The economic blob that brought me down is shielding a failing Chancellor
After Wednesday’s punishment Budget by Rachel Reeves, the gilt rate spiked higher than it did after the mini-Budget of autumn 2022. The markets revolted at her hit to growth and the gargantuan borrowing figures.
Yet, unlike in 2022, economic institutions like the International Monetary Fund and the Bank of England have not issued a peep of warning about the Budget and media outlets like the BBC assure us that everything is calm.
Reeves’ fiscal gap is far bigger than the one my government put forward. She is planning to increase borrowing more and, unlike me, has no plan to increase the growth rate in the economy and repair the public finances over time.
My plans for growth had huge potential on the upside.
Fracking would have reduced energy costs and made British industry more competitive. Keeping corporation tax low, abolishing the top rate of income tax, introducing duty-free shopping for tourists and reforming IR35 would have boosted numbers of businesses, tourists and the self-employed respectively.
Many of these taxes, including the 45p income tax rate and VAT on tourists’ shopping, were raising hardly any money but denting economic activity. These upsides were not fully captured in the numbers released by the Treasury.
The risks of the Reeves Budget are all on the downside. The promised tax revenues are unlikely to come in as businesses close down or relocate elsewhere after the £25 billion per year sting on employers’ National Insurance.
The independent Growth Commission assesses that it will reduce economic growth by 3.4 per cent over five years. Even the Institute for Fiscal Studies believes that her plans for public spending are unrealistic. In all likelihood she will be coming back for more tax next year, further fuelling the economic doom loop.
Despite the obvious unsustainability of this position, economic institutions like the Bank of England, the Treasury and the IMF have circled the wagons around Reeves.
In contrast, back in 2022 I found my plans undermined and briefed against by the same organisations.
The Bank of England announced the sale of £40 billion of gilts the day before the mini-Budget and didn’t increase interest rates by as much as expected, thereby worrying the markets. Unbeknown to me, they had allowed an unexploded bomb to develop in the pensions market – liability-driven investments (LDIs) – which were a one-way bet by the pension companies that interest rates would stay low forever.
When they had to intervene to fix their own problem, they piled the blame on me. They have subsequently admitted in a Bank of England report released in May 2024 that two thirds of the spike in the gilt market in autumn 2022 was down to their failure to properly regulate LDIs.
The Treasury and Office for Budget Responsibility briefed against me and caused further instability, including a leak claiming that there was a £70 billion black hole in my plans – a number which later turned out not to be true.
The reason for the very different reactions to the two budgets by the economic establishment is that Reeves is doing their bidding.
They believe in net zero, high taxes, high regulation and big government. They don’t believe in the Laffer curve, thinking that taxpayers will just pay more rather than change their behaviour. The Bank of England had printed money to enable extra spending and failed to curb inflation.
They are the people who have been dictating this country’s economic policies for the past 25 years and it has been a disaster.
Britons are now £25,000 per head worse off than Americans as our economy has stagnated. We have the highest energy prices in the developed world. Our debt is the highest it has been since the 1960s.
The economic establishment took against me because I challenged them. I thought for myself about what was needed, rather than going along with the orthodoxy. I sought to hold those who had failed accountable. And I attempted to implement the right policies, despite their resistance.
Even worse, according to them, I still refuse to take the blame for their mistakes or accept the false media narrative about my time in office.
That is why I receive so much opprobrium: you only get flak if you are above the target.
In order to turn this country’s economy around, it won’t be enough just to get rid of the ghastly Reeves. The whole failed edifice needs to be brought down.
This requires wresting control of our economic institutions from opaque functionaries and ensuring that the power lies with elected government ministers who can be held to account, rather than figures such as the Bank of England Governor or the OBR bosses whose catastrophic decisions, multiple failures and flawed forecasts never seem to get called out.
Until this happens and the groupthink that has failed us is consigned to history, the debt will pile up ever higher, the stagnation will continue and we run the risk of a 1970s-style economic crisis where the government will need a bailout to keep us afloat.
For the sake of the country, I hope we don’t have to reach that point in order to get the wake-up call that is so badly needed.