Ministers urge calm and insist no policy U-turn

Defiant ministers’ radical spending plans in bid to restore stability

MINISTERS were last night drawing up plans for billions of pounds in spending cuts to reassure panicked markets that the public finances are under control.

Another rocky day on the financial markets saw the Bank of England make an emergency intervention to prop up teetering pension funds amid fears of ‘a material risk to UK financial stability’.

But Downing Street and the Treasury remained defiant, with minister Andrew Griffith saying the £45billion package was ‘the right plan... to make our economy competitive’.

Mr Griffith denied that last week’s mini-Budget had sparked the slide in the pound and the turbulence in the UK Government bond market that pushed pension funds to the brink.

‘What is unprecedented is the level of volatility

‘Unprecedented volatility in all developed markets’

we have seen in all developed markets,’ he said. Last night the Treasury confirmed that Government departments will be asked to identify billions of pounds of savings to help convince the markets that ministers are serious about keeping the UK’s debts under control.

There was speculation that the Treasury could trim the UK’s giant welfare bill to save money.

Ministers will also fast track ‘supply side reforms’ designed to cut regulation and boost growth.

A Downing Street source voiced frustration at the market reaction, saying that 90 per cent of the cost of recent interventions was accounted for by the schemes to freeze energy prices for households and businesses.

The moves followed an unprecedented intervention by the Bank of England to buy UK Government debt ‘on whatever scale is necessary’ to try to restore calm as market turbulence threatened the financial health of final salary pension schemes.

It acted on a fourth day of turmoil which has seen the pound hit record lows below $1.04 and a huge sell-off in government bonds – as the crisis began to spill over into the real economy.

It is prepared to buy up to £65billion of long-term bonds between now and the middle of October, but said it could increase this depending on ‘prevailing market conditions’. The pound rallied to as high as $1.0915 last night, nearly two cents up on the day, after again falling to near-record lows.

Analysts also warned that house prices could fall by 10 to 15 per cent next year as interest rates rise and mortgage deals dry up.

Yesterday’s chaos on the markets divided Tory MPs. Former leader Sir Iain Duncan Smith said: ‘The government needs as soon as possible to explain the big supply side reforms they are going to make, which will help steady some of the more outlandish commentary. It is this part which balances the tax-cutting announcement.’

But fellow Tory Simon Hoare blamed the Government for triggering the collapse in market confidence, saying: ‘This inept madness cannot go on.’

Some MPs voiced irritation at Kwasi Kwarteng’s decision to promise further unfunded tax cuts at the weekend, despite the jittery reaction to last week’s miniBudget. One said: ‘He’s either got to change or the PM will have to change him.’ Mr Kwarteng yesterday met with investment bankers yesterday to try to reassure them over the market turmoil.

The Bank of England’s intervention yesterday was its third in as many days and the most dramatic.

After trying to soothe the City with pledges that it stands ready to hike interest rates, it has been forced into concrete action for the first time since the crisis erupted.

Officials were becoming increasingly concerned about the financial impact on pension funds caused by the bonds slump.

The turmoil has left some funds facing a cash crunch prompting them to sell assets including longdated bonds, which has added to the pressure. Yields on 30-year bonds, which will be targeted by the Bank’s intervention, fell sharply after it announced action.

The move also reversed a sell-off on the FTSE 100, which earlier fell 2 per cent to a six-month low.

The Bank of England said in a statement that the chaos had become more significant in the past day.

‘Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability,’ it added.

‘Trying to soothe the City’

THE International Monetary Fund was established back in 1945, in the shadow of World War II when memories of the Great Depression were all too raw.

Its task was to promote financial stability and growth across the globe, to ensure the economic horrors of the recent past would never be repeated. That was then, however. For, sadly, while there is no doubt that the IMF has played a useful role over the years in advising governments and rescuing troubled economies, today it appears to be dancing to a rather different tune, departing from practical assessments of best practice for continued fiscal stability — and becoming entangled instead in Leftwing ideology.

This explains its astonishing intervention on Tuesday evening when the IMF released a pointed response to Kwasi Kwarteng’s mini-Budget. The words amounted to little short of a direct attack on the economic policy of a G7 country.

In its statement, the IMF called on the Government to reverse plans to abolish the current 45 per cent top rate of income tax and proclaimed that the Chancellor’s ‘large and untargeted fiscal packages’ would likely deepen inequality in Britain.

And it is that word ‘inequality’ — one which is accompanied by all manner of polarising baggage — that rings alarm bells.

For it lays bare the extent to which the organisation has become entrenched in a Left-of-centre consensus about how countries should achieve economic growth.

This consensus is entirely at odds with the radical reforming thrust of Trussonomics, which, crudely, seeks not to cut up and distribute slices of an ever-shrinking economic pie but to create a bigger pie for all — a principle that seems to instinctively offend an organisation that once seemed to want much the same thing.

Undoubtedly some of the IMF’s commentary and input has proved useful on occasions (although the UK Government, along with other countries, is under no obligation to listen).

Turmoil

But as it has become politicised in recent years, the institution has also consistently provided poor advice, made wrongfooted predictions and woefully misunderstood economic policy.

In April 2013, for example, the IMF complained the UK was ‘playing with fire’ by pressing ahead with so-called austerity and forecast growth of just 0.7 per cent for 2013 and 1.5 per cent the next year.

Instead, the economy grew by 1.9 per cent in 2013 and 3.1 per cent in 2014, making Britain one of the fastest growing major economies in the developed world.

Then, in 2016, the Independent Evaluation Office (IEO) watchdog described how the IMF suffered from a ‘culture of complacency’ and complained about its ‘superficial and mechanistic’ analysis.

It criticised not just IMF staff misleading their own board, but also misjudgments related to the economic turmoil then facing Greece, and its uncritical ‘groupthink’ in support of the euro project.

And just before the EU referendum, the then-IMF managing director Christine Lagarde — who had openly advocated for the UK to stay within the EU — declared that a vote for Brexit would be ‘pretty bad to very, very bad’ for Britain.

This was an overt nailing of colours to a politicised mast, a scenario rubber-stamped in 2019 by the appointment of Lagarde’s replacement, Kristalina Georgieva, who served as vice-president of the European Commission under that vainglorious EU apparatchik Jean-Claude Juncker.

(At least Lagarde avoided the fate of her IMF predecessor, Dominique Strauss-Kahn, who was forced to resign after being accused of sexually assaulting a New York hotel maid — the charges were later dropped; or that of his predecessor Rodrigo Rato who was jailed for embezzlement.)

The sad truth is that, today, we are looking at an IMF that seems to have departed wildly from its original core mission in favour of increasingly partisan policies.

Agenda

In its most recent consultation document with the UK, released in February 2022, the IMF said there should be further spending on green projects, higher welfare payments and it advocated the introduction of a wealth tax to help pay for the cost of tackling what it called widening ‘inequality’ — that word again — following the pandemic.

Any of these suggestions may or may not be worthy policies. But the fact remains that they have relatively little to do with promoting economic growth and financial stability — which is, after all, the IMF’s purpose.

The trouble is that the organisation seems to keep forgetting what it is there for: in 2020, it published a paper about racism, while it has also pursued an agenda focused on that perennially favourite cause of the Left, climate change.

Nor should it be the role of the IMF to promote equality — equality by itself does not promote growth or stability.

In fact, an overemphasis on equality can result in very poor economic outcomes, as has been discovered in Socialist countries such as Venezuela and the former Soviet Union in the last century.

And indeed, an almost obsessive focus on income re-distribution has led us to our currently stagnant economy.

What’s more, it is hard to shake off the sense that under the jurisdiction of Europhile Georgieva, post-Brexit UK has been singled out as a target.

It is certainly bizarre for the IMF to publicly question the decision of the Chancellor’s tax policies when it has not done so with other comparable countries.

The UK’s top income tax rate will go down to 40 per cent from 45 per cent under the Chancellor’s plans. This is identical to the situation in the Republic of Ireland and comparable to New Zealand’s rate of 39 per cent and 37 per cent in the U.S.

Why have these countries not been rebuked? Moreover, the reality is that while scrapping the 45 per cent top tax rate has attracted the IMF’s particular ire, it is a relatively minor fiscal issue in the grand scheme of things.

The estimated £2 billion cost to the Government — which may well ultimately be an overestimate, as the new tax rate is likely to encourage more highearners to come to the UK and thus boost the Treasury’s coffers — forms only 3 per cent of the total package announced on Friday.

And for all the fearmongering, the UK’s borrowing remains at the lower end compared with many of our neighbours.

None of this seems to have been factored into the IMF’s highly charged decision to interfere this week.

Obsessed

Little wonder that doing so prompted outrage among senior Tories, among them former Brexit minister Lord Frost, who pointed out that the IMF had ‘consistently advocated highly conventional economic policies’ — the precise orthodoxy that has delivered stagnation and relative decline for Britain.

There are, of course, questions about increasing the national debt — the Government does need to outline a fiscal strategy and deliver on spending restraint.

Nonetheless, it seems the IMF is obsessed with balancing the books to the detriment of many other vital priorities.

It appears completely ignorant about the Truss Government’s plans to cut red tape and boost prosperity.

The real question is why the IMF is not actually lauding the UK’s pro-growth agenda?