Thankfully, Liz Truss was in and out of Downing Street in 49 days – before she could do too much damage. If only we could be rid of Keir Starmer and Rachel Reeves so quickly.
Sadly, we now face weeks of uncertainty before we get to what looks to be a disastrous Budget in November. It’s like watching a repeat of Truss and her doomed Chancellor Kwasi Kwarteng, but this time in slow motion.
Over the past few weeks, the yield on UK 30-year Government bonds has been marching up to its highest level in nearly three decades – a sign investor confidence is waning.
But what’s causing this reaction when the Budget is months away?
Wishful thinking:Â If only we could be rid of PM Keir Starmer and his Chancellor Rachel Reeves
Reeves may not yet have waved her red box, but we already know much of the contents.Â
Over the summer, we had endless ‘leaked’ announcements – deliberately leaked, that is – relating to taxes the Government is thinking of raising: from inheritance tax, to National Insurance on rental income to cash Isas, as well as a cut in tax relief on pensions.Â
The Chancellor, with the aid of her Left-wing adviser, Torsten Bell, has been kite-flying – testing new ideas before she actually writes them into the Budget.
Presumably, she hopes to prepare us for what is coming, while having a chance to drop any ideas that go down badly with Labour MPs, businesses or the public. But there is a price to pay. This drip, drip, drip of bad news is damaging confidence.
It never used to be like this. Until recently, Chancellors were expected to keep schtum in the run-up to a Budget as leaks could move markets. True, tax rises are never welcome, but the bark is almost always worse than the bite as firms tend to slam the brakes on investment plans if they think their bills are about to go up.Â
As a result of this leaking, firms are stuck as they wait to find out which proposals make it to the Budget.
Ending this irresponsible kite-flying should be the first task for Starmer and his new principal private secretary Dan York-Smith. His new policy coordinator, Darren Jones, formerly Reeves’ number two at the Treasury, also has work to do. But coordination isn’t a Government’s strong point.
Tax rises should be a last resort to repair a damaged balance sheet. The bloated welfare budget should be tackled first. But under this Government high taxes are being used to drive a socialist agenda.Â
Many proposed increases would raise little revenue, but that is not their purpose. They are designed to punish groups the Government disapproves of, such as buy-to-let investors.
What message does that send to the next generation of wealth creators as they ponder where to set up shop? Why stay in Britain when Dubai and other European countries go out of their way to attract them?
Despite undermining business confidence, Ministers think the economy will expand regardless.
The economy does want to grow, but Starmer is behaving like an unhinged gardener, torching every last green shoot with his flamethrower. You have to allow wealth to be created before you can tax it.Â
There are big opportunities for investment in the tech, creative and life sciences sectors, if only the Government would spend more time encouraging investment rather than thwarting it.
Kemi Badenoch is right when she says this Government has ‘policy without a plan’. Taxation is a prime example. Labour ponder levies dreamt up by Bell in his years running the Resolution Foundation think-tank, yet has no vision of what it wants to achieve by implementing them.
Last week Starmer appointed his own economic adviser, former Bank of England deputy governor Minouche Shafik. But he won’t get much of a second opinion out of her. She too has a background at the think-tank, where she proposed an inheritance tax raid on farms, which Reeves brought in last year, crippling the agricultural sector.
When I started in banking 50 years ago, the chairman of the Swiss Bank Corporation gave me some advice that would help me for the rest of my career. Ignore the siren voices of economists and know-all bankers and pay attention to only one thing: the yields on long-dated Government bonds. It is they who ultimately hold each government to account.
Right now, they are giving us an unmistakable signal. They do not like what they are hearing. And Starmer and Reeves will crash into a wall of economic reality if they don’t get the message.
- Ken Costa is a veteran investment banker and ex-chair of financial adviser Lazard.
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