We had a Labour Party government in all but name from 2010 to 2024. It is an interpretation of the Conservatives’ years in power, during which the Bank of England exploited its independence and widened the scope of its control over the economy.
It displaced the elected government as the main arbiter of economic activity, the government being left to administer taxation. Even that was within the guiderails set by the Bank and adjudicated by its on-field official the Office for Budget Responsibility, with the Office for National Statistics and the National Audit Office sitting in the Video Assistant Referee’s studio to disallow any government measures that were not onside.
In parallel, the Bank worked with its global peers to design ‘solutions’ to the Global Economic Crisis, which have both caused new problems and which failed to give warning of or mitigate the fallout from the gilts market crash of September 2022. In fact these ‘solutions’ were major contributory causes of that ‘systemic event’, the type of event which was supposed never to happen again.
Luckily the Bank and its chorus-line of sycophants had the Mini-Budget to blame, by which they could discharge themselves from responsibility.
The specific financial instrument at the epicentre of the systemic event — a type of derivatives contract called a Liability-Driven Investment — was developed in response to the Bank’s monetary policy: a loose one with interest rates below inflation, and a market awash with liquidity thanks to the Bank’s bond-buying.
The impact of the systemic event was magnified by the application of the regime — designed by the Bank and its global peer — to supposedly reduce the risk of derivatives contracts causing a systemic event!
It was absurd that successive Prime Ministers and Chancellors – except the Truss/Kwarteng combination – allowed the Bank to get away with all of this, and to pursue policies that were the diametric opposite of Conservative financial principles – principles that won the day at four successive General Elections.
All that these Prime Ministers and Chancellors managed, latterly, was to tax the aberrations caused by the Bank’s policies, such as on holiday homes, buy-to-let and capital gains.
That was the space they were allotted by the Bank and they were happy to stay within it. They left behind them a weak, over-taxed and over-indebted economy, not a strong one, and we should not be shy in admitting this: it is not what we voted for.
These Prime Ministers and Chancellors have acted as a John the Baptist to Reevs and co, whose decisions we will know on Wednesday: what has been trailed so far is little more than a Sunak/Hunt budget on steroids. Let’s not forget that it was that combination which, inter [many] alia, froze personal allowances, abolished the Furnished Holiday Lettings Regime and reduced the annual Capital Gains Tax Exemption to a piffling amount.
Please note the measures I have predicted for Wednesday: the paper was written in early September and you have in there, for example, the increase in Employer National Insurance Contributions, a measure that all commentators but myself seem to have believed would fall into Labour’s definition of a tax on ‘working people’.
It isn’t: employers pay it, not employees. Therefore it is acceptable within Labour’s definition, notwithstanding its knock-on effects, and regardless of what the puffed-up, ludicrous Institute for Fiscal Studies may bleat about it.
People seem similarly to have been fooled by Labour’s declaration of not having a plan to increase Council Tax. They do not need a plan for it to increase, because local authorities set Council Tax, not central government.
Even the elimination of the control whereby a proposed increase of 5% or more triggers a local referendum falls outside any promise read into the manifesto by the guillible: if Labour abolish the need for a referendum, it is still the local authority’s prerogative to reduce the level of the tax, or keep it the same, or raise it by 2%, 15%, 100%… and/or to apply a multiplier to second homes. Labour’s manifesto verbals are watertight on this as well, although cleverly calculated to give false comfort.
My paper was offered to the campaign of one of the candidates for the Conservative leadership. It does not seem to have been taken up and it is an appropriate time to put it out there – with that contest coming to a close and with the Reeves Budget imminent.
Let’s see how many of my predicted tax rises come to pass, and we have the redefinition of the national debt to enjoy as well, as if that on its own makes our national debt more manageable.
Bob Lyddon is a specialist consultant in international banking
