Warnings about the State of the UK Economy Released by Kwasi Kwarteng
Kwasi Kwarteng, the former Chancellor of the Exchequer, has come under scrutiny for withholding warnings about the state of the UK economy. These warnings, which were passed to him by the Office for Budget Responsibility (OBR), have now been released following an order by the Information Commissioner’s Office.
Economic Situation Worsened Significantly
The released documents reveal that the country’s financial situation had “worsened significantly” even before Liz Truss took over as Chancellor. During Truss’s premiership, Kwarteng refused to release the advice provided by the OBR before the government announced the support scheme for energy bills and the subsequent mini-budget.
The economic fallout from these spending decisions, coupled with the absence of an official forecast, caused concern in the markets. Government borrowing costs increased, and certain pension funds were put at risk of collapse.
OBR Documents Shed Light on UK Economy
The OBR documents, although not comprehensive forecasts, shed light on the struggling state of the UK economy in September 2022. Factors such as the ongoing COVID pandemic, the invasion of Ukraine, and rising energy costs contributed to the economic challenges.
The OBR highlighted that the UK was on the brink of a year-long recession, with government borrowing projected to rise by an additional £21.8 billion per year until 2026/27 compared to previous data. The report stated that the “economic outlook has worsened significantly” since the last full forecast in March.
For the 2022/23 period, borrowing was already set to reach £144.1 billion, significantly higher than the March prediction. This represented a rise of 6.1% of GDP and was primarily driven by increased interest payments on government debt.
Impact on Government Spending
The rise in borrowing eroded much of the government’s “headroom,” reducing the extra funds available for spending from £27.8 billion to £8.8 billion.
Shortly after receiving the information from the OBR, Kwarteng’s successor, Liz Truss, announced the Energy Price Guarantee to assist individuals with their fuel bills. This scheme was expected to cost tens of billions of pounds.
Following the mourning period for Queen Elizabeth II, Kwarteng unveiled the administration’s mini-budget, which further increased borrowing to fund tax cuts aimed at stimulating economic growth. However, the lack of an official OBR forecast alongside Kwarteng’s announcements led to negative market reactions.
Consequences and Response
The collapse of the Truss administration ensued, and Rishi Sunak assumed the role of Prime Minister. A Treasury spokesperson clarified that the published document reflected the OBR’s preparatory work sent to Kwarteng on his first day in office and did not include any policies ultimately announced in the Growth Plan.
Labour’s shadow secretary to the Treasury, James Murray, criticized the Conservative government for their “wild, unfunded tax cuts” and their disregard for independent institutions. He emphasized the impact of these decisions on working people, with mortgage bills set to rise by an average of £220 per month for those re-mortgaging.
Labour pledged to prioritize fully costed and funded economic plans, built on fiscal responsibility. They also acknowledged the important role played by the Office for Budget Responsibility and committed to respecting independent economic institutions.
Overall, the release of these withheld warnings has shed light on the state of the UK economy and the decisions made by the government. The impact of these decisions on the country’s financial stability and the subsequent political fallout serves as a reminder of the importance of transparency and accountability in economic governance.