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.”
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.
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.
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.
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.”
Sam Bankman-Fried: Founder of bankrupt crypto firm FTX breaks his silence, with thousands locked out of savings
A crypto entrepreneur says his net worth has fallen from $26.5bn to $100,000 after his company imploded.
Sam Bankman-Fried admitted it has been a “bad month” after FTX collapsed into bankruptcy, leaving thousands of people frozen out of their savings.
The 30-year-old – who once positioned himself as a saviour for stricken firms – has been accused of misusing customer funds and moving $10bn out of the company in secret.
To make matters worse, reports suggest that at least $1bn has vanished.
But speaking at the New York Times’ DealBook summit, he insisted that he has never tried to commit fraud, and said he was “shocked” at how things unfolded.
FTX now has fresh management as it navigates bankruptcy, with its new CEO declaring that he had never seen “such a complete failure of corporate controls” during his 40-year career.
It has been claimed that funds belonging to FTX users was mixed with funds at Alameda Research, a trading firm that Bankman-Fried also ran.
FTX, a cryptocurrency exchange that operated around the world, collapsed as panicked traders pulled $6bn out of the company in just three days after a series of bombshell allegations.
Speaking via video link from the Bahamas, Bankman-Fried said he now has “close to nothing” following his company’s failure – and is down to one working credit card.
He has admitted that his businesses “completely failed” when it came to risk management, and said this was “pretty embarrassing in retrospect”.
“Whatever happened, why it happened, I had a duty to our stakeholders, our customers, our investors, the regulators of the world, to do right by them,” Bankman Fried added.
While the embattled entrepreneur believes that American users should be able to get their money back in full, Bankman-Fried has warned in other interviews that international customers may only get 20% to 25% of the money they had locked into FTX.
A number of companies in the cryptocurrency sector have collapsed in recent months, coinciding with a sharp drop in the value of Bitcoin.
Some businesses have been accused of offering interest rates on savings that were simply too good to be true, while others have been likened to “Ponzi schemes”.
The Bahamas has now launched a criminal investigation into the circumstances surrounding FTX’s demise.
HSBC to close dozens more bank branches
HSBC has announced plans to shut a further 114 UK branches – over a quarter of its surviving sites.
The UK-based but mainly Asia-focused bank said those affected would be shut from April next year.
The decision, as the wider banking sector has consistently claimed over many years, is the result of the surge in online banking.
It has led to declining demand for over-the-counter transactions with HSBC saying that some of those to be shut were dealing with fewer than 250 people per week.
It was unclear, at this stage, what the closures would mean for jobs.
The bank said it was to invest tens of millions of pounds in updating and improving its remaining branch network, which will total 327 once the closures have been completed.
Jackie Uhi, HSBC UK’s managing director of UK distribution, said: “People are changing the way they bank and footfall in many branches is at an all-time low, with no signs of it returning. Banking remotely is becoming the norm for the vast majority of us.
“The decision to close a branch is never easy or taken lightly, especially if we are the last branch in an area, so we’ve invested heavily in our ‘post-closure’ strategy, including providing free tablet devices to selected branch customers who do not already have a device to bank digitally, alongside one-to-one coaching to help them migrate to digital banking.”
Joules administrator on brink of rescue deal with Phase Eight-owner Foschini
The administrator to Joules, the collapsed fashion retailer, is on the brink of a rescue deal with the South African owner of Phase Eight.
Sky News has learnt that The Foschini Group (TFG) is close to securing an agreement to buy the majority of Joules’ stores and assets.
One source said a deal could be struck as soon as Wednesday afternoon.
If completed, it is likely to see roughly a quarter of Joules’ 132 shops closed, with the loss of “several hundred” jobs.
A more precise figure for store closures and redundancies could not be identified, with Interpath Advisory, the administrator, refusing to comment.
It remains possible that an alternative buyer such as Next or Mike Ashley’s Frasers Group could yet trump TFG’s interest with a last-ditch offer.
TFG, which also owns the women’s fashion brands Hobbs and Whistles, had been in discussions with Joules for several weeks about investing in the business prior to it calling in administrators this month.
Based in Market Harborough, Leicestershire, Joules operates a total of 132 stores across the UK, employing over 1,600 people.
Its stores have remained open during the administration process.
Will Wright, head of restructuring at Interpath and joint administrator, said earlier this month that Joules was “one of the most recognisable names on the high street, with a unique brand identity and loyal customer base”.
“We have had an overwhelming amount of interest from interested parties.
“We will be working hard over the days ahead to assess this interest, but at this stage we are optimistic that we will be able to secure a future for this great British brand.”
Joules had been in talks with Next about a strategic investment earlier in the autumn but the two sides were unable to agree the terms of a deal as the smaller company’s share price continued to sink.
It then hired Interpath to consider an insolvency procedure – known as a company voluntary arrangement – that would have allowed it to slash its overheads through store closures, rent reductions and job cuts.
Joules said in August that it was aiming to secure an equity investment of about £15m, after warning that it would deliver a loss bigger than previous market expectations.
It also appointed Jonathon Brown, a former John Lewis and Kingfisher executive, as its new CEO.
Joules has been listed on the London stock market since 2016, having been founded in 1989 when Tom Joule began selling clothes from a country show stall in Leicestershire.
TFG could not be reached for comment.
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