The Chancellor’s splurge of tax cuts has sent sterling and government bonds into freefall. Halifax has withdrawn its fee-paying mortgage products while Virgin Money suspended its entire range. The Bank of England has reiterated its commitment to reducing inflation to 2 per cent in the medium term, though it stopped short of an emergency rise in interest rates, its main tool to restrain inflation.
As John McDonnell, the former shadow chancellor, writes for us, “the fact the Chancellor refused an offer from the Office for Budget Responsibility to publish an economic assessment gave the impression that Kwasi Kwarteng was hiding from reality”.
The depths to which the markets will plunge is not yet certain, but the consequences of the increased cost of government borrowing, because of higher interest rates and the falling value of the pound, is becoming clear. Nick Macpherson, the former senior civil servant at the Treasury, has said that the “UK will pay a high risk premium for the increased debt it is selling, making it all but impossible to live within spending plans, even before inflation”. The budget is already having an impact on the polls. Redfield and Wilton Strategies find that Liz Truss’s approval rating has fallen by ten percentage points since last Wednesday.
That’s the context for Keir Starmer’s speech to the Labour Party conference in Liverpool at 2pm today. He will say that Labour will make Britain a “growth superpower”, emphasising the party’s plans to invest in green energy and British industry.
On the surface, Starmer has benefited from this shambolic start to Truss’s time as Prime Minister. The economic turmoil and high borrowing set to dominate the next few years threatens Labour’s agenda, however. Oppositions inherit economies. The boom of the 1990s gave New Labour the money to invest in public services.
Starmer will have no such luxury. The money is being spent. The number of unknown factors shaping the public finances is so large that Labour cannot definitively set out its fiscal policy. How much will government debt cost in a year’s time? Will gas prices fall and in turn reduce the cost of the energy price guarantee? Where will inflation be in 2024? They don’t even have an OBR forecast to base their plans on.
There’s a growing sense here in Liverpool that Labour will form the next government. That adds consequence to each policy announcement, but those promises could prove untenable if Labour inherits an economy in peril. Truss’s failure doesn’t equal Starmer’s success.
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