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Public services needs may snag Truss and Kwarteng’s growth plans

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Good morning from Liverpool. When I wrote the New Statesman’s political column, the strange thing about conference season was that you were always in the wrong place. You wrote your Conservative conference column at the Labour party’s annual gathering, your Labour column in between throwing shapes at Liberal Democrat conference, and your Liberal Democrat column* at the Trades Union Congress.

This year is similar: the UK’s political journalists are all in Liverpool, but the biggest story is what is happening to the pound and the market reaction to the new government’s “mini” Budget.

*There are only ever two Liberal Democrat columns: one in which you explain why the present political moment is perfect for the Liberal Democrats if only they could find a way to get more media attention, and another in which you complain that the Liberal Democrats have failed to get media attention.

Inside Politics is edited by Georgina Quach. Follow Stephen on Twitter @stephenkb and please send gossip, thoughts and feedback to insidepolitics@ft.com.

Sterling got low, low, low, low, low, low, low, low

Start your week with an alarming chart! Here’s the pound’s performance against the dollar over the past week, as markets balked at footing the bill for the UK government’s plans.

Now, of course, the dollar is performing very well against any currency you care to name. So here, for context, is the pound’s performance against the Turkish lira, a currency with problems of its own, in the past week.

Sterling hit a record low in Asian trading in the wake of Kwasi Kwarteng’s tax-cutting budget, and his hints that he may have further tax cuts up his sleeve. The chancellor sat down with George Parker following the announcement of his “mini” Budget and said he would set out how the UK will go about reducing its debt pile “in the new year”.

What’s going to happen next? I don’t know. As Toby Nagle writes this morning, “forecasting where the pound goes from here is difficult, as predicting currency moves is a dangerous game”.

In the longterm, the political thinking underlying Trussonomics is that higher growth not only pays for some of these tax cuts, but facilitates cuts in the size of the state, which allows you more flexibility to reduce the UK’s debts. But while Kwarteng and his boss, Liz Truss, are both committed small-staters who are not going to shed any tears if they have to shrink the size of the British state to make the sums add up, many Conservative MPs don’t agree. They will shrink from anything that looks like a fresh round of austerity, for fear of the social and electoral consequences.

Don’t forget, either, that inflation means that the UK’s public services are facing big real-terms cuts anyway. Truss and Kwarteng may believe that they can ride out the initial reaction to their plans, and the chancellor has doubled down on his approach rhetorically. But politically speaking, demands for greater spending are either going to mean a reversal of some or all of these tax cuts or more borrowing. Neither are without political consequences for the UK’s new prime minister. One irony, as Torsten Bell explains, is that the likely result will be more cuts to the things we know do drive growth:

Torsten Bell, director of the Resolution Foundation, a think-tank, said prime minister Liz Truss’s approach to tax cuts and deregulation might in any case not have the same effect now as in the 1980s in the US or UK. The top rate of income tax was already so much lower and Britain was more lightly regulated than most advanced economies, he said.

Instead, the most likely effect would be “worse public finances, a higher cost of borrowing and lower public spending”. If the government wanted to maintain spending on schools and hospitals, while still putting debt on a downward path by the next election, it might well end up cutting public investment — which “pound for pound has more impact on growth than tax cuts”, he added.

Nor, as Jen Williams reveals in her great account of how the chancellor’s plans are landing in Bury, a key marginal, will they be embarking on any programme of further cuts with a great deal of good will or enthusiasm for their plans.

The UK’s new government has embarked on a big and bold experiment. But the nature of experiments is that sometimes they explode.

It’s been a long road, getting from there to Keir

The fallout from Kwasi Kwarteng’s plans are one reason the Labour party is in a buoyant mood in Liverpool, and why corporate money is clearly flowing back into the Labour party conference. That’s not to say everyone is happy. One person who is very much not is Unite union general secretary Sharon Graham, who in an interview with Jim Pickard and Delphine Strauss has called on the Labour leader to set out a bold vision.

While the government’s difficulties may be an asset for Labour, Kwarteng’s plans pose a twofold problem for Labour. The first, as Chaminda Jayanetti explains in a great piece over at The House, is that it places further limits on Labour’s freedom to pledge greater sums for the UK’s tattered public services.

The second is that it forces Labour into a position no opposition wants to be in: having to talk about tax rises.

Shameless self-promotion

The Andrew Neil Show is back — this week aired from Liverpool. I, along with George Osborne, Ed Balls and the Telegraph’s Maddie Grant, discussed the fallout from the mini-Budget and more besides. You can catch up on All4 here.

Now try this

By a happy coincidence, the FT’s hotel is next to one of Liverpool’s loveliest restaurants: the tapas restaurant Lunya. Unhappily, it is somewhat further away from the excellent natural wine bar and shop Bunch, or the delightful restaurant Maray, which now has several branches in Liverpool and another in Manchester.

Visiting any or all of the above is a good excuse to visit Liverpool’s Catholic cathedral, the Liverpool Metropolitan, a startlingly beautiful bit of modernist architecture that is always worth a look around.

Top stories today

  • Green new deal | A Labour government would spend £8bn co-investing with private companies in green projects ranging from battery factories to wind farms, shadow chancellor Rachel Reeves will say today.

  • Question time | Mark Fullbrook, who joined Downing Street this month as Liz Truss’s chief of staff, is being paid through his private lobbying company instead of directly by the government. The Sunday Times’s Gabriel Pogrund first reported on the unusual arrangement, which came days after the newspaper revealed he had been interviewed by FBI agents in connection with an alleged criminal conspiracy.

  • Visa review | Liz Truss is looking at making changes to the “shortage occupation list”, allowing certain industries to bring in more staff — such as broadband engineers — from overseas.

  • ‘Quid pro quo’ | Fullbrook is understood to have been promised by Truss that his company would run the Tories’ next general election campaign if he joined as chief of staff, the Guardian reports.

  • Backbenchers’ split | While Kwasi Kwarteng’s tax cuts and radical agenda have won support among Conservative MPs, unease is also rife. One former minister said the mood among many was “anxious and uncomfortable”.

  • Far-right victory | A coalition led by Giorgia Meloni’s arch-conservative Brothers of Italy came top in Italy’s snap election. Tomorrow, FT journalists and guests will reflect on what this means for Italy and Europe in a subscriber-only panel talk (sign up for free here).

Swamp Notes — Expert insight on the intersection of money and power in US politics. Sign up here

Britain after Brexit — Keep up to date with the latest developments as the UK economy adjusts to life outside the EU. Sign up here

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