Adrian Pepper is Managing Director of communications consultancy Pepper Media. He is a former government Special Adviser.
The rebuke that the markets gave to the Chancellor following his mini-Budget was a natural human reaction. Few people like change and even fewer like surprises, least of all those whose job is to spend their days making calculations and balancing risks to generate financial returns for others.
While Kwasi Kwarteng has sent a clear signal that he trusts himself, the markets have sent a signal back that he needs to make allowance for their doubting too. The challenge for him and his team now is to convince them that his growth strategy will work.
Change has come as a shock to officials in the Treasury and the Bank of England too. Civil servants tend to be naturally cautious people, averse to conflict and social rejection.
Recognising this, the Chancellor took the view that Tom Scholar, the Treasury Permanent Secretary, was not the man to join him in the trenches on this mission. Whether Andrew Bailey, the Governor of the Bank of England , can show resolve in the face of market turmoil and personal hostility remains an open question.
Kwarteng is fortunate to have a set of junior ministers working with him who are right behind the new strategy and who can be absolutely trusted to stand up to any sign of Treasury ‘group-think’. All of them are over the age of 50 and have had substantial financial careers.
Andrew Griffith, Financial Secretary to the Treasury, was Finance Director at Sky and a banker at Rothschilds; Richard Fuller, Economic Secretary, spent two decades as a management consultant and tech investor in Australia and the US; while Felicity Buchan, the Exchequer Secretary, was a senior banker with JP Morgan and Bank of America.
They will play an instrumental role in providing leadership and steadying nerves across the political and economic institutions by explaining the new economic strategy.
The stakes could not be higher. If Liz Truss, her chief economic adviser and the new team of Treasury ministers do not get their ‘mini-Budget’ reforms through, then it is not only curtains for them politically – it will send the economy back to the place from which it came: a decade of lost growth following the financial crisis of 2008-9.
The era of money printing and ultra-low interest rates (which were meant to be emergency measures but which persisted for over a decade) is finally coming to an end. They never delivered the investment and growth that was expected of them, creating instead zombie companies and an asset bubble which made the rich feel even richer, while shutting out the next generation of aspiring British workers from creating wealth for themselves.
We are now on the threshold of a new era – an era of enterprise, increased productivity and growth, spurred not just from the incentives to invest that come from cuts in personal and corporate tax rates, but from new infrastructure, cuts in red tape and planning liberalisation.
The supply shocks created by Covid and the Ukraine war have been massive in terms of the impact on prices, but we have a Government which is resolved to face the challenges head on. The brief to the Bank of England is to bring inflation back to two per cent while maintaining financial stability, and the Government is helping by intervening to cap the price of energy across the economy. They are rowing in the same direction.
This is not going to be a demand-led recovery; it is going to be an investment-led recovery, which not only makes the UK a more attractive place in which to invest but also directs new investment into parts of the country which need it most: levelling up and growth delivered together.
It is the media’s job to discuss controversial issues and to excite their viewers and listeners about the news of the day. While many commentators have been watching the market turmoil with glee, these Budget measures will remain in place long after the animal spirits in the markets have settled.
Some critics may have been happier to see the country continue with its highest-ever levels of tax and sluggish growth, but they cannot dispute that the raft of measures announced in the mini-Budget will not deliver growth in the years to come.
For every smug, complacent market commentator who has enriched themselves during the lost decade of growth, there are thousands of British workers who are soon going to find out how it feels to keep more of the money which they have grafted to earn. There are thousands of first-time buyers who are going to get on the property ladder for the first time. And as a result of the mini-Budget, thousands of employers are investing in more and better paid jobs.
Of course, there will be bumps in the road ahead. The country may fall into a shallow recession. Interest rates will undoubtedly rise. The news on inflation may get worse. Strikes will persist.
But the Prime Minister and Chancellor have cool heads. By the time of the Medium Term Fiscal Plan on November 23, the hysteria will have vanished. The Office of Budget Responsibility will make a very sober assessment of the state of public finances. And many more people will recognise that the best way to balance the books – and to secure high living standards for the people of this country – is by attracting new investment, improving our ability to compete in the world and growing the economy faster.