ALEX BRUMMER: Britain’s new chancellor makes a dash for growth

A laser focus on growth by Kwasi Kwarteng echoes past attempts by government to escape from the perceived malign influence of Treasury orthodoxy.

Way back in 1964, Harold Wilson (by some accounts Queen Elizabeth II’s favourite prime minister) sought to unleash the white heat of technology and established the Department of Economic Affairs under George Brown. 

It eventually folded and the Treasury triumphed in the face of pressure on sterling.

Gordon Brown, who arrived at the Treasury bursting with ideas which included an independent Bank of England, found himself in conflict with Terry Burns, who subsequently resigned.

Kwarteng chose to dispense with the services of top mandarin Tom Scholar before his foot was barely over the doorstep of Number 11.

In his second term as Permanent Secretary, Scholar possessed shiny spurs earned in the financial crisis of 2007-09 and during Covid-19. His Treasury orthodoxy of fiscal discipline was viewed as overriding all else and cost him his job.

In a vitriolic attack, former Treasury minister Lord Agnew – who resigned from Boris Johnson’s government over Whitehall waste in Covid – wrote in The Times that Scholar’s departure should be ‘a cause for celebration’. 

The ambition of Kwarteng to return growth to an average of 2.5 per cent a year – the long-term average before the financial crisis – is laudable. 

It certainly has not been helped by the way in which the Treasury went gung-ho for tax increases in the wake of the pandemic.

The March 2021 budget began the process of reclaiming cash for the Treasury with a freeze on personal allowances until 2025-26 raising £19.1billion and the proposed rise in corporation tax from 19 per cent to 25 per cent from 2023 yielding £47billion over the forecast period.

This was followed in September by the new health and social care levy seeking to generate £12billion a year. 

It was partly rescinded for the less well-off in the spring of this year. The UK’s macho-fiscal policy has contrasted with much of the G7. 

The constant refrain from the Treasury has been this was necessary because of the mounting interest rate bill on the national debt.

The UK was in a different position to its G7 compatriots because 25 per cent of its bond issue is inflation-linked. 

That’s true. But in that the decision to fund using inflation-linked stock is made by the Chancellor – in concert with officials and the UK debt management office – it does not look brilliant.

In the terms of the normally polite ways of Whitehall, Kwarteng’s approach looks overly aggressive. But he is determined to give the supply side of the economy a chance.

Weak Link

City enforcer, the Financial Conduct Authority, is notorious for a spineless approach to alleged offenders, most recently bankers responsible for the collapse of HBOS.

 It is encouraging that chief executive Nikhil Rathi, who has vowed to overhaul performance, is taking a tough line with Link Fund Solutions over its role in the implosion of the Woodford Equity Income Fund three years ago.

The FCA’s probe of Woodford is uncompleted but the decision to seek an indemnity of £306million from Link suggests it is alert to the losses suffered. Its decision will be fodder for City law firms which aim to tie disciplinary action up in legal knots.

Link Group, the Aussie parent, has issued a statement challenging the FCA’s decision claiming any liabilities are the responsibility of Link Fund Solutions, not the parent.

Good try. But that’s like saying because your teenager smashed up the family car it is their responsibility not yours or that of your insurance company. 

The FCA’s tough stance will be watched closely by Neil Woodford, Hargreaves Lansdown, which exposed so many of its clients to Woodford, official depository Northern Trust and all involved in a £3.7billion debacle.

Food for thought

Private equity outfit Clayton, Dubilier & Rice must be regretting that it became involved in a bidding war Morrisons.

Instead of being able to use its strong balance sheet and smart management to take Morrisons to the next level, it finds that in an age when consumers are price driven, the Bradford firm’s market share has been overhauled by German discounter Aldi.

It is to be trusted CD&R won’t engage in reckless financial engineering, destroying Morrisons’ farm-to-supermarket model as it overcomes a whopping interest rate bill.