After Kwasi Kwarteng’s disastrous mini-budget, there is no magic cure
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.
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‘We’ll be asking everyone for sacrifices’
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.
Read more: Sunak’s premiership is about to start for real as he faces a huge week at home and abroad
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Three PMs in three months: A timeline
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.
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The rise and fall of Kwasi Kwarteng
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.
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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
‘Widespread sexual violence’ took place during Hamas’s 7 October attacks, report by Israeli experts says
A newly released report led by Israeli legal and gender experts presents detailed evidence alleging “widespread and systematic” sexual violence during the Hamas-led terror attack on 7 October.
Warning: This story contains descriptions of rape and sexual violence
The findings, published by the Dinah Project, argue that these acts amount to conflict-related sexual violence (CRSV), and assert that “Hamas used sexual violence as a tactical weapon of war”.
The report draws on 18 months of investigation and is based on survivor testimonies, eyewitness accounts, and interviews with first responders, morgue personnel and healthcare professionals.
According to the Dinah Project, the documented patterns – such as forced nudity, gang rapes, genital mutilation, and threats of forced marriage – indicate a deliberate and coordinated use of sexual violence by Hamas operatives during the attack.
Reported incidents span at least six locations, including the Nova music festival, and several kibbutzim in southern Israel.
A destroyed car near the police station in Sderot, following the 7 October attacks by Hamas. Pic: AP
One section of the report describes victims “found fully or partially naked from the waist down, with their hands tied behind their backs and/or to structures such as trees and poles, and shot”.
At the Nova music festival and surrounding areas, the investigators found “reasonable grounds to believe” that multiple women were raped or gang-raped before being killed.
The report’s findings are consistent with earlier investigations by the United Nations and the International Criminal Court (ICC).
Read more:
What is the possible Gaza hostage and ceasefire deal?
Israeli soldier describes arbitrary killing of civilians in Gaza
The UN’s Special Representative on Sexual Violence in Conflict previously concluded that there were “reasonable grounds to believe” CRSV took place during the attack.
Destroyed vehicles near the grounds of the Supernova electronic music festival. Pic: AP
Significantly, the Dinah Project urges the international community to officially recognise the use of sexual violence by Hamas as a deliberate strategy of war and calls on the United Nations to add Hamas to its list of parties responsible for conflict-related sexual violence.
Listen to The World with Richard Engel and Yalda Hakim every Wednesday
The nature and scale of sexual violence on 7 October have been a subject of intense controversy, with some accusing parties of weaponising the narrative for political ends.
This report seeks to confront what its authors call “denial, misinformation, and global silence,” and to provide justice for the victims.
Hamas has denied that its fighters have used sexual violence and mistreated female hostages.
World
Israeli soldiers ‘psychologically broken’ after ‘confronting the reality’ in Gaza, UN expert says
A UN expert has said some young soldiers in the Israeli Defence Forces are being left “psychologically broken” after “confront[ing] the reality among the rubble” when serving in Gaza.
Francesca Albanese, the UN Human Rights Council’s special rapporteur on the occupied Palestinian territories, was responding to a Sky News interview with an Israeli solider who described arbitrary killing of civilians in Gaza.
She told The World with Yalda Hakim that “many” of the young people fighting in Gaza are “haunted by what they have seen, what they have done”.
“It doesn’t make sense,” Ms Albanese said. “This is not a war, this is an assault against civilians and this is producing a fracture in many of them.
“As that soldier’s testimony reveals, especially the youngest among the soldiers have been convinced this is a form of patriotism, of defending Israel and Israeli society against this opaque but very hard felt enemy, which is Hamas.
“But the thing is that they’ve come to confront the reality among the rubble of Gaza.”
An Israeli soldier directs a tank near the border with the Gaza Strip, in southern Israel. Pic: AP
Being in Gaza is “probably this is the first time the Israeli soldiers are awakening to this,” she added. “And they don’t make sense of this because their attachment to being part of the IDF, which is embedded in their national ideology, is too strong.
“This is why they are psychologically broken.”
Jonathan Conricus, a former IDF spokesman who is now a senior fellow at the Foundation for Defence of Democracies, said he believes the Sky News interview with the former IDF solider “reflects one part of how ugly, difficult and horrible fighting in a densely populated, urban terrain is”.
“I think [the ex-soldier] is reflecting on how difficult it is to fight in such an area and what the challenges are on the battlefield,” he said.
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Ex-IDF spokesperson: ‘No distinction between military and civilians’
‘An economy of genocide’
Ms Albanese, one of dozens of independent UN-mandated experts, also said her most recent report for the human rights council has identified “an economy of genocide” in Israel.
The system, she told Hakim, is made up of more than 60 private sector companies “that have become enmeshed in the economy of occupation […] that have Israel displace the Palestinians and replace them with settlers, settlements and infrastructure Israel runs.”
Israel has rejected allegations of genocide in Gaza, citing its right to defend itself after Hamas’s attack on 7 October 2023.
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‘Israel has shifted towards economy of genocide’
The companies named in Ms Albanese’s report are in, but not limited to, the financial sector, big tech and the military industry.
“These companies can be held responsible for being directed linked to, or contributing, or causing human rights impacts,” she said. “We’re not talking of human rights violations, we are talking of crimes.”
“Some of the companies have engaged in good faith, others have not,” Ms Albanese said.
Read more:
Israeli soldier describes arbitrary killing of civilians in Gaza
British surgeons on life in Gaza
Listen to The World with Richard Engel and Yalda Hakim every Wednesday
The companies she has named include American technology giant Palantir, which has issued a statement to Sky News.
It said it is “not true” that Palantir “is the (or a) developer of the ‘Gospel’ – the AI-assisted targeting software allegedly used by the IDF in Gaza, and that we are involved with the ‘Lavender’ database used by the IDF for targeting cross-referencing”.
“Both capabilities are independent of and pre-ate Palantir’s announced partnership with the Israeli Defence Ministry,” the statement added.
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