Interview with Kwasi Kwarteng«We tried to do too much, too quickly»
The former British Chancellor of the Exchequer provides his view on the decisions taken during his short term in office in 2022.
The conservative British Parliamentarian Kwasi Kwarteng rose to fame last year when he presented his «Growth Plan 2022», which was then dubbed as mini-budget. His announcement was followed by days of turmoil on the financial markets. Finally, the Bank of England had to rush to the rescue.
Mr. Kwarteng, if you could turn back time to September 2022, when you presented your mini-budget as Chancellor of the Exchequer, would you do anything differently?
Well, I think the issue we had was that we were trying to go too fast too soon. Therefore, with hindsight, I would rather choose a more measured approach. We should have opted for spending restraints as well as tax cuts, both at the same time. The then prime minister, Liz Truss, was very much of the view that we needed to move things fast. I think it was too quick. But hindsight is a beautiful thing.
What would that measured approach have looked like?
If we had combined spending constraints with tax cuts, financial markets would have worried less about the path of public debt. But the focus was on cutting taxes. Of course, I regret the turbulences we created at the time. We should have stuck to the issues that Liz Truss had campaigned for. She pledged not to increase corporate taxes and not to increase national insurance contributions. If we had stuck to these issues, none of this would have happened.
You worked in the investment industry before pursuing your political career. Did the reaction of financial markets really catch you by surprise?
I think the reaction of financial markets was very extreme. Everybody said that we caused a crash of the Pound, but it was actually Dollar strength. The Yen was at a fifty-year low, the Euro was at a twenty-year low. Rates in the US were rising substantially. There were many things happening at the same time and as I said, we should have chosen a more tactical approach. But I had warned the Prime minister.
What did you tell her at the time?
I simply told her to slow down.
She sacked you after only 38 days in the office. Did you feel like a pawn sacrifice?
No, that’s what politics is all about. I was the Chancellor and I took responsibility. It was the Prime Minister’s plan and I had warned her that at this breakneck speed she would only last for another three to four weeks. Well, it turned out to be only six days until she had to quit her job.
Is it correct that you refused the Office for Budget Responsibility to assess the economic impact of your budget in order to provide a forecasts?
The whole thing was already in train. What people forget is that the budget was done at very high speed. There was no time for calculations.
You are a big advocate of supply side economics. You believe in cutting taxes to stimulate growth.
This is the only way forward. It is not just an issue for the UK. In the US economy, the EU, there is only very little growth. The cost of social welfare is growing at a higher speed than the economy. The math of that simple arithmetic tells me that we need more growth in order to enjoy the extent of social welfare which we have grown used to.
It seems difficult to cut taxes at a time when public debt burdens have reached record levels and interest rates are on the rise.
If you have debt, the best way to get out of it is to grow your income and to grow your wealth. To raise taxes in order to decrease your debt is self-defeating, ultimately. I firmly believe in that.
The budget which your successor Jeremy Hunt presented not too long ago looked somewhat boring. Would you agree?
I think he does a good job given the framework that he has to put up with. He was brought in by Liz Truss to stabilise the situation, before she had to leave. And that is exactly what he is doing currently. It is very much an orthodox budget in so far as tax rises will balance increased spending.
But this runs very much counter to your own convictions.
True, this cannot be a strategy in the long run. I understand the short-term reasons for these measures but in the long run you need to revive growth dynamics.
You want to see incentives and competition when it comes to taxation?
Just look at Ireland where the corporation tax is at 12%. And it has been at this level since almost 25 years. They do not want to lose that. It works for them. Politicians from any party would agree to that. Places like Hongkong, Singapore or Dubai equally benefit from low taxes. And they look at us and say you’re crazy. That is not the way to attract investments.
And here comes the OECD aiming at a minimum corporate tax around the globe. This should eliminate a big chunk out of tax competition.
Right, ultimately you have to incentivise economic growth and this is not going to happen if you take out competition between countries. This is not a good thing.
You are a Member of Parliament for Spelthorne in northern Surrey since May 2010. What is on top of your agenda these days?
I am very much looking forward to helping out on the growth agenda. My interests lie in net zero policies and energy. So, I’m pushing this agenda.
Are you happy with the way that Brexit turned out?
Either way, people would be complaining. It was a very close vote back then. To claim that everything would be much better if we had stayed in the EU is completely false.
Is it true that you usually have a sign on the wall with the three letter MSH, which stands for «make shit happen».
I used to have that, but not in the chancellery.
Some say, you may have taken that motto too literally.
Yes, I know. Very funny.
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