UK economy made worse by ‘own goals’ like Brexit and Truss mini-budget, IFS economist says
Brexit, slashing investment and Liz Truss’s mini-budget are among the “own goals” that have led to the UK’s dire financial straits, according to a top economist.
Paul Johnson, the director of the Institute for Fiscal Studies (IFS), has been speaking about what left the UK in a position where yesterday’s autumn statement – that will leave more than half of all households worse off – was deemed necessary.
He said: “Let’s start with slashing investment spending, that was something announced under the last Labour government and continued by George Osborne.
“Cutting spending on education, particularly huge cuts to vocational and further education, but also to schools over that period.”
Politics live: Middle England set for a shock’ and higher taxes ‘here to stay’ –
Mr Johnson added that “very clearly, Brexit was an economic own-goal”.
“There may be other reasons for Brexit, but economically speaking that has been very bad news indeed and continues to be bad news, particularly the way that we’ve done it, the hard type of Brexit we’ve had, distancing ourselves from the single market,” he said.
Mr Johnson also pointed to Ms Truss’s tax slashing mini-budget – which inflicted around £30bn worth of damage as it sent the markets into freefall, the value of the pound plummeting, mortgage rates soaring and forced the Bank of England to intervene to stop pension funds collapsing.
“Obviously the mini-budget of a couple of months didn’t help. In fact, that was another large own-goal,” he said.
Read more: Middle earners facing same tax hit as those on six-figures | Ed Conway
While most of the policies of the short-lived Truss administration have now been reversed, Mr Johnson said the political instability of recent months was also not good for the economy.
“There have been three prime ministers and four chancellors in a few months.
“And to be reversing policy here, there and everywhere, to be uncertain about your trading relationship with the rest of Europe, to have corporation tax going up, down and round and round and round, all of that is bad for growth.”
The chancellor presented his highly-anticipated autumn statement to parliament on Thursday, littered with stealth taxes and curbs on government spending amounting to £55bn in an attempt to plug the black hole in the public finances.
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‘Difficult time for everyone,’ says Hunt
He sought to blame Russia’s invasion of Ukraine for the “global energy crisis, a global inflation crisis and a global economic crisis” and said “we have risen to bigger challenges before”.
But Labour has blamed “12 weeks of Conservative chaos” and “12 years of Conservative economic failure” for the bleak outlook.
The independent Office for Budget Responsibility (OBR) warned the disposable incomes of UK households would fall by 7.1% over the next two years – the biggest drop on record.
Mr Johnson warned that this will “hit everyone”, adding that “middle England is set for quite a shock”.
“The truth is we just got a lot poorer. We are in for a long, hard, unpleasant journey; a journey that has been made more arduous that it might have been by a series of economic own goals,” he said.
Read more: Chancellor’s autumn statement had all hallmarks of a Labour budget | Beth Rigby
As a result of Mr Hunt’s announcements, the tax burden in the UK will now be at its highest since the Second World War, and there are stark warnings about increased bills and higher unemployment as the recession takes hold – as well as predictions the economy will still shrink 1.4% in 2023.
Speaking to Sky News earlier, the chancellor said it was “a difficult time for everyone” but tax hikes and spending cuts are needed to get the economy “on an even keel”.
“Over the next two years it is going to be challenging,” he said.
“But I think people want a government that is taking difficult decisions, has a plan that will bring down inflation, stop those big rises in the cost of energy bills and the weekly shop, and at the same time is taking measures to get through this difficult period.”
The UK government has announced more than £1.25bn in private US investment in the UK’s financial services sector ahead of US President Donald Trump’s second state visit.
The new US investments are expected to create 1,800 jobs and boost benefits for millions of customers across the country, the UK government said.
The deal secures £20bn in trade between the two nations – including an expected £7bn commitment from BlackRock, the world’s largest asset manager.
It is set to deliver more than £8bn in investment and capital commitments to the UK, with over £12bn flowing in the other direction – creating jobs and opportunities on both sides.
Other companies expected to invest include PayPal, Bank of America, Citi, and S&P Global.
Bank of America will create up to 1,000 new jobs in Belfast as part of its first-ever operation in Northern Ireland, the government said.
Citi plans to invest £1.1bn across its UK operations, while S&P Global will create 200 permanent jobs in Manchester through a £4m investment.
“Strengthening ties with the US boosts our economy, creates jobs, and secures our role in global finance,” Business and Trade Secretary Peter Kyle said.
“These investments reflect the strength of our enduring ‘golden corridor’ with one of our closest trading partners, ahead of the US Presidential State Visit.”
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Why is the UK economy so volatile?
Chancellor of the Exchequer Rachel Reeves said that the commitment from America’s leading financial institutions “demonstrates the immense potential of the UK economy”, as well as “our strong relationship with the US”.
The UK and US agreed a “landmark” economic deal in May, which secured major tariff reductions for key sectors and protected jobs in the automotive and aerospace sectors.
Discussions are ongoing with the US on a broader UK-US economic deal, aimed at increasing digital trade and strengthening supply chains.
MPs urge pressure on US over tariffs ahead of Trump visit
MPs have urged the government to apply maximum pressure on the US to obtain tariff relief ahead of Donald Trump’s state visit.
The Commons Business and Trade Committee described the upcoming visit as a crucial opportunity to push the US president to finalise the remaining terms of the economic prosperity deal.
While the UK and US reached a trade agreement in June that lowered tariffs on car and aerospace exports to the US, negotiations on British steel tariffs remain unresolved, keeping them at 25%.
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Can the UK avoid steel tariffs?
Read more from Sky News:
BlackRock to invest £500m in UK data centres during Trump visit
Zero growth in July as economy ‘continued to slow’
Committee chairman Liam Byrne said the state visit is “no mere pageant”.
“We can’t escape the truth that Britain now trades with its biggest partner on terms that are worse than the past, the EU has in places secured a better edge, and key sectors of our economy still face the peril of new tariffs. That means jobs hang in the balance and investment waits on certainty.”
The committee also called on the government to finalise agreements on aluminium and pharmaceuticals, ensuring that the terms accurately reflect the UK’s supply chain dynamics and its shift toward low-carbon production.
It emphasised that the UK should also use its partnership with the US to strengthen its position against China in areas such as artificial intelligence and defence technology, while also securing more resilient supply chains and improved access to critical minerals.
A government spokesperson said the “special relationship” between the UK and the US “remains strong” and that “thanks to our trade deal, the UK is still the only country to have avoided 50% steel and aluminium tariffs”.
“We will work with the US to implement this landmark deal as soon as possible to give industry the security they need, protect vital jobs, and put more money in people’s pockets,” the government spokesperson said, adding, “as well as welcoming the president on this historic state visit.”
The owner of Uswitch, one of Britain’s biggest price comparison platforms, and Zoopla, the online property portal, is plotting a break-up that could lead to the sale of some of Britain’s best-known consumer websites in the next 12 months.
Sky News has learnt that Silver Lake Partners, the American private equity firm, has hired two investment banks to launch a review of strategic options for the assets which sit within holding company ZPG.
This weekend, City sources said that JP Morgan and Arma Partners had been engaged by Silver Lake in recent weeks to advise on the project.
Although no firm decisions have been reached about the future of ZPG’s operating businesses, a series of sale processes for its various assets is seen as the likeliest outcome.
The most prominent of the group’s subsidiaries is RVU, a smaller holding company which owns Confused.com, the insurance comparison venture; Uswitch; Money.co.uk; mortgage brokerage Mojo Mortgages; and Tempcover, a temporary car insurance provider.
ZPG also has three other businesses: Zoopla, which sits behind Rightmove in the rankings of Britain’s biggest property portals; Hometrack, a property information site which also has common ownership with PrimeLocation.com; and Alto Software Group, which provides software services to estate agents through a further group of subsidiaries.
Silver Lake took ZPG private from the London Stock Exchange in 2018 in a deal worth about £2.2bn.
Since then, it has acquired a number of other businesses, and reorganised itself into four more independent entities which sit within the ZPG holding company.
A source indicated that there was “no particular path or outcome” for the strategic review to take.
Confused.com was added to the group in 2020 when it was absorbed by RVU following the brand’s acquisition from Admiral, the London-listed insurer.
ZPG has also sold several assets, including RVU’s international arm, in 2023.
Industry sources said there was little or no chance of ZPG being sold in one transaction, with its assets more likely to be offloaded through several processes operating on distinct timetables.
The valuation that ZPG’s subsidiaries might fetch in future sale processes was unclear this weekend, with some potentially worth less than their implied value in the 2018 takeover.
Many of ZPG’s businesses operate in markets which have come under increasing pricing pressure, with growing competition placing a tighter squeeze on margins.
Uswitch say they’ve saved consumers close to £3bn over 25 years
Uswitch, which claims to have saved consumers close to £3bn on their household bills since sits launch in 2000, is expected to attract interest from bidders, according to insiders.
Other mooted transactions in the price comparison sector, such as the sale of a minority stake in Compare The Market, have not materialised.
Moneysupermarket, which is now publicly traded under the name Mony Group, is among the other major players in the industry.
Accounts filed at Companies House for Zephyr Midco 2 Limited for the year ended December 31, 2023 showed group revenues of £451.5m, up from £391m the previous year.
It made an operating loss from continuing operations of £23.3m, against a comparable figure of £630.1m in 2022.
Silver Lake is one of the world’s biggest private equity firms, holding stakes in companies including Manchester City Football Club’s immediate parent, City Football Group, and the RAC breakdown recovery service.
Sky News revealed last month that the RAC’s owners were preparing to pursue a stock market flotation or sale of the company.
The buyout firm is also an investor in the New Zealand All Blacks’ commercial rights entity, following a protracted approval process.
Silver Lake declined to comment.
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