapping one of the few positives of Brexit too - the environment land management scheme. This was due to change subsidies to a nature-based approach and has had a huge amount of effort to get ready. It’s crazy that so many of the things being reversed have been developed by their party (and probably voted for by them!).

[TobyD]

Mark Fulbrook, Truss' chief of staff is literally a paid lobbyist while working in number ten.
https://www.thetimes.co.uk/article/top-liz-truss-aide-mark-fullbrook-paid-through-his-private-company-b90hdkj5z?shareToken=0d57ecde55e7cc08f5f6039318ab5946

[andy popp]

Kwarteng's intelligence is rather a moot point, given that it is entirely in thrall to his ideology

The strength of this ideological commitment is captured in this from the Telegraph's Allister Heath: “This was the best budget I have ever heard a British chancellor deliver. The tax cuts were so huge and bold, the language so extraordinary, that at times I had to pinch myself to make sure I wasn’t dreaming, that I hadn’t been transported to a distant land that actually believed in the economics of Milton Friedman and FA Hayek.” To wake up in a land ruled by Friedman and Hayek really is their dream (quote via this article in the Guardian because of Telegraph paywall: https://www.theguardian.com/uk-news/2022/sep/25/great-divide-pundits-reactions-to-mini-budget-run-from-alarmed-to-delighted).

Will it work? I doubt it, but what do I know? What I do know is that the utter conviction that tax cuts for the wealthy are the only true and sure route to growth is completely misplaced.

[Nigel]

Its hard to hold out much hope for the success of this "special fiscal operation" given that they can't even do bribery properly!

While the chancellor was on his feet stuffing the mouths of bankers with gold, they repaid him by a huge fall in the pound and a big hike in government bond yields. By the time he sat down, the same people who he had just given a tax cut funded by borrowing, had just made that borrowing more expensive for him than when he stood up. Who knew that the financial markets were so full of woke lefty remainer declinists? Obviously not the chancellor or he wouldn't be giving them a handout. He must feel daft as a brush. Unless he shorted the pound, or knew anyone that might...

Also - borrowing hundreds of billions just at the moment when interest rates are going up? This is the same lot that gave us a decade of austerity to rein in the deficit isn't it?

At least we swerved a John McDonnell budget in 2019.

[TobyD]

Kwarteng's intelligence is rather a moot point, given that it is entirely in thrall to his ideology

The strength of this ideological commitment is captured in this from the Telegraph's Allister Heath: “This was the best budget I have ever heard a British chancellor deliver. The tax cuts were so huge and bold, the language so extraordinary, that at times I had to pinch myself to make sure I wasn’t dreaming, that I hadn’t been transported to a distant land that actually believed in the economics of Milton Friedman and FA Hayek.” To wake up in a land ruled by Friedman and Hayek really is their dream (quote via this article in the Guardian because of Telegraph paywall: https://www.theguardian.com/uk-news/2022/sep/25/great-divide-pundits-reactions-to-mini-budget-run-from-alarmed-to-delighted).

Will it work? I doubt it, but what do I know? What I do know is that the utter conviction that tax cuts for the wealthy are the only true and sure route to growth is completely misplaced.

As far as I know, it ultimately didn't work for Regan in the 80s. In the past,  the strategy has largely produced short term growth,  followed by soaring inflation and subsequently a change of direction.  Truss cannot do again what Thatcher did in the 1980s, she doesn't have north sea oil income,  can't re- privatise utilities,  or re- sell council houses.  Public services don't have much more than can be cut out of them, and she's been a part of leaving our best trading partner in the form of the EU single market.  Hopefully I'm wrong though,  and this will bring about a prosperous,  fantastic country. 

[andy popp]

This is quite good on exactly those arguments Toby (paywalled: I managed to read it once but am now locked out):

https://www.thetimes.co.uk/article/know-your-history-liz-truss-you-cant-do-thatcherism-twice-wx6w208qk

TL:DR - circumstances were very different. An additional argument is that both the US and UK had much more scope for economic restructuring as they entered the 80s than they do today. Both Reaganism and Thatcherism produced booms, after a lot of pain, but questions remain about the long-term effects and benefits of those booms.

[duncan]

This is quite good on exactly those arguments Toby (paywalled: I managed to read it once but am now locked out):

https://www.thetimes.co.uk/article/know-your-history-liz-truss-you-cant-do-thatcherism-twice-wx6w208qk

https://archive.ph/W2RCp

What Sean says. Kwarteng comes across as a fairly common type: extremely clever in some ways - and knows he is clever - but is much less good at recognising his cleverness is not universally applicable.

[andy popp]

Still think the markets will puke so much next week that it gets shelved.

I guess the announcement was made on a Friday for a reason (though that might require the assumption that Truss/Kwarteng understood the markets were likely to react badly).

[shark]

Hard to know how it will play out given that historians still debate the effect of such measures in the past. It’s a risk, but I think being seen to do something major for the economy at the moment with all that is going on is good for the animal spirits of the various financial markets and consumer confidence (and spending) to head off spiralling into a bad depression due to knock on negativity. 

I was pleased to see some tax breaks for business investment but had to scroll a long way down a report to find them.

Starmer’s alternative plans for green energy, as laudable as they are, will fall flat for most people and their priorities and reinforce that he is out of touch.

[Fultonius]

Starmer’s alternative plans for green energy, as laudable as they are, will fall flat for most people and their priorities and reinforce that he is out of touch.

If that's true, then I want off - where's the exit of this doomed ship?

Have you seen what the US green package is delivering...THE US...it's way ahead of us, and we're happy to just continue on, business as usual, so long as profits are up and people are spending????

Sorry, that got me a bit triggered there Simon....

[shark]

With their backs to the wall and the immediacy of very personal short term threats of rapidly rising bills, interest rates and reducing prospects will push longer term global climate change concerns lower down the personal agenda of most voters. Personal opinion.

[Wellsy]

Hard to know how it will play out given that historians still debate the effect of such measures in the past. It’s a risk, but I think being seen to do something major for the economy at the moment with all that is going on is good for the animal spirits of the various financial markets and consumer confidence (and spending) to head off spiralling into a bad depression due to knock on negativity. 

I was pleased to see some tax breaks for business investment but had to scroll a long way down a report to find them.

Starmer’s alternative plans for green energy, as laudable as they are, will fall flat for most people and their priorities and reinforce that he is out of touch.

I feel like the package has been responded to quite badly by markets, concerned by the prospect of interest rates being driven up. They're going to be over 5%, the new package barely helps household finances, and it basically redistributes money towards the wealthier in society

It's a fucking insane budget and everyone knows it. Some people will profit, because they have certain investments. Most people won't. Those who thought they will get through winter now may not as their mortgage payments shoot up. Demand isn't going to increase. Government borrowing will go up as services get worse, not better.

It's the worst budget anyone could have delivered and even the Tory backbenchers know it. Its a risk in the same way that shooting yourself in the leg is a risk: you could die or merely be crippled.

[TobyD]

With their backs to the wall and the immediacy of very personal short term threats of rapidly rising bills, interest rates and reducing prospects will push longer term global climate change concerns lower down the personal agenda of most voters. Personal opinion.

In the case of most people 50+, I'm sure you're right; however younger voters (if they do vote) are more likely to be taking climate change a lot more seriously, I suspect.
A generalisation, but I reckon it will have some truth.

[TobyD]

This is quite good on exactly those arguments Toby (paywalled: I managed to read it once but am now locked out):

https://www.thetimes.co.uk/article/know-your-history-liz-truss-you-cant-do-thatcherism-twice-wx6w208qk

TL:DR - circumstances were very different. An additional argument is that both the US and UK had much more scope for economic restructuring as they entered the 80s than they do today. Both Reaganism and Thatcherism produced booms, after a lot of pain, but questions remain about the long-term effects and benefits of those booms.

Thanks Andy, I'd actually already read that piece this morning!

[Bradders]

With their backs to the wall and the immediacy of very personal short term threats of rapidly rising bills, interest rates and reducing prospects will push longer term global climate change concerns lower down the personal agenda of most voters. Personal opinion.

Tbh the politics of energy are becoming something of a moot point. The big energy companies and their investors have already decided which is going to win between renewables / nuclear and fossil fuels; it's the former. Rees-Mogg can bang on about fracking and North Sea licences all he likes, the money has already moved on.

With that in mind, it's Truss' government that is out of touch, not Starmer.

[andy popp]

But what will fracking and tax cuts for the wealthiest do for those

With their backs to the wall and the immediacy of very personal short term threats of rapidly rising bills, interest rates and reducing prospects

,
now or in the mid or long term? And "at least they did something" already seems to be coming up hard against the animal spirits of the market. Meanwhile, as Bradders and Wellsy note, other nations are forging ahead with a green energy transition. On this logic there will always be a more pressing short-term issue and Britain will perpetually kick the can down the road.

[teestub]

Sounds like they are scrapping one of the few positives of Brexit too - the environment land management scheme. This was due to change subsidies to a nature-based approach and has had a huge amount of effort to get ready. It’s crazy that so many of the things being reversed have been developed by their party (and probably voted for by them!).

This does seem mad, and seemed to be maybe the only vaguely useful thing Gove did. Has this been confirmed now? Saw it was a rumour Friday.

Also FWIW I think the new CAP is more environmentally focused than previously https://agriculture.ec.europa.eu/common-agricultural-policy/cap-overview/new-cap-2023-27_en

[Nigel]

Hard to know how it will play out given that historians still debate the effect of such measures in the past. It’s a risk, but I think being seen to do something major for the economy at the moment with all that is going on is good for the animal spirits of the various financial markets and consumer confidence (and spending) to head off spiralling into a bad depression due to knock on negativity. 

Very expensive way to have-a-go at injecting a bit of a "feel good factor" isn't it? Probably worth keeping an eye on the graphs of "animal spirit" today to see what they *really* think...

Also, interesting that its a "gamble / risk / doing something at least" to put billions-worth of tax cuts on the never-never. When Labour proposed borrowing to invest in 2017 and 2019 (in capital projects rather than tax cuts) the conservatives said it would cause a run on the pound. Were they right then? Or now in 2022?

[Bradders]

I feel like the package has been responded to quite badly by markets, concerned by the prospect of interest rates being driven up. They're going to be over 5%, the new package barely helps household finances, and it basically redistributes money towards the wealthier in society

It's a fucking insane budget and everyone knows it. Some people will profit, because they have certain investments. Most people won't. Those who thought they will get through winter now may not as their mortgage payments shoot up. Demand isn't going to increase. Government borrowing will go up as services get worse, not better.

It's the worst budget anyone could have delivered and even the Tory backbenchers know it. Its a risk in the same way that shooting yourself in the leg is a risk: you could die or merely be crippled.

Addressing these points as this all comes across as a bit hysterical!

The market reaction has I think a lot to do with how potentially inflationary these measures are. Such a significant reduction in the overall tax burden will have the effect of adding in demand to an economy which was already close to capacity as a result of a lack of supply, caused mainly by global issues rather than domestic.

In an inflationary environment the future profits of growth companies are worth less than they would be in a more sedate environment, and so investors value them lower, hence shares have fallen. This is kind of an argument for the budget as well though; with inflation already high by aggressively targeting growth you potentially limit the future loss of value in favour of short term pain today.

This is combined with the market also realising that the money for these cuts is coming from borrowing, and as is natural with more demand for borrowing supply becomes more expensive. Government bond yields go up, prices fall. Hence why we've seen losses across shares and bonds where in a traditional sense they're usually less correlated.

I'd be interested in why you think demand won't go up. The corporation tax cut alone is huge and has potential to release large sums for companies to spend on all sorts of things (potentially including wage increases for staff to keep up with inflation).

Describing it as insane is just over the top. It's not, and comes back to my earlier point about thinking that just because people disagree they must be mad / stupid / both. It's a budget based on a strong ideology; basically that government should get out of the way as much as possible so people can work, invest and build for themselves. Whether you agree with that or not (I'm somewhere in the middle), at least it's clear where they stand. Hopefully we'll all get a vote on whether we support them soon - it doesn't look good for them!

[Nigel]

The corporation tax cut alone is huge and has potential to release large sums for companies to spend on all sorts of things (potentially including wage increases for staff to keep up with inflation).

In a no doubt doomed attempt to highlight where the government's rhetoric collides with reality, can I point out that there is no cut in corporation tax. In the sense that there was no cut to benefits last year, simply the removal of an uplift.

[Bradders]

Businesses will have planned for the increase in their forecasting though.

[teestub]

I'd be interested in why you think demand won't go up. The corporation tax cut alone is huge and has potential to release large sums for companies to spend on all sorts of things (potentially including wage increases for staff to keep up with inflation).

I thought we had been told by various economists that raising wages to try and keep up with inflation was A Very Bad Thing?

[Offwidth]

Businesses will have planned for the increase in their forecasting though.

Have they planned in a very real risk of the pound hitting parity with the dollar soon (where many consumables, like oil, gas and fuel, get priced)?

Is it sane to put in the biggest budget changes in my living memory as a fiscal event with no OBR forecast or proper Parliamentary scrutiny? Is it sane to put growth full on the accelerator at the same time the BoE is hard on the brakes on inflation? When the market reacted badly was it sane to promise even more tax cuts are coming? How 'in' does a lack of sanity need to be? 

[petejh]

Good post Bradders, I’d hoped to say something similar in response to Wellsey’s somewhat hysterical tone but you put it much better than I would have.

There are far too many moving parts and future unknowns for anyone to know how this will play out. Some economists have pointed out how the counter-cyclical timing of this could work in the UK’s advantage by reducing the depth of the trough of the recession that the west is now in and accelerating the cycle back into growth ahead of other countries. But that outcome depends on a lot of things going right and the markets not killing momentum. But it is a possibility that in 12 months time we’ll be amazed at such a bold and seemingly prescient contrarian move. Personally I doubt it happening, but if I was a betting man today I’d put a small amount on that outcome as the odds are probably quite attractive due to all the fear and uncertainty in the world currently.

This isn’t a UK specific issue that they’re trying to deal with and all this sits in the wider context of far larger forces at play. The UK government are trying to weather a storm and come out in a position of relative strength but whatever they do the storm is going to happen to everyone.

Some people getting hysterical about the pound don’t appear to understand that the dollar has been on a tear this year against all currencies as investors piled into it to weather the tanking US stock markets.  That context is important for estimating likely future movements. The weakness of the pound is better gauged against a similarly weak (against the dollar) euro. Yes the pound is also slightly down against the euro following this event but the magnitude is far less.
Pound has dropped 21% against the dollar this year. Pound against Euro has dropped 4% this year. The Euro has also dropped 17% against the dollar this year and the eurozone haven’t had this budget announcement.

The dollar is due a reversal this year or early next, it’s acting like a blow-off top move and that type of move usually isn’t sustainable. I’m fairly confident people involved in these policies also have a view on future likelihoods of dollar relative strength.

The nature of the inflation that they’re stimulating into isn’t  demand-side led its supply side, and also very skewed by energy cost inputs. The demand side is in the gutter due to demand destruction from high costs. Hence accusations of stimulation into inflation aren’t necessarily correct. My amateur take is we’re looking at a drop in inflation imminently but to higher sustainable levels. If so this stimulus could be well timed.

A lot of the noise and fury is just that. The level of sound that Labour is making is partly justified due to the hypocrisy of the borrowing but also partly indicative imo of their fear that this set of policies might actually work. Cries of hypocrisy by political parties to me seem to me in themselves to always be hypocritical and a waste of time taking seriously. Labour wouldn’t reverse most of these taxes cuts, and if the 45% rate was so ideologically important to them they could have chosen to implement that rate as policy at the beginning of their term in power, they didn’t.

I’m in the middle ground on the budget announcement, some of it seems logical, some it seems risky, some of it seems plain illogical such as the stamp duty cut not just being confined to first time buyers. Instead giving BTL landlords and people wanting to buy second homes more margin, this will take house prices further out of reach in a market with house price to wage ratio that’s already too far out of reach for far too many. It appears to me designed to further kill hopes of home buying. Alternatively, they were concerned about heading off an imminent house price crash which some have predicted. Dunno.

I still expect the markets to kill this government unless Kwartang and Truss can privately quickly convince them to have confidence in the plan.

One final point which might sway markets in favour is something not many have mentioned - the tax thresholds haven’t been raised so actually this isn’t anywhere like as much of a tax cut as the media are saying. In high inflation like now, people will end up paying as much tax due to incomes rising over tax thresholds.

[Bradders]

I'd be interested in why you think demand won't go up. The corporation tax cut alone is huge and has potential to release large sums for companies to spend on all sorts of things (potentially including wage increases for staff to keep up with inflation).

I thought we had been told by various economists that raising wages to try and keep up with inflation was A Very Bad Thing?

Yeah. Meanwhile, in the real world, people are seeing the cost of everything go up and thus demanding pay rises to try to keep up. Companies now have potentially greater room in their forecasts to meet those demands.

Good post Bradders, I’d hoped to say something similar in response to Wellsey’s somewhat hysterical tone but you put it much better than I would have.

Ha, cheers, it's usually the other way round though.

Businesses will have planned for the increase in their forecasting though.

Have they planned in a very real risk of the pound hitting parity with the dollar soon (where many consumables, like oil, gas and fuel, get priced)?

Is it sane to put in the biggest budget changes in my living memory as a fiscal event with no OBR forecast or proper Parliamentary scrutiny? Is it sane to put growth full on the accelerator at the same time the BoE is hard on the brakes on inflation? When the market reacted badly was it sane to promise even more tax cuts are coming? How 'in' does a lack of sanity need to be? 

Yes
No
Maybe
Maybe
A lot?