Kwarteng brushed aside warnings about ‘mini’ Budget, say Treasury officials
Former UK chancellor Kwasi Kwarteng brushed aside Treasury warnings about the £45bn of unfunded tax cuts in his “mini” Budget in September, officials told MPs on Monday.
Speaking to the House of Commons Treasury Committee, James Bowler, permanent secretary of the Treasury, said he was satisfied that officials gave ministers the “right advice” on Kwarteng’s fiscal statement.
He added that they could not persuade the chancellor to change course. “Officials advise but ministers decide,” he said.
Bowler became the top Treasury official in early October and replaced Sir Tom Scholar, who was sacked by Kwarteng on his first day as chancellor a month earlier.
Revealing the difficulties faced by officials in the brief period when Liz Truss was prime minister and Kwarteng was the chancellor, the officials, who temporarily ran the Treasury in the wake of Scholar’s dismissal, laid out the advice they had given ministers at the time.
Beth Russell, now second permanent secretary to the Treasury, said officials knew there were big risks in the “mini” Budget and had warned Kwarteng.
She told MPs that the risks she highlighted included “the fact that the financing requirement was going to be much, much higher as a result of the event; the risk around market expectations; and the potential mismatch between the size of the intervention and what was expected by the markets”.
Asked if she had raised alarm bells, she said: “We did.”
Neither Russell nor Bowler disagreed with Labour MPs on the committee who said it appeared that Kwarteng and Truss had ignored official advice, though they added that these were the MPs’ words and not theirs.
Kwarteng has told the FT that he and others got “carried away” in the preparation of the “mini” Budget.
According to Bowler, one of the consequences of ignoring the Treasury and refusing to combine the fiscal event with an official forecast from the Office for Budget Responsibility, the spending watchdog, was that decisions about the scale of the unfunded tax cuts were taken late. This meant that officials were unable to properly brief the Bank of England, which set interest rates the day before the statement.
Andrew Bailey, governor of the BoE, complained last month that the central bank’s interest rate setting committee did not know of the scale of the chancellor’s measures when it was taking decisions ahead of the September meeting.
The Treasury officials also revealed that they were not informed in advance that the IMF would warn publicly about the “mini” Budget in late September. The IMF action was “a bit unusual” according to Russell, who added that and “we didn’t have sight of the statement that they released in advance”.
Another consequence of the 44 days that Truss was prime minister was a problem with morale in the Treasury, said Bowler, who was appointed to lead the ministry in early October in a bid to show that economic orthodoxy was back in charge.
In reference to comments by Truss in the summer that the Treasury was engaged in “abacus economics” that had undermined UK economic growth for over 20 years, he said: “It has been a tough year,” adding that there had been “some negative commentary on Treasury civil servants and none of that has been helpful”.