The Social Market Foundation's response to Chancellor Jeremy Hunt's announcement on 17 October 2022 follows below.
On the economic outlook, James Kirkup, Director of the Social Market Foundation said:
“Cancelling the borrowing-fueled stimulus of the mini-budget should ease some of the pressure on the Bank of England to raise interest rates dramatically to counteract the inflationary effects of Government policy – it is welcome to see the conflict between fiscal and monetary policy being reduced.
“The central decision to prioritise sustainable public finances over an ideological commitment to tax cuts is also sensible and welcome. Yet stability is a necessary but not sufficient condition of economic success. What is needed now is a genuine plan for growth, focusing on giving Britain a bigger and better-skilled workforce.
“That means greater efforts to help and encourage parents, older people and the long-term sick back into work. It means making sensible use of international migration to fill gaps in the British labour market. And it means ensuring that schools, colleges, skills and training are properly funded on a long-term basis.”
On the Energy Price Guarantee, Amy Norman, Senior Researcher at the Social Market Foundation, said:
“Amidst the chaos of the last three weeks, it is worth remembering that the purpose of the original mini-budget was to support households with forecasted soaring energy bills. The commitment to keeping this support in place this winter is welcome.
“While the changes to the price guarantee seem reasonable from a public finances perspective, policymakers will need to contend with the practical challenges of designing a ‘targeted and capped’ scheme. The principle of targeting support is hard to disagree with but designing it has inherent moral and practical trade-offs. Who should receive support and who shouldn’t? Is our system set up to find them? And where are the cut-off points? In just five months, Treasury officials will need to ensure that the new scheme avoids disastrous cliff-edges that may create disincentives for households or see those in need miss out on crucial support.
“The Chancellor’s ambition to better target resources and incentivise energy efficiency is the right one but implementing it will be fearsomely difficult from a national insulation mission to advice or price signals. Better efficiency not only benefits household bills but the public finances too. Although at this stage, it remains to be seen just how far this commitment will deliver for either.”
On the turmoil around UK economic policy and its future, Aveek Bhattacharya, SMF Research Director, said:
“The current fiscal mess just highlights how badly wrong things can go if the government and the Bank of England are pulling in separate directions. The Chancellor’s statement today, and the difficult trade-offs the Government is beginning to face up to, could have been avoided if fiscal policy were delegated to an independent expert body as the Social Market Foundation has called for.
Back in 1997, giving the Bank of England the responsibility to set interest rates boosted confidence in the competence and stability of British macroeconomic policy overnight. Taking a similar step and handing the government budget over to the technocrats might seem drastic, but it could help re-establish credibility, and hopefully avert some of the painful choices ahead.”
On stamp duty and housing, Aveek Bhattacharya, SMF Research Director, said:
“Hardly anybody would argue that stamp duty is a good tax, but the Government’s insistence on protecting stamp duty cuts, even as it seeks ways to restore the public finances, is a sign of misplaced priorities. Ideally, stamp duty should be replaced with a reformed council tax or some alternative ongoing property taxes or wealth tax. Inherited property should also be taxed more highly than earned income.
“Yet persisting with a reduction in stamp duty implies the government is more concerned about protecting unearned property wealth than protecting the most vulnerable from painful cuts to public services and falling living standards.
“A government that is already unpopular and taking difficult decisions should bite the bullet and finally address the harmful imbalance of wealth and opportunity that has been created by decades of loose monetary policy and restrictive planning rules that have madly inflated property prices. Rising house prices are not a sign of success, they’re a symptom of economic problems that sooner or later Britain must solve. Otherwise home-ownership will become a hereditary privilege that is forever denied to many members of Generation Rent.”
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