There is one thing we can all agree on: we are in for challenging economic times. The Chancellor and the Bank of England confirm we are entering recession. Living standards are falling, and although unemployment is at historic lows, it is set to head up. The national debt is the highest since the aftermath of the Second World War, and taxation is heading to the highest for 70 years.
But there is political disagreement on the cause. As I sat in the Commons two rows behind the Chancellor when he made his Autumn Statement, Labour were bellowing that this was an economic crisis made in Downing Street, sticking it to the now infamous mini-budget two months ago, and adding that Conservatives had been in power 12 years.
The mini budget, with its unfunded tax cuts, was a mistake, but we quickly corrected it, and no one except Labour think it is the cause of the current crisis. Virtually none of the measures in it were ever implemented, and almost all have been ditched. The prospect of those measures did cause temporary turmoil in the bond market, which for a couple of weeks pushed up mortgage rates. But the Government acted quickly to restore calm, and the bond market is back where it was. I quizzed the Governor of the Bank of England about this last week at the Treasury Select Committee, and he was absolutely explicit: the mini-budget has had no lasting consequences on the economy or mortgage rates.
It is true that the Conservatives have been in power for 12 years. But it is also true that we have had a repeated series of shattering economic hurricanes that are unprecedented in history and would shake any Government. The financial crisis of 2008 happened under the last Labour government, but it lead to such a prolonged and deep recession it took a decade to repair the damage. National borrowing shot up to an extraordinary 8% of GDP, as Labour lost control of spending. The economic turmoil the Conservatives inherited in 2010 was summed up by the note left by the last Labour Chief Secretary to the Treasury: “there is no money left.” The Conservative government elected in 2010 steadily repaired the nation’s finances, restoring growth and confidence.
Then in 2020 we were hit by a once-in-a-century pandemic, quickly followed by a once-in-fifty-years energy price shock. There are obviously lessons to learn from the pandemic, but our Covid deaths were less than the international average, and the £400bn financial support for households and businesses dramatically reduced economic hardship. We were then faced with a big national debt, and global supply chain shocks.
Just as the pandemic finished, Putin’s invasion of Ukraine meant international energy prices jumped eightfold, as well as increasing prices of other goods such as wheat. As a major importer of energy, the UK was inevitably hit and inflation shot up to the highest for over 40 years. But the whole world has been hit. Inflation has shot up globally and is as high in the US and Germany as in the UK. Interest rates are rising around the world. The IMF predicts that one third of the world will be in recession next year. Other Governments are being forced to put up taxes – in the US, they are going up by $800bn.
What matters is that we have taken the tough action necessary to get us through this. Many of the measures in the Autumn Statement are hard – no Conservative government wants to put up taxes. But it has been done in a fair way, with the wealthiest paying most, and protecting the most vulnerable including those on benefits and pensioners. Funding for hospitals and schools is increasing. The Energy Price Guarantee limits the impact of rising energy prices on households, and energy companies are paying for it through a windfall tax. Labour don't actually disagree with any of these actions.
The question is this: if you are in a plane in a hurricane and it gets struck by lightning and one of the engines explodes, do you condemn the pilot because he was in the pilot’s seat when this happened? Or judge him on how he copes with the crisis? For their own electoral reasons, Labour want to blame the pilot and insist it is time to get a new one. But come election time, voters will look at the shocks the world has had and how we have dealt with them, and they will make up their own minds. I am confident that history will judge well the actions this Government has taken to get us through these unprecedented economic storms.
