Who is against the development frenzy of Truss and Kwarteng? Whoever has sense | Philip Inman

ONEare you against growth, asks Liz Truss in her speech to the Tory party conference. What about your credentials as a disruptor? Can you say, with a steady hand on your trusty sword, that you’ve cut more than a piece of butter in the last few years, let alone weeks?

Growth in all its forms must be positive for the economy. Growth promotes new jobs and incomes, says Truss. Disturbance likewise. But when a government says it wants to build, build, build and simultaneously achieve net zero carbon emissions, there are obvious contradictions.

There are also related conflicts between those who would pave over large swaths of the countryside for the benefit of foreign investors looking for cheap distribution sheds and lax environmental regulations, and those who want more countryside and the kinds of 21st-century protections that prevent those who own capital from to turn other people’s lives upside down.

More immediate for the newly formed government is the need to please the institutions with proposals that push in opposite directions. Truss and Kwasi Kwarteng must show the Office for Budget Responsibility (OBR) proof that their policies can put rocket boosters into the economy while convincing the Bank of England that their ministers have no intention of doing so.

Kwarteng’s first move will be to tell parliament he will bring forward his autumn statement from November 23 to the end of this month. That gives him an opportunity to convince the Bank’s monetary policy committee that it should limit any rate hike to 0.5% when it meets on November 3.

The chancellor and his officials will spend this week and next trying to come up with a plan that softens his mini-budget by offsetting much of the £43 billion in tax cuts left on the table after the 45pc rate cut was scrapped. (it cost £2 billion).

Signals from Kwarteng’s camp indicate that welfare budgets are taking the biggest hit. A bonfire of the subsidies promised by Boris Johnson to lift the country, improve biodiversity and renew aging infrastructure could also be on the horizon.

Right now, with inflation at 9.9% and a combination of Brexit and poor health meaning there are no spare workers, extra spending only creates more inflation.

If a rate hike of 1 percentage point or more can be avoided, Kwarteng can expect two-year fixed mortgage rates to start falling and the heat from owners and homebuyers to ease. Forecasts for interest rates of up to 6% next year will be revised downwards, easing pressure from financial markets on government borrowing costs.

The Treasury knows it would help if the Bank looked at the £60bn Kwarteng expects to spend on the energy price cap in the winter non-inflationary period – as most of it will be spent on electricity and gas instead of new cars and furniture. But the subsidy is partly inflationary because it is universal. The rich and the poor will benefit equally, so some households will have spare cash.

Let’s assume, however, that the Bank is happy to cap its rate hike – such is the spin on spending to finance the tax cuts – where does this Kwarteng growth plan lead?

It has promised an era of expansion in which annual GDP growth of 1.8% seen over the past 20 years will rise to 2.5% over the next 10.

Without government spending to supercharge the economy, it will need to rely on deregulation – and the disruption it brings – to continue the fight. Free market think tanks say this is enough to attract investment and drive growth, but the OBR is likely to be more skeptical. In its early years, the OBR said business investment was immune to austerity and then had to apologize for that mistake. Those in charge will not want to make a similar mistake.

The OBR’s chief economist, David Miles, is likely to downgrade his forecasts for consumer spending and private sector investment, much of which hinges on public spending. If it sticks to its current forecast of 1.75% over the medium term, it will have single-handedly ripped out the heart of the Truss project.

Kwarteng may be tempted to cast Miles and the OBR as members of the anti-growth coalition. It would certainly be disruptive. However, this would only spook the international financial markets that lurk in the woods like wolves waiting for a passing wounded deer.

Truss’ only option is to tell her supporters that this is not a good time to grow, grow, grow. There is an inflationary crisis, an energy crisis that could lead to blackouts, and a looming sharp rise in poverty. Dealing with this is enough for any government.

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