Labour desires to keep away from a repeat of the Liz Truss ‘mini-budget’ disaster

Liz Truss rose to the top of UK politics. Unfortunately, all she will be remembered for is being the shortest-serving UK Prime Minister ever, in large part due to a budget drafted by her Chancellor of the Exchequer Kwasi Kwarteng.

On September 23, 2022 Kwarteng announced a mini-budget that proposed abolishing the 45% rate of income tax and the proposed Health and Social Care Levy, cutting stamp duty and the basic rate of income tax and cancelling rises in National Insurance contributions and corporation tax.

It was a poorly-timed announcemnt, in part because global and UK bonds were already recoiling due to high inflation. The result was fatal.

I maintain that it was more circumstance than the details of the budget that caused the break in the bond market, including pension funds with liability-driven investment programs.

But perception is reality in politics and it will be a long time before Truss’ folly is forgotten.

That’s the message from Keir Starmer’s new government, which tomorrow will introduce the Budget Responsibility Bill. It will introduce a “fiscal lock”
in an effort to make sure that any government announcement making “significant and
permanent tax and spending changes” would be subject to an independent
assessment by the Office for Budget Responsibility.

It’s similar to the US CBO and should be some reassurance for the pound and gilt market.