ALEX BRUMMER: Britain’s new chancellor makes a dash for growth

A laser focus on growth by Kwasi Kwarteng reflects past attempts by the government to escape the perceived evil influence of the treasury orthodoxy.

Way back in 1964, Harold Wilson (according to some stories Queen Elizabeth II’s favorite prime minister) tried to unleash the white heat of technology and founded the Department of the Economy under George Brown.

In the end it folded and the Treasury triumphed despite the pressure on sterling.

Gordon Brown, who arrived at the Treasury brimming with ideas, including an independent Bank of England, came into conflict with Terry Burns, who subsequently resigned.

Kwarteng chose to forgo the services of top mandarin Tom Scholar before his foot barely crossed the threshold of number 11.

In his second term as permanent secretary, Scholar had the spurs he earned during the financial crisis of 2007-09 and during Covid-19. His Treasury orthodoxy of fiscal discipline was seen as all that dominated him and cost him his job.

In a venomous attack, former Chancellor of the Exchequer Lord Agnew – who resigned from Boris Johnson’s government over Whitehall’s Covid evictions – wrote in The Times that Scholar’s departure should be ‘a cause for celebration’.

Kwarteng’s ambition to reduce growth to an average of 2.5 percent per year – the long-term average before the financial crisis – is commendable.

It certainly hasn’t been helped by the way the Treasury has continued to raise tax rates in the wake of the pandemic.

The March 2021 budget began to reclaim cash for the Treasury with a freeze on personal deductions until 2025-26, bringing in £19.1 billion and the proposed increase in corporate tax from 19 percent to 25 percent from 2023, bringing in £19.1 billion. 47 billion over the forecast period.

This was followed in September by the new health and social care levy to generate £12bn a year.

It was partly withdrawn in the spring of this year for the less fortunate. The UK’s macho-fiscal policies are in stark contrast to much of the G7.

The Treasury’s constant abstention was that this was necessary because of the rising interest bill on the national debt.

The UK was in a different position from its G7 compatriots, as 25 percent of bond issuance is inflation-related.

That’s true. But as the decision to fund with inflation-linked equities is being taken by the Chancellor – in consultation with officials and the UK debt management office – things don’t look brilliant.

In terms of Whitehall’s normally polite manners, Kwarteng’s approach looks overly aggressive. But he is determined to give the supply side of the economy a chance.

Weak link

City enforcement, the Financial Conduct Authority, is notorious for taking a spineless approach to alleged offenders, most recently bankers responsible for the collapse of HBOS.

Encouragingly, chief executive Nikhil Rathi, who has vowed to improve performance, is taking a hard line with Link Fund Solutions over his role in the implosion of the Woodford Equity Income Fund three years ago.

The FCA’s investigation into Woodford is still ongoing, but the decision to claim £306 million in damages from Link suggests it is alert to the losses suffered. The decision will be fodder for city law firms seeking disciplinary action in legal knots.

Link Group, the Aussie parent company, has issued a statement challenging the FCA’s decision, stating that any liabilities are the responsibility of Link Fund Solutions, not the parent company.

Nice try. But that’s like saying your teen destroyed the family car, it’s their responsibility, not yours or your insurance company’s.

The FCA’s tough stance will be closely watched by Neil Woodford, Hargreaves Lansdown, who has exposed so many of his clients to Northern Trust’s official custodian Woodford and all involved in a £3.7bn debacle.

Something to think about

Private equity outfit Clayton, Dubilier & Rice must regret getting involved in a Morrisons bidding war.

Rather than using its strong balance sheet and smart management to take Morrisons to the next level, it finds that at a time when consumers are price-driven, the Bradford company’s market share has been overhauled by German discounter Aldi.

Trustworthy, CD&R won’t engage in reckless financial engineering, destroying Morrisons’ farm-to-supermarket model while conquering a huge interest bill.