Dear Jeremy Hunt, please share this with your friends…

An email from Jeremy Hunt, the Chancellor, has just dropped into my inbox. He has written to me personally, saying: “Margareta, This is a quick note to let you know — as of today, we’ve halved inflation. That’s what we promised to do, and we delivered. So why not share the news with a friend?” 

Sorry Chancellor, but I’m not sending it to a friend – this is not the time for one of those beastly chain letter games which I’ve not fallen for since being a teenager – and to be honest, your claims that “we’ve halved” inflation stick in the craw. 

The new figures from the ONS showing that inflation has slowed to 4.6 per cent for the year to October – its lowest rate since 2021 – from 6.7 per cent in September is indeed hugely welcome, and we should celebrate that prices are finally coming down to earth. In fact, inflation would have shown an even sharper drop without the recent spikes in petrol and diesel prices, which are already falling. 

But it’s really not pukka, for you and your government, to be taking the credit for the decline, allowing you to have met one of your five pledges by the end of the year. As you well know, inflation has been coming down over the last year for a myriad of reasons. Prices are lower because energy, commodity and food costs continue to come down post-pandemic, the interest rate hikes set by the Bank of England to squash consumer spending are biting, and most significantly, money supply is contracting.   

So for you the Chancellor and Rishi Sunak, the Prime Minister, to pretend it’s your wonderful stewardship that has magically brought down inflation is pushing your luck. And you have been lucky that finally, these mitigating factors have all come together to stamp down on prices – as many of us have been pointing out they would do for months.  

Taking the praise is also a dangerous strategy to adopt because, by the same measure, will the government take the rap if prices start shooting up again? For now, energy and food prices have steadied but any new upsets in hot spots like the Middle East or Ukraine, could of course send them shooting up again. One doubts Hunt will take that on the chin, saying it’s his fault, but would instead blame external forces beyond his control.  

Even Panmure Gordon’s Simon French – always one of the fairest and most non-partisan of economists – is equally sceptical about Hunt basking in the sunshine. As French says, the government took too much of the blame for the inflationary surge over the last few years, but now “it’s seeking unjustified, symmetrical praise on the way down.” Boom boom. 

What next? Well, forecasters are confident that interest rates have peaked and that the Bank of England’s MPC will pause rates at 5.25 per cent for the third month running when it meets in December. While inflation is down to half the government’s so-called target, it’s still up on the Bank’s own two per cent target and is likely to hover above it for some months to come. 

The bigger question facing the Bank’s MPC will be when its members feel it is appropriate to start cutting. On top of the positive inflation figures, there have been other indicators which support the view that the next move in interest rates is down. Earlier this week came the news that UK wage growth is slowing – down to 7.7 per cent in the three months to September from 7.9 per cent in the previous quarter – and signs the labour market is easing up, both of which point to a loosening of monetary policy. The consensus now among economists is that the first cut will come in the first quarter of next year, followed by at least two more, and maybe rates could even fall to 4.25 per cent by the year’s end.

What’s even better news is that the view that interest rates have peaked is now baked into the money markets. Over the last few days, mortgage lenders Halifax, HSBC and First Direct have all announced they are cutting mortgage rates. In just two months, the lowest five-year fixed rates have been trimmed back from over 5 per cent to almost 4.5 per cent.

All this is a much-better than expected backdrop to Hunt’s Autumn Statement on Wednesday next week. Not so healthy is the prognosis for economic growth which, at best, is flatlining although it rather looks as though we have narrowly avoided a recession. 

To date, the Chancellor and the Treasury have been uncharacteristically quiet and have avoided the usual kite-flying in the press to warm up the electorate. There have been a few hints about bringing in incentives for savings and business reliefs. Other than this there’s been a real omertà although it’s never too late so expect to see more ideas floated in this Sunday’s press. 

What does look sure though is that Hunt will not be introducing the sort of vote-winning tax cuts which Tory backbenchers are demanding. At a push, he might give some hints that the freeze on thresholds might be possible in the distant future but it’s unlikely he’s going to go much further now.  

But this would be a missed opportunity as there are supply side levers which Hunt could pull to help trigger growth. He should borrow some of the ideas in the Alternative Budget published this week by the Growth Commission, the group of contrarian economists set up by Liz Truss after her tumultuous reign to study the unthinkable.

And they have done so. They claim the PM has pushed the economy into a low growth trap in which GDP per head will grow by just one per cent annually over the next 20 years.They blame the UK’s high tax burden but also the terribly weak public sector productivity, inflexible planning rules which are holding back essential infrastructure, particularly in the essential  energy sector. They also cite the lack of competition in the transport sector and want to see more competition within rail franchises, the inflexible rules around welfare benefits which are holding back those who do want to go back to work and the weight of burdensome net zero regulations. 

They have solutions, some good and some not so good which they claim could add 23 per cent to the economy, adding an average of £11,300 more in every person’s pocket by 2044.

The better ones include ending the freeze on tax thresholds by 2024 to 2025 as, they claim, continuing with them would put taxes at a new peacetime high by the end of the decade. 

The Commission also recommends reforming welfare benefits – to help those who want to work back into work, a review of public sector productivity which is on the floor and is still at pre-pandemic levels. On the business front, it calls for corporation tax to be sliced from 25pc to 19 per cent with the aim of 15 per cent by 2040. As the Commission says, if the Irish can do it, why can’t the Brits? It also calls for the Chancellor to make the business tax break he introduced – which allows companies to offset 100 per cent – of the cost of investment in qualifying plant and machinery in one go against their tax bill – and to make it permanent. 

They also recommend that the tourist tax break on VAT – which has seen the wealthier tourists opt to visit Paris or Rome rather than London – be re-introduced. A move, which the Commission’s co-chairman Professor Doug McWilliams, says could in one swoop raise billions in revenue. 

All these are straightforward measures to implement and you do wonder why some of them have not been considered by Hunt as they are so obvious. However, there was one measure which the Commission also proposed which felt at odds with the otherwise fair tone of the measures: trimming the minimum wage. At present, the minimum wage is set at 66 per cent of the median wage (higher than any other OECD country) but the commissioners proposed freezing it at 61 per cent to boost employment, particularly for SMEs. While you can see the logic of the move, which the Commission claims could create thousands more jobs, the proposals smack of hurting the most vulnerable. Hardly the moment to do so.

Yet as McWilliams warned: “Something will have to give, whether it is employees resisting falling living standards or markets refusing to buy more and more debt. We need policies to be genuinely long-term in their ambition and aggressively target growth.”

 Something does have to give if we are to get the motors revving again through these tough times. So Jeremy, if I may be so brazen, please share a copy of the Alternative Budget with all your Treasury friends ahead of next Wednesday. The link is here. 

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