Sunday, November 27, 2022
This anti growth coalition is scuppering our prospects
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt. Not to be reproduced without permission.

It is easy to get depressed at the moment. The days are getting shorter, the weather has been a bit grim and the country's two main official bodies which produce forecasts, the Bank of England and the Office for Budget Responsibility (OBR), both say we are in a recession which will last for some time. Consumers are downbeat and so are businesses.

The big reason I am depressed this Sunday, however, is that what the former priem minister Liz Truss called the anti growth coalition, which infects the Tory party and has a strong foothold in Labour, has been busy scuppering the UK's growth prospects.

All this is happening at a time when the UK economy is doing badly. Productivity has yet to break out of the stagnation it has suffered since the financial crisis, business investment is embarrassingly weak and our long-term or "trend" growth rate is a pale shadow of what it used to be.

There is no pleasure to be gained from this. Maybe it was inevitable that it happened, given what has been inflicted on the economy, quite a lot of it self-inflicted, but reporting on the UK is a bit like supporting a football team that always loses. I have some experience of that too.

Exhibit One was the government's response to a story this newspaper led with last Sunday, which was that some senior figures were contemplating, over time, a move towards a closer relationship with the EU. Such a relationship could be an adaptation of the Swiss model, a series of bilateral sectoral deals, which was mentioned although has become a source of tension between Switzerland and the EU. But there are other models in which a non-member state could enjoy closer trade relations with the EU, improving on the thin and unsatisfactory deal negotiated by Boris Johnson.

Overwhelmingly, that is what business wants from my experience. The current Brexit arrangements are damaging trade, as the Office for Budget Responsibility (OBR) remined us recently, with the UK on track for a 15 per cent drop in trade intensity. Thousands of small and medium-sized firms have given up exporting altogether because of the red tape now involved in exporting to the EU. Combined that with the clear damage to business investment over the past six years, which is not now expected to get back to pre-2016 levels until the late 2020s, and it is not surprising that we have a serious productivity problem.

And yet, at the mere mention of closer trade relations with the EU, Tory MPs, particularly those of the European Research Group, have an attack of the vapours, forcing Rishi Sunak to say that the government is planning no such thing.

He does not want to be the latest revolving-door Tory prime minister to be brought down since the referendum. Many of those giving him a headache and forcing the retreat used to praise the Swiss and Norway models – both non-members – as well as insisting before the referendum that we could happily stay in the single market.

Almost as bad were the pro-EU ultras, not in this case among Tory MPs, who suggested that the EU would never countenance closer relations with the UK. We should not be defeatist about these things, particularly when it makes no sense.

Business also wants, as it made clear last week, alongside the unions, the government to stop loading it with extra burdens by removing EU-derived laws from the statute book and replacing them with UK laws.

There will inevitably have to be closer economic relations between the UK and the EU in future. The current period reminds me of the 1960s, when businesses could see what they were missing out on and pushed hard for membership of the European Economic Community (EEC). Re-entering the EU is not an option now, nor likely to be for a very long time, but a closer relationship is inevitable in future, if not under a Tory party whose Brexit problem goes deep.

In the meantime, we will suffer the economic consequences. When ministers talk about the benefits of Brexit, such as a freedom to carry out gene-editing in this country, I don’t think they realise how niche that is.

Sunday, November 20, 2022
Inflation wreaks havoc, and gives us a world of pain
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt. Not to be reproduced without permission.

By now you will have absorbed much of the detail of Thursday’s autumn statement. For some this will have been a painful if well trailed exercise. There were no rabbits out of the hat, in line with Jeremy Hunt’s promises. There were not many laughs either.

For those at the top of the income scale, this has been a cruel autumn. In the space of a couple of months they have seen the abolition of the 45p top rate of income tax dangled before them, only to see it snatched away by the chancellor who announced it, Kwasi Kwarteng, and made more punitive by his successor Jeremy Hunt, with the rate now due to kick in at a lower level of income, £125,140, rather than £150,000.

Not many tears will be shed for the victims of that tax grab. At the other end of the income distribution, people will be pleased by the chancellor’s announcement of targeted measures to ease the energy bill pain. Such help, aimed at pensioners, those on the lowest incomes and people receiving disability benefits will, however, reduce rather than remove an intense squeeze on incomes.

As for those in the middle, a broad swathe which includes what Theresa May used to describe as “just about managing” families, many will be left wondering whether they can in fact just about manage when average household energy bills rise by another 20 per cent to £3,000 in April. Even that price guarantee exposes the public finances to the vagaries of international gas prices, though by less than the Liz Truss two-year freeze at an average of £2,500.

People will also be caught by an even longer freeze on income tax allowance and thresholds, to 2028. Once, becoming a higher rate taxpayer was an ambition, even a badge of honour. Now, creating more higher rate taxpayers is one of many stealth tax rises announced on Thursday.

The big positive of Thursday’s package, though, was that most of the pain is deferred, thus mainly avoiding hitting the economy further hen it is already in recession, the triple whammy I referred to a couple of weeks ago. Markets have to take that deferred pain on trust, and so far mainly are doing so.

There were two key economic backdrops to the chancellor’s autumn statement. The first is inflation, which we heard on the eve of the announcements had hit a new high of 11.1 per cent. Inflation ran through the statement rather like the writing in a stick of rock.

The other significant and related backdrop, as highlighted by Richard Hughes, the chairman of the Office for Budget Responsibility (OBR). Is that what is known by economists as the terms of trade effect will make us a lot poorer. This describes the fact that we are paying much more for those things for which this country is a net importer, mainly energy but also food and other products. It makes us, in fact, spectacularly poorer. The OBR was gloomy about what would happen to household incomes in March, before the full implications of Russia’s invasion of Ukraine were clear. Now it is much gloomier.

Real household disposable incomes per head are predicted to fall by 4.3 per cent this year, 2022-23, the biggest drop since records began in 1956, and by a further 2.8 per cent in 2023-24. This combined 7.1 per cent fall is enormous, and will take real incomes back to where they were in 2013-14; literally a lost decade for incomes. It was a phrase used by George Osborne when he launched austerity in 2010, but as far as the squeeze on incomes is concerned, we really are all in it together.

If you have been wondering why consumer confidence is so weak, there is your answer. GfK has been monitoring consumer confidence since the 1970s and, while it edged up slightly this month, this was from record low levels.
The income squeeze was also highlighted by the latest average earnings figures, which are showing annual increases of 6 per cent for total pay and slightly less for regular pay. While that is too high for comfort for the Bank of England, it is well below double-figure inflation.

Incidentally, if you have wondered why the falls in real wages which lead the news bulletins are not bigger, it is because official statisticians use their preferred measure of inflation, CPIH, the consumer prices index including owner-occupiers’ housing costs, which has inflation running 1.5 per centage points below the 11.1 per cent rate for the consumer prices index. If you prefer the retail prices index, which some do, the fall in real wages is very scary indeed. RPI inflation is running at 14.2 per cent.

Inflation and the terms of trade effect are, then, wreaking havoc on household incomes, which is why the chancellor was keen to say that the government is working in “lockstep” with the Bank to get it down. It is an old trick; the causes of high inflation are global but the credit for getting it down should go to the authorities in the UK. It will be interesting to see if it works politically.

Inflation and the higher interest rate response to it also lie behind the sombre message, backed up with actions, of last week. If you are looking for the single reason why Hunt had to be tough, it is because of the rising bill for government debt interest. That bill, £120.4 billion this year, or 4.8 per cent of gross domestic product, takes us to similar relative levels to those at the end of the Second World War, when debt was about 250 per cent of gross domestic product, compared with just under 100 per cent now.

This year is exceptional, boosted by the impact of very high inflation in the returns on index-linked gilts, but the debt interest bill, has been increased by an average if £43 billion each year from 2023-24 to 2026-27, almost doubling. Without this rise in the debt interest bill, the autumn statement could have been a much more cheerful affair.

Sunday, November 13, 2022
Where did our £50 billion black hole suddenly come from?
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt. Not to be reproduced without permission.

You will have heard a lot about the “black hole” in the public finances that the chancellor, Jeremy Hunt, is grappling with, alongside the prime minister Rishi Sunak, in the run-up to the autumn statement this Thursday. That is not a sentence I expected to be writing a few weeks ago.

I am aware in doing so that it is likely to make anybody who knows anything about science wince. The black hole in this context is the gap, the space, between future tax revenues and public spending, which if wise enough to bust the government’s fiscal rules has to be tackled.

But, as every schoolboy and schoolgirl probably know, and as a useful description from NASA reminds it, that is not what a black hole is at all. As it puts it: “Don't let the name fool you: a black hole is anything but empty space. Rather, it is a great amount of matter packed into a very small area - think of a star ten times more massive than the Sun squeezed into a sphere approximately the diameter of New York City. The result is a gravitational field so strong that nothing, not even light, can escape.”

Anyway, I cannot get out of the habit, but there is another puzzle, not quite as big as the mysteries of the cosmos, that I wanted to tackle today. How did we get into a fiscal mess so serious that Hunt and Sunak have been looking for between £50 billion and £60 billion of annua tax hikes and spending cuts to put the public finances back on track?

There was no hint of it when Sunak was campaigning for the Tory leadership over the summer, merely and rightly pointing out that Liz Truss’s unfunded tax cuts would create such a mess. I shall come back to that.

More importantly, there was little hint of it when the government’s economic and fiscal watchdog, the Office for Budget Responsibility (OBR), assessed the public finances as recently as March. Then, as chancellor, Sunak was able to announce two significant tax cuts. One was to raise the threshold at which people start paying national insurance (NI) to just over £12,500, matching the personal income tax allowance, and thus significantly softening the blow of the increase in NI rates.

The other was a fully costed cut in the basic rate of income tax from 20 to 19 per cent, to take effect in April 2024. That, you may recall, was brought forward to April next year in Kwasi Kwarteng’s mini budget on September 23 but has now been postponed indefinitely, pending what we might hear this week. In the leadership context Sunak promised further cuts in the basic rate, beyond the 2024 reduction.

He was able to do so because, on the face of it, the public finances were in good shape. The two main fiscal rules, government debt falling as a percentage of gross domestic product and the government only borrowing to invest (balancing the current budget), each in the third year of the forecast, 2024-25, were met with a margin to spare.

The debt rule was met by a margin of £27.8 billion, or 1 per cent of GDP, while the current budget rule was met by a margin of £31.6 billion, 1.2 per cent of GDP.

Sunday, November 06, 2022
A triple whammy of rate rises, tax hikes and spending cuts
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt. Not to be reproduced without permission.

Some of you, perhaps not that many, will remember the double whammy. It was used quite effectively by the Tory party 30 years ago, enabling them to win the 1992 general election, against the odds. The double whammy, illustrated with a picture of a very large pair of boxing gloves, were the higher taxes and higher prices that would apparently be the consequence of a Labour government.

These days, a double whammy does not really capture it. The economy is facing a triple whammy of higher interest rates – with another big hike duly delivered by the Bank of England on Thursday – tax increases and spending cuts, of which we will learn more in the November 17 autumn statement. If you want to include higher prices in the mix, we could even make it a quadruple.

Items two and three of the triple whammy, higher taxes and spending cuts were confirmed by Jeremy Hunt, the chancellor, in impromptu remarks at the Sunday Times Business party a few days ago. Businesses and individuals would face higher taxes, he said, and there would be spending cuts across the board. This was not, he said, Treasury expectations management ahead of a big fiscal event, with warnings that turn out be unjustified. He meant it.

The thing about this triple whammy of higher interest rates, tax hikes and spending cuts is that it comes at a time of high inflation, public finances which are shaky enough to concern the Office for Budget Responsibility (OBR) and, by extension, the chancellor and prime minister, but also at a time when the economy is, according to the Bank, already in what could be a long-lasting, if relatively shallow, recession.

Most of the readings we have for economic activity, such as the purchasing managers’ surveys that measure business-to business activity, are at levels that would normally be consistent with cuts in interest rates, not hikes. You do not have to be a Keynesian to think that tax hikes and spending cuts are not what you would normally be doing at a time of economic weakness, The triple whammy pay be what guarantees the recession.

There’s a health warning to be attached to the Bank’s long recession forecast, which that it is conditioned on market expectations for interest rates that may not be fulfilled. But that caveat may be offset by the fact that this monetary tightening is to be accompanied by a fiscal tightening, which is not something that was on the cards even a few weeks back.

A short time ago, we had a prime minister and chancellor determined to avoid recession and go for growth, even by risking the public finances and more prolonged inflation. Now we have a prime minister and chancellor who are not prepared to take risks with the public finances, agree with the Bank that getting inflation down has to be a priority, and are prepared to live with the consequences if they mean that the economy goes into recession. Confused? Perhaps you should be.

The lurch began, it should be said, before Rishi Sunak became prime minister, when Jeremy Hunt junked most of his predecessor’s maxi mini budget and limited the energy price freeze to six months. It was a triumph of Treasury orthodoxy. The question now is how much further it goes on November 17. Two chancellors are running the country, one ex, one current, and even I would conceded that you can have too many of them

There is a template for what Hunt and Sunak are doing, and it goes back 40 years or so. When Margaret Thatcher was first elected in 1979, it was with a determination to bring down inflation and reduce public sector borrowing, the budget deficit, even if that would be painful. The 1981 budget, which raised taxes significantly in the teeth of a recession, was its apogee.

That was the budget which attracted the critical letter from 364 economists, which remains a reference point today. Even recently, some people were saying that economists would be proved as wrong on the “Trusseconomic” unfunded tax cuts as the 364 were in 1981. But no, the majority of economists were proved to be exactly right, as they usually are, particularly when I agree with them.

The hairshirt of 1981 was uncomfortable but it did not stop Thatcher from winning a second general election victory, admittedly against a divided opposition, two years later. By that time inflation had come down sharply and the economy was recovering well, having begun to do so around the time of that 1981 budget. That and victory in the Falklands war saw her home.

This time looks different. I noted last week that most economists expect only a mild recession next year but that we should expect something scarier from the Bank. So it proved and however you cut it, 2023 is looking like a pretty grim year, exacerbated by the impact of the triple whammy.

Sunday, October 30, 2022
Steady on Rishi, don't overdo the gloom
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt. Not to be reproduced without permission.

Five days on I am still digesting Rishi Sunak’s opening comments when he took over as prime minister on Tuesday. To remind you, he said that the UK is facing a “profound economic crisis”, some of it due to the mistakes made by his short-lived predecessor, which he would seek to fix. Normally you expect to hear this kind of thing when a new government has taken over from another party and cannot believe the state they have left things in.

When James Callaghan entered 11 Downing Street as Labour chancellor in 1964, he found a note in the office from his Tory predecessor Reginal Maudling, saying: “Good luck, old cock …. Sorry to leave things in such a mess.” History repeated itself in 2010, though the other way round, with the infamous “I am afraid there is no money” note from the outgoing Labour Treasury chief secretary Liam Byrne, which he later greatly regretted.

This time of course the wrecking ball was provided by somebody who, until very recently, Sunak sat around the cabinet table with. I took part in a quiz recently in which one of the questions was to name the four most recent chancellors. I obsess about these things and got it right but ask me again in a few years’ time and the names of Nadhim Zahawi and Kwasi Kwarteng may struggle to come to mind. We will wonder whether the Kwarteng chancellorship, like the Truss premiership, was something we imagined, like the dream sequence in Dallas which saw Bobby Ewing eventually restored to life.

Anyway, it really did happen, and created a significant part of Sunak’s profound economic crisis. Incidentally, when people like me talk of economic crisis, profound or not, we are sometimes accused of talking the economy into recession, a particular danger when consumer and business confidence are so weak. It is apparently OK for prime ministers to say so but, and here is the interesting thing, while markets are waiting for the government’s delayed fiscal plan on November 17, one element of the crisis looks to be over.

Sterling is up by roughly 10 per cent from its all-time lows in the wake of the September 23 maxi-mini budget, while the yields on UK government debt, gilts, have come down markedly. The 10-year gilt yield is down by nearly a percentage point to 3.6 per cent at time of writing, while the 30-year yield is no longer 5 per cent but more reassuring 3.7 per cent. The dream sequence has not yet started but it is almost as if September 23 had never happened.

Sunak and Jeremy Hunt, the chancellor, still have some tough decisions to make between now and November 17 but the drop in gilt yields has made their task easier. No longer will the Office for Budget Responsibility (OBR) be basing its debt interest projections on these very high interest rates. The black hole in the public finances, already made greyer by Hunt’s reversal of most of the Truss tax cuts, is not yet closed, but is paler still.

Sunday, October 23, 2022
Markets are calmer, but economic prospects are darker
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt. Not to be reproduced without permission

The past few weeks have taught us a couple of things, apart from the fact that prime ministers and chancellors do not last very long these days. Fortunately, Jeremy Hunt appears determined to outlast his immediate predecessor at the Treasury and hopes to present the medium-term fiscal plan on October 31. Given the revolving door we have seen, it would obviously be better if he were to remain in post under the new prime minister. A Sunak=Hunt partnership would be well received, but other permutations would be more problematical.

The first lesson of recent weeks is that the traditional complaint of politicians, that nothing they do seems to make a difference, has been comprehensively disproved. The former chancellor Kwasi Kwarteng’s maxi mini budget on September 23 clearly made a difference, and not in a good way, as I do not need to remind you.

Hunt’s scrapping of most of those measures and, importantly, the abandonment of the two-year energy price freeze, has also changed things quite dramatically, calming the markets in spite of political chaos and offering at least a partial fix to the damaged public finances, but with potentially very significant economic implications, of which more in a moment.

Notwithstanding Hunt’s calming measures, the second thing we have discovered is that once you have created a fiscal crisis, it is quite hard to get out of it. Until the government imploded under the now outgoing prime minister, there was no sense that the UK was in a fiscal crisis. Rishi Sunak’s spring statement in March even included a penny off the basic rate of income tax, though not until 2024, which was embodied in the projections for the public finances. That cut has now of course been abandoned indefinitely.

There was pressure on the public spending plans agreed last year because of higher inflation, and most, perhaps all, the fiscal “headroom” left by the former chancellor but two, had been eaten up by events, including the negative impact on growth of the cost-of-living crisis. But the situation was manageable and, as during the pandemic, temporary fiscal support in response to high energy prices was priced in.
Now, despite the many U-turns undertaken by Liz Truss before her resignation, and by Hunt, the fiscal crisis has not gone away. The September 23 budget acted as a wrecking ball, out of which fiscal policy will have to be tighter – with spending cuts and that planned cut in the basic rate of income tax shelved indefinitely – than if it had never taken place. Not only that but some, not all, of the rise in gilt yields, the cost of government borrowing, persists.

Sunday, October 16, 2022
We're still in a mess - and this might help us get out of it
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt. Not to be reproduced without permission

It is indeed a funny old world, as somebody once said. Elsewhere in today’s paper I analyse the revolving door that now characterises the job of chancellor. To the outgoing chancellor, I can only say: “Alas poor Kwasi, I never knew him.” To his successor, Jeremy Hunt, it is a case of welcome to what may still be a poisoned chalice.

Apart from decidedly skittish markets, perhaps the biggest challenge for the new chancellor will be operating alongside a decidedly skittish prime minister. Credibility and stability were not the words I would use after watching her Downing Street press conference on Friday afternoon. Wooden and unconvincing better fitted the bill.

Until Friday’s dramatic events, I was going to recommend junking much of what was in the September 23 maxi mini budget. But the prime minister, as well as sacking her chancellor, and junking much of here “growth, growth, growth” agenda, got there before me. We are still. however, in a mess, so here are some suggestions about how we might get out of it.

Make sure that the U-turn on tax goes far enough.

Markets thought at one stage last week that the entire September 23 maxi mini budget was going to be scrapped, not just the decision not to proceed with the rise in corporation tax next April from 19 to 25 per cent. That increase has been reinstated, and will eventually raise £18 billion a year, but moat of the other tax cuts remain in place. Taken with the cancellation of the abolition of the 45 per cent additional rate of income tax, there remain some £25 billion of unfunded tax cuts. It is still, if not a black hole, a dark grey one.

It may be that this was the extra pound of flesh that the markets wanted but I would not be too sure about that. The markets are not yet reassured and gilt yields are high, as you might expect when we are onto our fourth chancellor this year and the prime minister’s grip on power looks shakier than ever.

The Bank of England should postpone QT for a year.

QT, or quantitative tightening, is the opposite of QE, quantitative easing. QE involves asset purchases, mainly UK government bonds, gilts. QT involves the sale of the assets brought under QE.

The Bank has intervened directly in the gilt market to try to head off a catastrophe affecting pension funds, an exercise which came to an end on Friday. That catastrophe was a window into what happens when market interest rates rise too rapidly, as they did after Kwasi Kwarteng’s unfortunate fiscal event.
Under current plans, QT will begin in earnest on October 31, the revised date for the publication of the chancellor’s fiscal plan, and the target is for an annual £80 billion in the stock of gilts (currently £838 billion) held by the Bank.

Even before this crisis, the Bank’s QT threatened indigestion in the gilt market. The government will be borrowing a lot more in the market because of its much looser fiscal stance. Instead of the Bank being there to soak up some of that borrowing, its gilt sales will exacerbate the problem, pushing yields – and associated interest rates across the economy – higher. That itself could be a risk for financial stability, as well as bearing down on the economy.

It's an energy crisis, so take it more seriously.

Across Europe, measures are being taken to reduce energy consumption in response to the crisis. In Germany, shops are no longer allowed to keep their doors open on cold days, pouring out expensive energy, many monuments and public buildings are no longer lit up at night, halls and corridors in public buildings will no longer be heated and the maximum temperature in those offices limited to 19 degrees. Italy has introduced Operation Thermostat, lowering temperatures in buildings by 1 degree Centigrade. Many countries have restricted the lighting of shops and illuminated advertising hoardings at night. The European Commission has set a target of reducing gas consumption between August and the end of March by 15 per cent compared with the average of the previous five years.

In the UK there has been nothing, with the prime minister even resisting a public information campaign. In an energy crisis, where supply is restricted and gone up hugely in price, and is being massively subsidised, you need to act on price.

Sunday, October 02, 2022
They crashed the pound, but mustn't crash the economy
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt. Not to be reproduced without permission

You have to hand it to Liz Truss and Kwasi Kwarteng. In less than a month in office they have crashed the pound to a record low against the dollar, destroyed the credibility of UK fiscal policy, brought widespread predictions of a house-price crash and forced the Bank of England to step in with a major market intervention to head off a financial stability crisis. That was threatening something that Tory members and voters hold dear, their pension funds and the assets they hold.

These are world-class levels of ineptitude. In the same month that people across the world saw Britain at its best, with a superbly organised state funeral for the Queen, brilliantly filmed and broadcast by the BBC, we have seen a new administration revealed as a bunch of bungling amateurs. One was soft power. The other is daft power.

Before the chancellor’s “fiscal event” nine days ago, I wrote that what the government saw as shock and awe could well turn out to be shockingly awful. As the economist Jonathan Portes put it, with the classic line from the Italian Job: “You were only supposed to blow the bloody doors off.” Another economist, John Hawksworth, likened it to teenagers breaking into a nuclear power plant to “have some fun” with the fuel rods.

How do we get out of this confidence-destroying made-in-Downing Street mess? The first priority is to admit the errors. While the government and a tiny minority of frankly weird commentators want to blame everybody else, it is crystal clear what has happened. A government that thought it could ride roughshod over basic fiscal convention, having sacked the senior Treasury official who cut his teeth fighting crises, and refusing to call on the services of its own economic watchdog, the Office for Budget Responsibility (OBR), has been punished by the markets, as was inevitable, and we are all suffering the consequences. Promising further tax cuts, as Kwarteng did last weekend, was pouring petrol on the fire.

So it is essential to restore some fiscal credibility. Even an OBR forecast, which will eventually be published on November 23, may not do the trick if it is predicated on unrealistic projections for government spending. Already the talk is of “Austerity II” in which departmental budgets are not adjusted for the high inflation we are seeing and pensions and other benefits are not uprated in line with inflation next April. Let us see how that goes down when it coincides with the reduction in the 45 per cent top rate of income tax, also next April.

The government is said to be looking for efficiency savings to reduce public spending, an ambition always wheeled out at times of difficulty, but usually with little effect.

On the tax side, I suspect that as long as Truss is prime minister any reversal will be regarded by her as “over my dead body”. Stealth tax increases might be another matter. She may not last long as prime minister, and we have learned – again – that leaving the choice to a small number of Tory party members is dangerous, but another change of leader would hardly reinforce the UK’s reputation for stability. A change of government might.

Under this government, the best hope is outside its control. Gas prices have been highly volatile in recent weeks, falling from their highs in response to Europe’s success in filling reserves to see countries through the winter months and falling consumption. If they were to fall decisively it would significantly reduce the cost of the energy price freeze announced by Truss on September 8.

She told local radio listeners on Thursday that the freeze meant nobody would pay more than £2,500 a year for the next two years, though the amount, which in some cases will be much more than £2,500, depends on the type and size of property. Even so, the high cost of the package, and its equivalent for businesses, could come down from the estimated £150 billion or so – estimated by independent forecasters, not the government – if prices were to fall.