What will happen next? Second thoughts on the Budget are usually better than the first. When Kwasi Kwarteng announced his shock tax cuts three years ago the initial reaction was, with a few exceptions, pretty negative, but it was a week or more before it became clear it would bring down both himself and Prime Minister Liz Truss.
Events will move more slowly this time. The markets have accepted at face value the gradual progress in cutting down the fiscal deficit that Rachel Reeves says she will achieve.
Gilt yields have fallen a bit. The ten-year rate on UK Government bonds was above 4.5 per cent at the start of the week, but now is just below that. Sterling is still weak but has steadied at $1.32.
The fact the deficit this year is running well above the estimate in March and looks like being above previous projections for the next three years seems to be quietly forgotten. There is a sting in the tail because the tax rises that will eventually narrow the deficit are back-loaded.
Confidence remains fragile. The threats to the status of the Office for Budget Responsibility, coupled with its evident incompetence, increase that fragility.
The markets are dominated by foreign buyers who don’t have to pay British taxes. But they read the papers and can do the sums.
Out of her depth: The trouble is that what Rachel Reeves says is diametrically opposed to what she and her colleagues do
In any case, Budgets are not just about figures. They are about mood, and even the Chancellor’s greatest admirers would not claim her speech was uplifting.
Clobber people and they react. So businesses will remain cautious about hiring and jack up prices where they can. The fact that a lot of charges for services are linked to the Retail Price Index means the economy now has a built-in inflationary bias.
Wealthy people (and others) will cut back their spending in unpredictable ways. I had an eminent economist email me saying he would pay for his mansion tax by cutting his charitable donations.
For many taxpayers it will be a case of ‘don’t get mad, get even’ – as former US attorney-general Robert F Kennedy said. They won’t waste anger on this Government as that achieves nothing.
Instead they will comb through all the taxes they pay and change their behaviour to cut their bills. As a result, revenues will come in way below HMRC estimates.
We all know that in the real world things go wrong in unexpected ways. Inflation continuing to be well over target would force even a supine Bank of England to increase interest rates.
The housing market is going to gum up, with transactions and prices falling at the top end, which in turn will depress demand for goods and services.
I worry about a surge in global bond yields, as investors come to realise all governments, not just ours, are running unsustainable deficits and go on a buyers’ strike.
What I fear will happen is this: The markets will lose confidence in the Government. There will be a grim event, probably in the next 18 months, where Reeves’s ashen-faced successor will make a broadcast to the nation about the Government being ‘blown off course’ by international forces.
It won’t of course be their fault, but a responsible Chancellor has to respond to falling revenues and the climbing interest costs of servicing the national debt.
So there will have to be yet more taxes, probably in the form of some ‘temporary’ levy, coupled with big cuts in public spending.
Then what? Looked at rationally there is a huge reservoir of talent and ambition in this country.
We should rightly worry about our talented young people deciding there are better opportunities abroad, an exodus in some ways even more troubling than that of the established millionaires.
But turning that round should not be too hard for a thoughtful, competent government, for at least we know what’s wrong.
If you listen to what Reeves says about promoting growth, cutting bureaucratic obstacles, and being business-friendly it’s perfectly sensible.
The trouble is that what she says is diametrically opposed to what she and her colleagues do.
Nowhere was this mismatch more evident than in her Budget last week. She can’t do the job.
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