Forget austerity, we need to reverse Brexit if we are to enjoy any form of economic growth – iNews

October 17, 2022 5:12 pm(Updated 5:33 pm)

For years the trend in GDP growth in the United Kingdom was 2.5 per cent, but since the financial crisis in 2008 we have struggled to get anywhere near this level. So it may have seemed reasonable to Conservative Party members tasked with electing a new leader to choose Liz Truss with her promise to prioritise growth.

The problem was that her chosen route, supported by her close friend and then chancellor, Kwasi Kwarteng, to reboot the economy was to institute unfunded tax cuts without the reassurance of a commentary from the Office for Budget Responsibility. Combined with a government-funded cap on energy prices, this spooked the markets, led to a collapse in the value of the pound, a sharp decline in the prices of government bonds and almost brought down a number of pension funds, necessitating an intervention by the Bank of England.

The previous chancellors poisoned chalice has now been handed to Jeremy Hunt and he has announced the reversal of virtually everything that was contained in Kwartengs mini-Budget. All that remains is the reversal of the National Insurance increases introduced by Rishi Sunak, stamp duty cuts, and support for households and businesses with energy bills to be reviewed in April 2023. The Truss Government had originally said that the support would be in place for two years, but Hunt has seemingly listened to Labour leader Keir Starmer who had been saying that six months was more fiscally responsible. Hunt added that further help after April would be targeted at those who need it most.

For the moment, the markets seem to have been reassured by Hunts statement. The currency markets saw a U-turn coming before the weekend and the pound strengthened. The prices of long-dated UK government bonds improved in response to the statement, with yields reducing by 0.5 per cent to 4.3 per cent. For the time being, things seem calmer, but the cost of government borrowing is still considerably higher than it was before the mini-budget.

All of this leaves big questions about the future of Liz Truss. When she appointed Kwarteng, she made it clear that cutting taxes and promoting growth was their vision, not just her vision. And yet, when it all went wrong, she seemed to think that calling her chancellor back from an IMF meeting a day early, sacking him and replacing him with Hunt would be sufficient to save her own skin.

Given that she only had the support of one-third of the Conservative parliamentary party in the leadership election, she could not afford to make any mistakes, and it is clear that Conservative MPs are now trying to find a way to replace her without having another divisive leadership contest involving the membership. It seems highly unlikely that Truss will still be Prime Minister by the end of this week.

Many are now calling for a General Election, but there is little likelihood of that. The Conservatives may have lost a few seats in by-elections, but they still have a hefty majority. They are facing electoral defeat whether they go to the polls now or in early 2025 but it is too much to expect that they might consider putting the country before their own jobs. No, we are in for another two years of disastrous Conservative rule during which time we can expect a deep recession accompanied by continued inflationary pressures, strikes, falling house prices, rising interest rates and the full economic impact of our departure from the European Union.

Speaking of Brexit, it is time for the Labour Party to stop avoiding the issue and face up to the fact that we need to rejoin the single market if we are to have any hope of achieving economic growth. I find it infuriating that Starmer, who was after all the Shadow Brexit Secretary, refuses to accept that this is essential if we are to recover from the horrors of the last few years.

His failure to even mention Brexit seems to be borne of a fear that the Red Wall seats will stick with the Conservatives, but that seems unlikely to me in the current circumstances. He needs to be brave and try and reunite us in some way with the rest of our continent. That is the only way that we can come back from the destruction that has been brought upon us by Boris Johnson, Liz Truss and all the other careerists who have put gaining power for themselves over their countrys welfare.

Nicola Horlick is the chief executive of Money&Co