Article published in The Conversation on the Truss-Kwarteng fiscal black hole and the Sunak-Hunt austerity solution
On November 16th 2022 I published an article in The ConversationLink opens in a new window on the wild gyrations in the fiscal politics of the Conservative Government over the preceding eight weeks. It was written the day before Jeremy Hunt was due to present his Autumn Statement to the House of Commons, with its widely trailed £60 billion tightening of the fiscal stance. The mini-budget presented by Kwasi Kwarteng on September 23rd, however, had prefigured a £45 billion loosening of the fiscal stance. This £105 billion turnaround was unprecedented in scale, and to have occurred in such a short space of time has been truly breath-taking.
Hunt and Sunak have softened up the British public to pay considerably more in tax to receive considerably less from their public services by constantly repeating the refrain that 'the markets' will accept nothing else. They have used the financial turmoil following Kwarteng's announcement of multiple unfunded tax cuts to pose as the political grownups who knew all along that Trussonomics would not survive its first contact with reality. However, the 'fiscal black hole' that they have committed to filling is purely of their own making. It is an artefact of their own fiscal rule that debt as a proportion of GDP must be falling within three years, but that rule has no foundations in either economic logic or expressed market sentiment. If financial market actors took immediate fright at the Truss-Kwarteng budget, there is every possibility that a slow-burner reaction will have even more devastating consequences this time around as Sunak and Hunt repeat the Cameron-Osborne mistake of enforcing austerity during a recession.