This article was written by Damian and published in this week's Petersfield Post and Herald editions:
"The world is going through a time of great economic uncertainty, following Covid, trade disruption and the effects – direct and indirect – of Putin’s invasion of Ukraine.
Like ours, the inflation in America and Germany, and much of the rest of Europe, has been running high. Interest rates have been going up around the world. Central Banks have moved to counter this effect with interest rate rises, led by the US Federal Reserve. That also impacts other currencies’ – including ours – strength against the dollar. That matters for a number of reasons – including that oil, for example, is priced in dollars.
The outlook for economies has become more difficult. In the UK, that in turn affects projections for tax receipts, just at the time when we are grappling with post-Covid pressures for the NHS, and the whole of Europe acknowledges the criticality of defence and security in a more uncertain world.
Let us be clear, in these circumstances it is 100% right to redouble focus on driving economic growth. Growth, led by productivity, is precisely what enables us to spend on public services, and underpins living standards. And while productivity in this country has been below that of the US, France and Germany for longer than I have been alive, its growth has been especially sluggish since the financial crash of 2007/8.
It is also true that certain tax cuts can help to stimulate economic growth, especially when accompanied by other measures, that go by the name of ‘supply-side reforms’. This is what the ‘mini’-budget was aimed at.
Although 40p in the pound had up until 2010 been an established benchmark for the top rate of income tax, I do not believe – as I have written before – that it would be appropriate to cut from 45p to 40p in the current circumstances.
Clearly, with the huge hikes expected in wholesale energy prices, it was imperative to put together a strong package of support. This reduces what would otherwise be the inflation rate by up to 5%, and was the biggest element.
But, with the context of an already-sensitive international market situation, the mini budget measures as a whole represented a bigger effective outlay than the markets would support. That matters especially with interest rates already under upward pressure both here and elsewhere.
The measures announced by Jeremy Hunt this week are important both to reassure the financial markets and to create greater stability and confidence.
The government will not proceed with planned cuts in corporation tax, income tax, or most of other planned measures – and will review the energy bill support package after April 2023 to help those most in need
There was nothing easy about the decisions facing the Chancellor. Hard choices had to be made, knowing that fiscal discipline will ultimately support the right conditions for growth, and in turn help fund future tax easing, and pay for the quality public services we all rely on.
And there will be difficult decisions, too, at the end of the month with the Medium-Term Fiscal Plan, to be published alongside a forecast from the independent Office for Budget Responsibility.
In the Chancellor’s statement on Monday, he was right to close on a note of optimism. We have a great deal going for us, assets of enormous value – from our education and our innovation, key sectors like financial services, the creative industries, pharmaceuticals, high-tech, and many more.
We still have an unemployment rate which is exceptionally low by historical standards – on a downward trend for most of the last ten years. And there is the extraordinary talent and drive of the British people.
As he said, the UK has succeeded because at the big and difficult moments we have taken the tough and difficult decisions in the long-term interests of the country. This is such a time."
