IN A brazen grab for the credit due to others, Messrs Sunak and Hunt are celebrating delivering one of the Prime Minister’s pledges, to halve inflation. Inevitably the mainstream media have bought into the narrative without bothering to check the facts. Yes, inflation has halved, but that is due to the raising of interest rates, which is the work of the Monetary Policy Committee of the Bank of England, not the current occupants of 10 and 11 Downing Street.
In fact Hunt and Sunak have made the Bank’s job harder – the ill-considered increase in Corporation Tax will have been passed on to customers via price rises. They persist with the fiasco of green energy which, by increasing the costs of electricity (as I demonstrated here and here – doesn’t anyone in Downing Street read TCW?) they have increased costs across the supply chain, increasing the price of everything. Food price inflation remained over 10 per cent in October according to ONS data.
The Civil Service hasn’t helped either. Its idea of a productivity drive has seen the mandarins’ trade union (the modestly named First Division Association) win the right to work from a beach for a fortnight a year. Printable words fail me.
As always, the government is seeking to create growth, which is the silver bullet for its problems. Unfortunately there is very little that it can do (or it would have done it). Growth requires risk-takers to find new products and new markets. It’s perilous and most start-ups (doing something totally new) fail – as the fund Sunak created when he was Chancellor is finding out the hard way – at the taxpayer’s expense, of course. The best the government can do is provide sound money, decent infrastructure, sound laws of property, a sensible tax structure, a supply of trained workers with relevant skills. This government and its predecessors score close to ‘nul points’ on this.
Instead we have an intergovernmental department turf war – the usually sound Kemi Badenoch is fighting for who is in charge of growth. She makes a good point or two, but where is the vision to deliver the Singapore on Thames that Brexit should have enabled? That’s where sustainable growth would come from, with a financial centre liberated from the dead hand of Brussels and with smart regulation. Instead we have a City that is withering – that’s not all the government’s fault, far from it, but there seems to be no vision to build on what we have. Instead the grandees of finance bemoan the loss of business to the US, as if that was not in part their fault for perpetuating failed, high-cost models that do not address the needs of investor or investee.
The simple, awful reality is that Mr Hunt’s alleged financial headroom for tax cuts comes from the inflation. Increased prices mean increased VAT, so the Treasury’s income was higher than it expected, meaning that the annual deficit (the excess of government spending over income) is less that the £130billion that the Treasury feared. Nevertheless, the fact that the UK is going bust at the rate of £100billion a year is hardly a cause for celebration. It’s a reason for firm, decisive action to get public spending under control. Unfortunately the current political system does not promote such people, either in Westminster or Whitehall.
Hunt and Sunak are not seeking to solve the country’s many problems, they’re trying to avoid electoral oblivion. Tomorrow’s statement will neither deliver the policies required nor even any objective truth. It will be the usual government drivel of tinkering with numbers, often the wrong ones, in the pursuit of votes.
That may or may not impress the Davos gang. It doesn’t impress me.
