After Kwasi Kwarteng’s disastrous mini-budget, there is no magic cure

Published

2 years ago

November 14, 2022

admin

The last time a chancellor of the exchequer appeared on the Sunday morning political shows he helped kick the economy off a cliff-edge.

Seven long weeks ago, Kwasi Kwarteng was still revelling in the aftermath of his not-so-mini budget and its promise of unfunded tax cuts, so much so he promised more to come.

It was that intervention, as much as the cavalier non-budget, that helped markets make up their mind about the UK’s direction under Mr Kwarteng and his mayfly prime minister Liz Truss.

Within hours the pound had slumped and the following day the cost of borrowing soared, a sudden and shocking loss of confidence with long-term consequences for government, business and mortgage holders that is still being felt.

This morning, Mr Kwarteng’s successor used the Sunday platform to try to reassure us, and as importantly the markets, that he is going to clean up the mess.

Jeremy Hunt is only six weeks into the job but he spent as many years as health secretary, and his manner was that of a medic with grave news.

The message from Dr Hunt is that while the patient is very ill, there is a cure, but it’s going to hurt.

“We are going to have to increase taxes and cut public spending to show that we are a country that can pay our way,” he told Sky News’ Sophy Ridge on Sunday programme.

“I’m afraid we are all going to have to pay more taxes.”

These are not words Conservative chancellors go into the job dreaming of uttering, but they are based on a diagnosis of the economy Mr Hunt shares with Rishi Sunak, not long out of the job himself and by some accounts still trying to do it from No 10.

Mr Kwarteng’s tax cuts left a £60bn gap – a “black hole” in political journalese – in government plans to have borrowing as a share of GDP falling over the next three years.

That calculation matters because it demonstrates that the government has a plan to cover its own costs, rather than endlessly borrow to pay for essential services. That gives confidence to investors which in turn makes it cheaper to borrow in the first place.

It should be said that the size and scope of the black hole is itself a political choice rather than economic truism. Governments set the fiscal rules for themselves and can change them any time they like.

Mr Kwarteng’s problem was he presented a plan that did not add up under the rules he said he was sticking to. The Hunt-Sunak challenge is that economic credibility can only be regained by demonstrating a willingness to fill that gap.

That means announcing plans that outwardly look like they will hammer earners from all income brackets as well as public services and the people that work in them.

If that is the economic reasoning behind Mr Hunt’s relentlessly austere messaging since he took the job, how and if he achieves it is political.

Having promised in the 2019 Conservative manifesto not to raise any of the main taxes, he is instead likely to freeze the thresholds above which they are paid, meaning over time more people will pay more tax.

(That’s “stealth taxes” in the journalese, “fiscal drag” in economic jargon, and “less money” in the real world.)

As for the spending cuts they are less clear, and may remain so after Thursday’s autumn statement.

Mr Hunt appeared to again commit to increasing pensions in line with inflation under the “triple-lock” but he was explicit that striking nurses will not get an inflation-proof pay deal.

Beyond that we wait to see how much detail is offered and how much it means even if it is. Mr Hunt will be setting economic expectations for the next five years, with a forecast for the same period from the Office for Budget Responsibility that investors will read as closely as the autumn statement itself.

But three of those years lie beyond the current parliament, meaning a new government, or as we have seen even a new prime minister, can change course should they choose.

Click to subscribe to the Sophy Ridge on Sunday podcast

So the measures we will hear next week are politically non-binding. Some may even be intended as a trap for Labour, an attempt to commit the opposition to unpopular decisions in advance.

There is little doubt however that the economic peril is real. Inflation is above 10%, the energy crisis continues, and we are in the foothills of a recession that will see interest rates rise further.

And there is no magic cure.

World

Ukrainian frontline commander warns: ‘The world is scared of Russia and losing is not only our problem’

Published

3 hours ago

November 14, 2024

admin

Ukrainian frontline commander warns: 'The world is scared of Russia and losing is not only our problem'

In the courtyard of a farmhouse now home to soldiers of the Ukrainian army’s 47th mechanised brigade, I’m introduced to a weary-looking unit by their commander Captain Oleksandr “Sasha” Shyrshyn.

We are about 10km from the border with Russia, and beyond it lies the Kursk region Ukraine invaded in the summer – and where this battalion is now fighting.

The 47th is a crack fighting assault unit.

They’ve been brought to this area from the fierce battles in the country’s eastern Donbas region to bolster Ukrainian forces already here.

War latest: Russia ready to carry out ‘massive attack’

Captain Shyrshyn explains that among the many shortages the military has to deal with, the lack of infantry is becoming a critical problem.

Sasha is just 30 years old, but he is worldly-wise. He used to run an organisation helping children in the country’s east before donning his uniform and going to war.

He is famous in Ukraine and is regarded as one of the country’s top field commanders, who isn’t afraid to express his views on the war and how it’s being waged.

His nom de guerre is ‘Genius’, a nickname given to him by his men.

‘Don’t worry, it’s not a minefield’

Sasha invited me to see one of the American Bradley fighting vehicles his unit uses.

We walk down a muddy lane before he says it’s best to go cross-country.

“We can go that way, don’t worry it’s not a minefield,” he jokes.

He leads us across a muddy field and into a forest where the vehicle is hidden from Russian surveillance drones that try to hunt both American vehicles and commanders.

Sasha shows me a picture of the house they had been staying in only days before – it was now completely destroyed after a missile strike.

Fortunately, neither he, nor any of his men, were there at the time.

“They target commanders,” he says with a smirk.

‘The world is scared of Russia’

It takes me a moment or two to realise we are only a few steps away from the Bradley, dug in and well hidden beneath the trees.

Sasha tells me the Bradley is the finest vehicle he has ever used.

A vehicle so good, he says, it’s keeping the Ukrainian army going in the face of Russia’s overwhelming numbers of soldiers.

He explains: “Almost all our work on the battlefield is cooperation infantry with the Bradley. So we use it for evacuations, for moving people from one place to another, as well as for fire-covering.

“This vehicle is very safe and has very good characteristics.”

Billions of dollars in military aid has been given to Ukraine by the United States, and this vehicle is one of the most valuable assets the US has provided.

Ukraine is running low on men to fight, and the weaponry it has is not enough, especially if it can’t fire long-range missiles into Russia itself – which it is currently not allowed to do.

If President-elect Donald Trump cuts the supply of military aid, the Ukrainians will lose – it’s that simple.

Sasha says: “We have a lack of weapons, we have a lack of artillery, we have a lack of infantry, and as the world doesn’t care about justice, and they don’t want to finish the war by our win, they are afraid of Russia.

“I’m sorry but they’re scared, they’re scared, and it’s not the right way.”

Like pretty much everyone in Ukraine, Sasha is waiting to see what the US election result will mean for his country.

He is sceptical about a deal with Russia.

“Our enemy only understands the language of power. And you cannot finish the war in 24 hours, or during the year without hard decisions, without a fight, so it’s impossible. It’s just talking without results,” he tells me.

‘Losing will be not only our problem’

These men expect the fierce battles inside Kursk to intensify in the coming days.

Indeed, alongside the main supply route into Kursk, workers are already building new defensive positions – unfurling miles of razor wire and digging bunkers for the Ukrainian army if it finds itself in retreat.

Sasha and his men are realistic about support fatigue from the outside world but will keep fighting to the last if they have to.

“I understand this is only our problem, it’s only our issue, and we have to fight this battle, like we have to defend ourselves, it’s our responsibility,” Sasha said.

But he points out everyone should realise just how critical this moment in time is.

“If we look at it widely, we have to understand that us losing will be not only our problem, but it will be for all the world.”

Stuart Ramsay reports from northeastern Ukraine with camera operator Toby Nash, and producers Dominique Van Heerden, Azad Safarov, and Nick Davenport.

World

Spain flooding: New weather warnings issued – as country counts flooding cost

Published

3 hours ago

November 14, 2024

admin

Spain flooding: New weather warnings issued - as country counts flooding cost

A weather warning has been issued for parts of Spain, as the country counts the cost of recent flooding.

The orange warnings are in place for parts of southwestern Spain – the area around Seville down towards Gibraltar.

Up to 8cm (3ins) of rain could fall within 12 hours, but the weekend looks much more settled in the country.

The latest warnings come just two weeks after flash flooding in Valencia and other parts of the country killed more than 200 people.

Malaga saw 14.2cm (5.6ins) of rainfall on Wednesday – Spain’s highest of the day – most of which fell in six hours.

All train services were halted in Malaga. Some flights have now resumed after the initial disruption.

Emergency services in the province have moved 3,000 people from homes at risk of flooding close to the Guadalhorce River in the west of the city.

Jamie Marchant, 29, from Caerphilly in South Wales travelled to Malaga last Wednesday.

He told Sky News that “debris” had been left behind by the recent rainfall in the region.

“Everyone is pitching in to clean up and some shops are opening as usual,” he added.

Orange warnings for the Valencia region in eastern Spain expired earlier on Thursday.

The adverse weather could lead to total insured losses of more than €4bn (£3.33bn), according to credit rating agency Morningstar DBRS.

Much of the claims are expected to be covered by the Spanish government’s insurance pool, the agency said, but insurance premiums are likely to increase.

World

Man suspected of supplying small boats for Channel migrant crossings arrested at Amsterdam airport

Published

3 hours ago

November 14, 2024

admin

Man suspected of supplying small boats for Channel migrant crossings arrested at Amsterdam airport

A man accused of being a major supplier of the boats and engines used by cross-Channel people smugglers to bring migrants to the UK has been arrested.

The Turkish national, 44, was held at Amsterdam’s Schiphol Airport on Wednesday and faces extradition to Belgium to face human smuggling charges, the National Crime Agency (NCA) said.

He is suspected of supplying the engines and boats used by traffickers to bring migrants across the Channel.

The equipment was shipped from Turkey and stored in Germany before being brought to northern France when needed.

NCA director general Rob Jones hailed the arrest as an “important milestone” in one of its most “significant investigations into organised immigration crime”.

“We suspect that this individual is a major supplier of boats and engines to the smugglers operating in Belgium and northern France,” he said.

“The types of vessels and engines we see used in making these crossings are highly dangerous and completely unfit for open water.

“At least 50 people are known to have died this year as a result. There is no legitimate use for them.”

More than 32,000 migrants have arrived in the UK so far this year after crossing the Channel.

Prime Minister Sir Keir Starmer described the arrest as a “significant piece of the jigsaw” in tackling Channel crossings, but added: “I’m not pretending it’s the silver bullet.”

He vowed the government would “treat people smugglers like terrorists” as he announced an extra £75m for his border security command during a speech at the Interpol general assembly in Glasgow last week.

Home Secretary Yvette Cooper said: “We will relentlessly pursue the criminal smuggling gangs making millions out of small boat crossings that undermine our border security and put lives at risk.

“This major investigation shows how important it is for our crime fighting agencies to be working hand in glove with our international partners to get results.”

The NCA said it is leading around 70 ongoing investigations into networks or people “in the top tier” of organised immigration crime or people trafficking and stressed the importance of working with its counterparts in Europe.

A spokesperson for the public prosecutor’s office of West Flanders said: “International cooperation is crucial in the fight against human smuggling, and the arrest of this suspect through close cooperation with our UK and Dutch partners demonstrates our ongoing commitment to partnership working.

“Human smuggling criminals do not respect national borders, and we will relentlessly pursue these criminals through working internationally.”