Liz Truss continues to do a lot of work for the Labor Party. The former prime minister’s mini-budget featured more in the election than any policy implemented by Rishi Sunak – as a Labor talking point. Chancellor Rachel Reeves has decided to present the next round of spending cuts and tax hikes as an extension of Tory policy rather than the start of Labor policy. Under Truss, the narrative that the Tories have 'crushed the economy’ is part of what will be used to justify all the 'tough decisions’ Labor will make in its first budget at the end of October. The wisdom of realizing what the mini-budget has done to the economy is key to pointing the finger at guilt.
this morning Upgrade The Office for National Statistics tells a different story. Revised growth figures for 2022 show a better year than previously estimated: a 0.5 percentage point increase, from 4.3 percent to 4.8 percent. Critically, the revised figures for Q3 and Q4 also show an upward revision: the 0.1 per cent decline in Q3 disappeared and turned into a small increase of 0.1 per cent when Truss announced his mini-budget. Q4, which initially showed a small positive growth, has been revised to 0.1 to 0.3 percent.
The revisions announced today are quite normal for the ONS – 'slightly larger than the historical average’ and explained with the usual reasons. More detailed data showed growth in some sectors – including transportation and business support services – to be stronger than originally estimated, leading to an overall upward revision. But the new figures don’t change the story much: the economy never 'broke’ in 2022. There was no recession around or after the mini-budget. Today’s statistics provide some reinforcement that the talking point is always overrated. In the first full year post-pandemic, Britain’s economy grew: not at a pace to be celebrated (a point Truss himself made at the time, ironically leading to his mini-mini-budget), but there. Progress though.
That’s not to say that the mini-budget didn’t make an impact. This has caused major damage as you can expect a large borrowing and spending financial event – especially in the wake of rising interest rates. Homeowners looking to refinance their mortgages in a mini-budget time fell victim to higher rates than they otherwise would have needed: these costs would have eventually risen, as they did internationally, but not as quickly or aggressively. They did, once the UK went into a reckless attempt to borrow more money. And perhaps the long-term damage is to the reputation of free-market, supply-side reforms. Dressed up as a small-government agenda is actually a £100 billion borrowing plan to put energy price controls in place. Now, in the coming years, that will be associated with tax cuts and efforts to roll back government intervention in Britain.
The difficulty of explaining—at least in the bite-sized forms of debate—the distinction between market shocks and economic downturns has significantly helped the labor establishment. But what happened in September and October 2022 was significantly worsened by the pension crisis triggered by the mini-budget and the lack of preparation for rapid rate hikes. It’s not an accident – today’s statistics serve to reaffirm.
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