No’ Sae Green As We’re Cabbage-Lookin’
“I have never seen the shine come off a new government as quickly as it has here.”
—Channel 4 Political Editor at the Tory Conference, Oct. 3rd 2022
As a measure of the fiscal nous of the new government, it could hardly have been more damning. The knock-on effect of the rise in interest rates was uproar in the mortgage market, where hundreds of those on offer were withdrawn to be re-introduced with a general doubling of rates. With 2 million fixed-price mortgages due for maturity in the next 15 months, refinancing will mean mortgage payments generally doubling. The effect of this on a booming housing market—let aloe government (un)popularity is yet to be seen.
Media and opposition attention seems fixed on the U-turn over dropping the highest tax band. But this is trivial in the scheme of things; government now intends £43, instead of £45 billion in tax cuts. There will be no word how this is to be financed before a statement due on November 23rd. The fact that the watchdog Office of Budget Responsibility had been prevented from commenting on all this has only added to the unease.
Despite the minor U-turn, Truss and Kwarteng remain adamant that the Covid pandemic and Ukraine war mean everyone is in the same boat of higher interest and higher inflation, so drastic remedies are required.
But examination of other G7 countries—who are indeed suffering—shows this to be simplistic, if not facile. USA, Germany, France, etc. do indeed have higher fuel costs, inflation and interest rates than normal, But:
- USA is self-sufficient in oil & gas, so avoids soaring inflationary energy costs
- German interest rates are still at 2%, whereas Britain’s bod yields are no greater than fiscal lame ducks like the PIGS (Portugal/Italy/Greece./Spain)
- France has indirectly tapped supplier windfall profits as it owns EDF
- Norway, which didn’t sell off its North Sea bonanza as Britain did is making out like a bandit
- Britain is the only G7 country pretending it is a global power, other than the USA. Yet its GDP is only a ninth their size ($2.3 vs $21.7 trillion), with a seventeenth of their defence budget ($46 vs $801 billion)
Other than inflation caused by Covid recovery, energy costs and wage demands, a number of negative factors seem to have been overlooked in the Truss/Kwarteng calculations, such as:
- The Brexit effect: because of new hurdles between UK and EU, some 15% of exports to our main trading partner have been lost; the 19% of civil servants shed after 2010 have almost all been re-hired to deal with the paperwork.
- While exports have fallen, imports have increased. Including services, monthly , imports of £68 billion exceeded £61 billion in exports by 12%.
- £2 bn in arms for Ukraine—laudable, but hardly sustainable.
#1048—452 words
davidsberry 