By Andrew Allison, Chief Executive of The Freedom Association
In this article, Andrew Allison looks at the causes of inflation, but also reminds readers that the Government needs to focus on preventing a long and damaging recession.
When Liz Truss was Prime Minister, she sacked her then Chancellor of the Exchequer, Kwasi Kwarteng, and replaced him with Jeremy Hunt. There are very few things in life which genuinely surprise me, but Hunt’s appointment did. They are not political bedfellows. Hunt had spectacularly failed to garner support amongst Conservative MPs in his own leadership bid. He was viewed as yesterday’s man, destined to spend the rest of his career on the backbenches chairing the Health Committee. Prior to being appointed to his current role, he didn’t have any experience in the Treasury. But in a flash, he started moving his belongings into 11 Downing Street.
I knew as soon as Hunt was appointed that Truss’s days in Number 10 were coming to an end, and one question Truss should answer is who forced her to appoint him, as I don’t believe for a moment that his appointment was her choice.
I also knew as soon as Truss resigned, that Sunak (and it was always going to be him) would make a number of ministerial changes, but that Hunt was safe. It is as if it was all planned. It probably was.
I am coming to the opinion that we are not going to see any real Brexit dividends. With Hunt in charge of the nation’s finances, he is going to make sure that we don’t see any. We are not going to diverge from the EU in any meaningful way. After the Autumn Statement, it is clear that the new mantra (which is a return to an old one) is, “Steady as she goes. Managed decline. High taxes and low growth are here to stay.”
Do you remember the anti-growth coalition Liz Truss spoke about just a few weeks ago at the Conservative Party Conference? They are now firmly in charge.
Inflation is a scourge, and of course we must do everything in our power to reduce it, but the Chancellor of the Exchequer fails to realise that we are also trying to prevent a long and damaging recession. Inflation is rampant for a variety of different reasons, but the main three reasons are the world’s response to Covid, our response in particular, and the Russian invasion of Ukraine.
The world got into a panic over Covid. Although we didn’t know much about the virus in February and March 2020 (which is why I initially supported restrictions), more information was coming in all the time. For example, we quickly found out that Covid was unlikely to kill younger and healthier people. We could still have kept the economy going and we could still have looked after those who are the most vulnerable. That was obvious after a few weeks. It was also obvious that if the National Health Service became the National Covid Service, more people would die unnecessarily from other illnesses such as cancer. Prof. Karol Sikora argued from the beginning that there would be a spike in cancer deaths if cancers were not treated quickly. He has been proved right.
Yet despite knowing of these things, governments across the world imposed draconian lockdown measures, without giving a thought to the economic consequences. Indeed, if you mentioned the economic consequences (which I did), you were accused of prioritising money over people’s lives. Even when I argued that people need livelihoods to pay their bills, put a roof over their heads, and feed and clothe their families, I was still accused of being heartless.
Although there were plenty of needless, and quite frankly, idiotic, restrictions in the UK, other countries went much further, following the Chinese example - an example which our new Chancellor of the Exchequer firmly supported. In New Zealand, Prime Minister Jacinda Ardern told New Zealanders that the government was their single source of truth. Australia and Canada were not any better.
The result of this hysteria is that global supply chains were broken, making it difficult to supply the needs of the world economy once life got back to normal, resulting in higher costs for goods. It was always going to happen.
When Rishi Sunak was Chancellor of the Exchequer, he announced generous support packages for individuals, families and businesses. The money printing presses went into overdrive. People were paid to sit at home watching television, rather than working for a living. We were repeatedly told that all of this “free” money wouldn’t have an economic impact. We could put the economy into a deep freeze and when the time was right, we could take it out of the freezer, thaw it, and all would be well. I never believed that for one moment.
The Russian invasion of Ukraine has resulted in higher energy and food costs. That is undisputed. But inflationary pressures were already in the economy as a result of the response to Covid.
Inflation has not been caused by most of us having too much money burning holes in our pockets. The opposite is true.
We now have the highest tax burden since the Second World War.
So what about growth? I can’t see how there is going to be any. The pensions triple-lock is still in place meaning that pensioners are not going to be any worse off than they are now. Those claiming out of work benefits are not going to be worse off either. But those who get up early in the morning to go out to work in order to provide for their families are facing stealth tax rises which will make them worse off. A 23 per cent rise in fuel duty is planned for next year. This will increase the cost of petrol and diesel by around 15p a litre. Expect a gallon of fuel to cost around £9. Corporation Tax will be hiked by a third next April making the UK a less attractive place to do business. Over the next 18 months, living standards are expected to fall by seven per cent.
I listened to an interview on GB News on the day of the Autumn Statement. A publican was commenting on the increases in the minimum and living wages. Although he supported the increases and told viewers and listeners that he paid above the minimum because he valued his staff and he wanted to retain them, he calculated that the increases would cost his business around £40,000 a year. This is, of course, on top of the increased costs of energy, food, beer, etc. He thinks that in January thousands of pubs will close.
And then there are strikes. It’s like going back to the 1970s when The Freedom Association was founded. Every day you hear about strikes taking place or new ones which are planned. Train drivers, nurses, postal workers, Tube and bus drivers in London, civil servants. The list goes on. It appears that we are heading for another winter of discontent.
The 2019 general election was fought on Brexit. The next general election will be fought primarily on the cost of living. Jeremy Hunt didn’t have any rabbits in his hat when he addressed the House of Commons last month, but something has to improve for the Conservatives not to face annihilation in a couple of years’ time.