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-US trade deal has been signed and is “done”, US President Donald Trump has said as he met Sir Keir Starmer at the G7 summit.
The US president told reporters: “We signed it, and it’s done. It’s a fair deal for both. It’ll produce a lot of jobs, a lot of income.”
As Mr Trump and his British counterpart exited a mountain lodge in the Canadian Rockies where the summit is being held, the US president held up a physical copy of the trade agreement to show reporters.
Several leaves of paper fell from the binding, and Mr Starmer quickly bent down to pick them up, saying: “A very important document.”
President Donald Trump drops papers as he meets with Britain’s Prime Minister Keir Starmer in Kananaskis, Canada. Pic: AP
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Sir Keir Starmer hastily collects the signed executive order documents from the ground and hands them back to the US president.
Sir Keir said the document “implements” the deal to cut tariffs on cars and aerospace, adding: “So this is a very good day for both of our countries – a real sign of strength.”
Mr Trump added that the UK was “very well protected” against any future tariffs, saying: “You know why? Because I like them”.
However, he did not say whether levies on British steel exports to the US would be set to 0%, saying “we’re gonna let you have that information in a little while”.
Sir Keir Starmer picks up paper from the UK-US trade deal after Donald Trump dropped it at the G7 summit. Pic: Reuters
Mr Trump also praised Sir Keir as a “great” prime minister, adding: “We’ve been talking about this deal for six years, and he’s done what they haven’t been able to do.”
He added: “We’re very longtime partners and allies and friends and we’ve become friends in a short period of time.
“He’s slightly more liberal than me to put it mildly… but we get along.”
Sir Keir added that “we make it work”.
The US president appeared to mistakenly refer to a “trade agreement with the European Union” at one point as he stood alongside the British prime minister.
Mr Trump announced his “Liberation Day” tariffs on countries in April. At the time, he announced 10% “reciprocal” rates on all UK exports – as well as separately announced 25% levies on cars and steel.
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In a joint televised phone call in May, Sir Keir and Mr Trump announced the UK and US had agreed on a trade deal – but added the details were being finalised.
Ahead of the G7 summit, the prime minister said he would meet Mr Trump for “one-on-one” talks, and added the agreement “really matters for the vital sectors that are safeguarded under our deal, and we’ve got to implement that”.
Poundland will halt rent payments at hundreds of its shops if a restructuring of the ailing discount retailer is approved by creditors later this summer.
Sky News has learnt that Poundland’s new owner, the investment firm Gordon Brothers, is proposing to halt all rent payments at so-called Category C shops across the country.
According to a letter sent to creditors in the last few days, roughly 250 shops have been classed as Category C sites, with rent payments “reduced to nil”.
Poundland will have the right to terminate leases with 30 days’ notice at roughly 70 of these loss-making stores – classed as C2 – after the restructuring plan is approved, and with 60 days’ notice at about 180 more C2 sites.
The plan also raises the prospect of landlords activating break clauses in their contracts at the earliest possible opportunity if they can secure alternative retail tenants.
In addition to the zero-rent proposal, hundreds of Poundland’s stores would see rent payments reduced by between 15% and 75% if the restructuring plan is approved.
The document leaves open the question of how many shops will ultimately close under its new owners.
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A convening hearing has been scheduled for next month, while a sanction hearing, at which creditors will vote on the plan, is due to occur on or around August 26, according to one source.
The discounter was sold last week for a nominal sum to Gordon Brothers, the former owner of Laura Ashley, amid mounting losses suffered by its Warsaw-listed owner, Pepco Group.
Poundland declined to comment.
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