Renouncing the cornerstones of the British economy will trigger a rush for foreign capital to leave


As far as I know, she has yet to call for the Bank of England to be stripped of its independence, but her supporters complain of an organization plagued by remaining pessimism and failing to control inflation , an organization that urgently needs to be “mastered”.

Never mind that the Bank’s main fault, as far as I can tell, is not that of incompetence, but that of being too beholden to its political masters – first by getting sucked into the Remain campaign, and then far too enthusiastically agreeing to fund government emergency borrowing during the pandemic.

On the first, it should have remained masterfully neutral, while the second effort was ultimately intended to be inflationary, and it turned out. In both cases, the fault was too little independence, not too much.

As for the OBR, it too would have been too pessimistic on the British economy and, like the others, stubbornly refuses to see anything other than the economic downsides of Brexit.

But prepare for a rush out of international capital if, in some sort of year zero, “blue terror,” the next prime minister knocks down these cornerstones of economic management. Mistakes and all, that’s the only thing that stands between politicians and economic anarchy.

To defend the status quo, let’s start with the Treasury, portrayed by the Truss campaign as a dead weight of economic orthodoxy which, by repeatedly erring on the side of caution, has condemned the UK to slow growth and a ossified underperformance.

What did Liz Truss and her supporters think the Treasury blocked? By making an exaggerated case for Remain, the Treasury was only following orders from the Conservative government at the time, as well as Truss herself, who was a Remainer.

For much of the post-war period, the Treasury was in fact a relatively Eurosceptic department, obstructing the nationally disadvantageous policies of Brussels and conspiring, crucially, to keep Britain out of the euro. against the wishes of then Prime Minister Tony Blair.

If the caricature of Treasury orthodoxy were true, it would surely have ended the extraordinary levels of spending deemed necessary to counter the pandemic.

The Treasury has also backed and funded a number of far-sighted bets on Covid vaccines, and is overseeing a fifty percent increase in public investment spending, taking it to its highest level since the 1970s. obviously not from an organization dedicated to stifling growth. When the going gets tough, Mandarins usually make the right choices.

As guardian of the nation’s purse strings, the Treasury seized the opportunity to stabilize public finances offered by a recovering economy and imposed steep tax increases. This probably never would have happened had we known about Putin’s impending invasion of Ukraine, but the thinking behind them was otherwise sound.

The country is facing an aging population and the demands for health and social care spending are constantly increasing. Again, politicians, including Liz Truss, were determined to meet these demands. It is sheer political cowardice not to recognize their consequences – that they have to be paid.

As for the OBR, the criticism could rather be that of an excess of optimism rather than pessimism.

For years, the OBR remained far too optimistic about the potential for productivity growth. Only with great reluctance did he bring these assumptions into line with the all-too-depressing reality.

And as a warning to Truss, who seems to think there is £30bn of OBR-identified ‘room’ in public finances to cut taxes, it should be pointed out that the OBR has consistently overstated this number . Even so, it is almost invariably banked by Chancellors when they see it, only to find that in practice it is an illusion.

It is true that the OBR also significantly overestimated last year’s borrowings, but that is because it could not have anticipated the success and speed of the vaccine rollout, and therefore assumed that levels extraordinary health-related expenditures would remain in place longer than expected. necessary.

In any event, borrowing has more recently regained its form by beating OBR forecasts, largely due to the effects of high inflation on debt service costs.

It is also true that the OBR and the Bank of England grossly underestimated the long-term damage the pandemic would cause to the working population, which has inexplicably shrunk, a supply-side shock that took almost everyone by surprise and considerably aggravated inflationary pressures. .

However, all these errors mainly relate to errors of assumption and modeling. That and the impact of unforeseen events. They do not allow the destruction of the entire institutional framework. Besides, what would you replace them with? Uh, Treasury, Bank of England and OBR. If they didn’t already exist, you would invent them.


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