February 3, 2023

Former British Chancellor Kwasi Kwarteng brushed aside the Treasury’s warnings about the £45bn 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 to the Treasury, said he was satisfied that officials gave ministers the “right advice” on Kwarteng’s fiscal statement.

He added that they could not convince the chancellor to change course. “Officials advise, but ministers decide,” he said.

Bowler became the most senior Treasury official in early October, replacing Sir Tom Scholar, who was dismissed by Kwarteng on his first day as chancellor a month earlier.

The officials, who temporarily ran the Treasury after Scholar’s resignation, revealed the difficulties officials faced in the brief period when Liz Truss was Prime Minister and Kwarteng was Chancellor.

Beth Russell, now the second permanent secretary of the Treasury, said officials knew there were big risks in the “mini” budget and had warned Kwarteng.

James Bowler said he was satisfied that officials gave ministers the 'right advice'
James Bowler said he was satisfied officials gave ministers the ‘right advice’ © Parliamentlive.tv

She told MPs that the risks she highlighted included ‘the fact that funding needs would be much, much higher as a result of the event; the risk associated with market expectations; and the possible discrepancy between the size of the intervention and what the markets expected”.

When asked if she had set any alarm bells ringing, she said, “We did.”

Neither Russell nor Bowler disagreed with Labor MPs on the committee saying it appeared Kwarteng and Truss had ignored official advice, although they added that these were the MPs’ words and not theirs.

Kwarteng has told the FT that he and others “got carried away” in preparing 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 size of the unfunded tax cuts could be overruled. were taken late. This meant officials were unable to properly brief the Bank of England, which set interest rates the day before the statement.

Asked if she had set any alarm bells ringing, Beth Russell said:
Asked if she had set any alarm bells ringing, Beth Russell said, “We did.” © Parliamentlive.tv

BoE governor Andrew Bailey complained last month that the central bank’s interest rate committee was unaware of the extent of the chancellor’s actions when it made decisions ahead of its September meeting.

Treasury officials also revealed that they were not informed in advance that the IMF would publicly warn of the “mini” budget at the end of September. The IMF’s move was “a bit unusual,” Russell said, adding that “we had no prior visibility into the statement they released.”

Another consequence of Truss’s 44 days as prime minister was a morale problem in the treasury, said Bowler, who was appointed to head the ministry in early October in a bid to demonstrate that economic orthodoxy was back in charge .

Referring to comments made by Truss in the summer that the Treasury was dealing with “bacus economics” that had undermined the UK’s economic growth for more than 20 years, he said: “It’s been a tough year”, adding that there have been “some negative commentary on Treasury officials and none of it helped”.

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