Rational behind Kwasi Kwateng’s budget

[UserOneSquillion]

Genuine question, what is the rationale? On paper he is a extremely intelligent man with a background in economics. Was he following Truss’s orders? Is he trying to keep big business in the UK? If so wouldn’t it be better to lower business tax rather than income tax? Absolutely no one seems happy with this.

In order to succeed, ideologues don't need to surround themselves with competent people. They need to surround themselves with powerful people.

You need both. In a democracy political allies need to be reasonably competent otherwise they can fired or be voted out. Historically, monarchs needed powerful allies, but they also needed astute advisors who were not necessarily powerful to start with, their power was in their intelligence. Behind KK and LT are some hugely powerful people, that’s why they’re in power. But as they have not demonstrated minimum competence thus far in office, they may not last long.

He doesn't have a "background in economics" in the conventional sense. He's a historian, who has written books about the history of economics, but that's not the same thing. He clearly doesn't have full grasp of the complexities and inter-dependencies of macro economics in 2022.

I read a great article once (I think it was in The Guardian) about why old Etonians should never be prime minister.

And even if he did have a grasp it’s not a given he has the talent to implement policy in the real world.

There’s a lot of it about in politics at the moment.

Many politicians are but career ones out to feather their own nests.
Not every single one, but many are in it for what they can get.

Trust me, in this country, going into politics is a terrible way to feather your nest.

Most young people with other options, who could go into professional jobs or start businesses, take those other options. They pay much better, have more job security, and more privacy.

There are many politicians on both sides of the fence who have always done politics and nothing but - whether in youth wings, trade unions, think tanks, as Spads or whatever. In my experience they are not motivated by money but power and ideaology. Some see it as a game or test - how far can you get up the slippery pole. But money has very little to do with it.

I’ve read your posts with interest

If you were to predict what happens next what do you think? Just for fun / curiosity

Somewhat baffling to say the least! I am struggling to see how this is even legal tbh.my friend said she didn't think there could be anyone worse than thatcher yet here we are!

I'm the first to rant , yet I'm not an economist and only deal with my own home finances
I can't understand why borrowing more is a good idea. I understand the energy borrowing ( although ours has gone up again ) but I don't see how they can think that borrowing even more is going to work. Especially with tax cuts too.
It is baffling , but all I can think is it might work. Then again ..
It might not, but nobody can do much about it.
I just hope those with the degrees and experience can steer us through it, but im not that hopeful.
I think we are going to have to wait and see really. Hope things steady up a bit

@AKKview agreed, I think writing people off as thick when they meet a higher threshold than a lot of people in terms of intelligence is a bit of a red herring (E.g. attended a generally well thought of course at one of the most elite universities in the world). Being “thick” also an accusation I noticed is mainly reserved for female politicians, or ones from an ethnic minority.
We shouldn’t be aiming for intellectual superiority in political leaders in my opinion. It’s a “nice to have” but the best leaders are the ones who have decent aims and motivations, who know the limits of their understanding, who listen to the advice of others and surround themselves with people they believe to be very good at what they do. As you say Browne has never been accused of being an intellectual lightweight but he wasn’t able to bring people with him for all the reasons you outlined, and probably suffered a bit from being too sure of himself.

Interestingly, Browne, KK and Therese Coffey are three of a handful of Westminster politicians to have had PhDs. I think you do have to be fairly smart, or at least diligent and rigorous to get a PhD, so it is impressive. But definitely we have to move away from this idea that some great intellect will save us politically, that way madness lies. We will miss out on a lot of real political talent if that’s all we focus on, academics are smart, but they’re not always great at getting things done and sometimes they overly obsess about minor details at the cost of progressing broader aims (case and point, Coffey’s Oxford comma nonsense when trying to sort out the NHS).

I think politicians should be a bit scientifically literate though, just the basics, because this likely the form a lot the evidence they base decision making on will be presented to them. Even then, if they have a few people they trust who are suitably qualified to interpret evidence that should be enough really.

It only "works" if you massively cut public spending in real terms in order to fix the budgetary imbalance. That is very likely what is coming in November.

This is classic Libertarian "shrink the state" vodoo economics.

They are essentially running an experiment on the entire country.

I missed this.

You know him and I don’t but KK doesn’t strike me as a particularly great intellect and he is no great economics brain. I’d put him on a par with Cameron frankly - Oxbridge 1sts, well-schooled, confident but lightweight. A PhD in history means much less than people think it does.

But I agree with you that you don’t need to be a great intellect to be a good politician. What you do need is good judgment, good sense and the ability to work with good advisors. He has none of that. He has allied himself with very silly people apparently because they agree with him.

Brown was a perfectly good chancellor, astutely keeping us out of the Euro. And for all the flak he and Darling handled the financial crisis well. Karteng simply doesn’t have that kind of ability or experience in economics. So he’s not even remotely like Brown in that sense.

Politicians are a disparate bunch with different motivations. Political pay is not that high and for young bright people other career have a higher potential income. But not everyone is cut out for finance.

Power and ideology are driving forces for some, but for others it seems to be as much about status and attention, the opportunity to make a name for themselves.

Power and money go hand in hand: it’s p not so much political pay at issue, it’s all the appointments and opportunities that come with a political career - the speaking events, journalism, TV, the shift sideways into business onto boards and regulatory bodies and of course the book deals.

In 2020 David Cameron raked in £836,000, while Theresa May took home £400,000. In the same year, the Times reported Cameron had earned £1.6 million since his resignation. His current speaking fees are said to be 100k per hour.

Tony Blair was paid, it is said, £5 million for his memoirs, invested in property and is now worth £60 million ish. I don’t think Blair went into it for the money - he’s very idealistic - but it’s been a nice little earner nonetheless. His current speaker fees are said to be 200-300k. Nick Clegg now working for Google on £7 million deal. Osborne went on to be editor of the Evening Standard. Boris should make a fair bit too. If all else fails scabrous diaries should make you something.

Yes back to the austerity years for the public services. Great just what the NHS needs eh?

@IrisVersicolor the people you mention are all ex-PMs except Clegg who was dep PM and Osborne who would make money whatever he did. Yes, ex-PMs can earn some money from public speaking and memoirs for a few years but unless they are utterly shameless money-grabbers like Blair, what they earn is nothing compared to what most of them could have earned in the private sector if they’d never gone into politics. If you are just a run of the mill Cabinet minister, you’ll struggle to even get a memoir published . If you are a junior minister or backbencher, nothing.

As a strategy for making money, it sucks. Going into politics you have an almost infinitesimally tiny chance of becoming PM.

I know they’re the high end, but many in other more lucrative careers don’t end up at the top either.

Lower achieving politicians can make money from all kinds of sidelines and follow ons. And not everyone is a career politician, many come to it in middle age when they’ve got tired of existing job. In that context, MP pay could well represent an increase in income, albeit potentially insecure. At small scale local level MP gives status and visibility in the community and experience in national politics that can benefit current income as well as opportunities in the future.

@BambinaJAS

"It only "works" if you massively cut public spending in real terms in order to fix the budgetary imbalance. That is very likely what is coming in November"

+++

I fully agree with you, the cuts in public spending required to restore the budgetary imbalance are truly massive, of the order of £50 billion plus.

The only way to achieve this is by drastic changes in the two biggest spend areas namely the NHS and the state pension.

@MarshaBradyo
If I could predict what will happen next to interest rates/growth/energy prices I’d be a very wealthy person.

Re KK: I think he’ll lose his job and will become a national joke figure, a bit like Portillo in 1997. Portillo however turned out to have some humility and self awareness, KK has none. He won’t stick around in the UK - he will go to work at the Hoover Institute or some such in the US, write more books and do commentating on Fox News whenever they want to talk about the UK. He will tell the Americans that he was right and every one else was too stupid to see it.

It is unlikely they will touch the State Pension because they depend on those voters (they vote Conservative in high numbers). It would be political suicide for them.

What is much more likely is that they will let inflation erode the real value of nominal public spending, in things like:

1. NHS (the big one)

Their strategy will be to push more people to use private healthcare due to the current problems (7M procedures waiting). That then allows then to cut NHS spending.

1. Public Sector (Civil Servants)

They will keep wage increases low relative to inflation. They will also likely cut more positions via attrition, and sell off more state assets.

1. Education

I fully expect public education in the UK to be underfunded relative to inflation increases.

1. Benefits

They will let the real value of the nominal value erode. So if inflation is 10%, they will only increase them by 5%. That sort of thing.

They don't have to get to £50bn as KK said he is looking at the medium term. So the cuts would likely fall to about £35bn until 2026 (still a lot), and that is something that can be done when inflation is high (average inflation over the next 5 years is projected to be 5%).

Not the case: in other careers, you don’t need to get to the top of a single very pointy pyramid to make money. There are more pyramids and they are much bigger. In much of the private sector, someone who is mid level, four or five layers down from the top, can earn six figures, more even than the PM.

As for the vast majority of politicians, you are very very very wrong.

Being an ex-politician does not carry the kudos you think it does. In fact many really struggle once they leave politics because there’s no obvious career progression from being a backbench MP: it is a job quite unlike any other, and once you are out, you have no status or influence. The luckier ones had careers before they entered politics which they can resume - being a farmer or doctor or lawyer or whatever - in which case politics wasn’t a material advantage at all as they probably took a pay cut and a career break to do it. A few of the older and more respected ones get part time jobs as NEDs or go off to run charities - but these roles are few and far between and mostly not all that lucrative. Some do random things - Portillo the railway enthusiast, Virginia Bottomley the headhunter. A few go into public affairs or lobbying firms because it’s the only thing they know. And why not?

I am not sure what you are expecting here. Are we really saying that the only acceptable thing for MPs to do, once they step down or lose their seats, is go on the dole or down the mines? They have a right to a career and to provide for their families the same as anyone else.

What there is no evidence of in this country is people going into politics to get rich. Unlike China, newly where appointed officials suddenly start sporting Omegas and Rolexes, the people who end up rich are the ones who were rich anyway before politics. I can only think of one who has only become seriously more wealthy as direct result of his political career, and that’s Blair. He probably would have done OK if he’d stayed at the Bar and not gone into politics, but he’d never have been a multi millionaire with a vast property portfolio including a double sized mansion in Connaught Square. But I don’t think even he went into politics expressly to get rich. (His wife I am not sure… always very keen to cash in after they left no10…)

Thanks. Just listening to further people on it it seems not using the OBR was a huge error. I suppose if he goes Truss is also very keen on approach. But who wants an 8 week plus leadership contest atm - too damaging

I agree with pp re budget cuts coming but one area just mentioned that could help is work force immigration. I hope they get that through quickly

My theory is that OBR assessment would have been god-awful, because the minibudget had zero plans for debt reduction. That's why they proceeded without OBR assessment.

Not getting an OBR assessment was a calculated decision, as was renaming it a fiscal whatever.

At best the only reason to deviate from convention (which needs to be a legal requirement from now on imho) was ego in thinking they knew enough with only a couple of weeks in their roles under their belts, at worst they knew and took the gamble because personal/party gains had the potential to be rewarding. I’ll never forget Nadine Dorries outright kowtowing to their donors during the Boris debacle. She said the thing they weren’t supposed to say out loud.

You have just described Jeremy Corbyn in a nutshell.

Which probably explains exactly why we are where we are now.