The Information sessions The newsletter returns after a break last weekend for the Queen’s funeral. There’s a lot of news to catch up on, and we’ll try to give a general overview.
The first is Chancellor Kwasi Kwarteng’s new mini-budget. A balanced assessment of National Institute for Economic and Social Research suggests this will shorten the length of the recession and provide some relief to poorer households, but will increase the size of public debt and likely force the Bank of England to raise interest rates more aggressively.
We have more on this in Key points below and our economist co-editor Graham Gudgin will write more about it in the coming days. Our general view mirrors that of most economic commentators. It is hard to see how the measures announced by the Chancellor will make it possible to achieve her ambition of raising the UK’s growth rate to 2.5% per year.
We’re somewhat concerned that Liz Truss seems willing to compromise with the EU on Northern Irish issues, and negotiations are likely at restart soon. The mini budget did not extend VAT reductions to Northern Irelandwhich remains linked to EU rates with deleterious constitutional consequences. The government has also tried to reopen negotiations on joining Horizon Europe – although these are likely to remain blocked while Brussels can use membership as a tool of pressure for Northern Ireland.
Truss would also consider giving in to pressure to align with Brussels on food standards (one of the EU red lines). This may facilitate a protocol agreement, but will make a meaningful trade deal with the US (and others) very difficult. By bringing Britain closer to the single market and making it harder to deal with others, we fear it will become more difficult to secure Brexit due to regulatory divergence.
Finally in British news, the government has decided to legalize the extraction of shale gas (fracking). This will reduce the UK’s dependence on foreign gas and is more environmentally friendly given that the LNG currently consumed must be shipped from abroad. Moreover, as Jacob Rees-Mogg pointed out in the House of Commons, it has been confirmed by several sources that opposition to fracking was funded and promoted from Russiawhich aimed to place Europe in energy dependence.
Fracking somewhere rainier
Outside the UK, however, events were even bigger. Russia has launched a partial mobilization – sources say up to a million men could be drafted, despite the government’s claim that this is only for reservists. While the weight of numbers may eventually make a difference, it will be months before these men are remotely ready for action – and even then, Russian equipment, logistics, leadership and coordination remain appalling.
Russia’s influence in the wider region is eroding. In caucuses, Azerbaijan attacked Armenia again – a conflict that Russia has already tried to contain. Long a Russian ally, Kazakstan criticized Putin’s war and cracked down on Russian truckers use the country to dodge sanctions. Georgia and the other Central Asian republics could also seize the opportunity to distance themselves from Moscow.
Sunset over Putin’s imperial dreams?
Finally, the Italians go to the polls today. The once-fascist, now Eurosceptic Brethren of Italy party is likely to receive the most votes, drawing veiled threats from the President of the Commission Ursula von der Leyen. The Commission has also launched a number of major initiatives aimed at normalizing markets in electricity consumption, mediaand other places – which prompted overtaking reviews.
Co-editor Graham Gudgin written for policy exchange on the results of the new Northern Ireland census which show for the first time that Catholics outnumber Protestants. He explains why this should not lead to a border poll on Irish unity.
VAT: an EU memory we should get rid ofby Catherine McBride
While many are advising the new Prime Minister to cut income tax or cut Value Added Tax (VAT) across the board, Catherine McBride suggests a more subtle approach now than VAT, a tax intended to unify and fund the EU, is no longer mandatory in Britain.
“What better Brexit dividend could Prime Minister Truss give the UK than to abolish VAT on fuel and energy? In one fell swoop, it would boost UK consumers’ purchasing power while simultaneously putting some clear water between UK and EU taxes.
UKRAINE OVERVIEW 12by Adrian Hill
From now on, the pace picks up, partly to hamper Putin’s plans for pseudo-referendums, but also because after a hot summer there may be a very wet winter. It could bring a lot of mud and then snow on the steppes.
“The counter-offensive against Kherson is no feint: Ukraine has committed far too much combat power for this, but with strong nerves and daring they have taken advantage of a situation that the Russians themselves have foolishly opened up by delaying crucial decisions.”
Key points – What is Britain’s comparative fiscal position?
The UK certainly faces economic challenges – but these should not be exaggerated compared to those elsewhere.
Readers will no doubt have seen plenty of criticism of Chancellor Kwasi Kwarteng’s mini-budget, announced on Wednesday. Many opponents of the new government no longer care about national energy bills and small businesses but denounce government stimulus measures by cutting taxes as unaffordable and inflationary – despite the fact that the two measures have similar macroeconomic effects.
Combined with an announcement from the Bank of England which the country is in recession as it hiked rates by 2.25% this week, the news has led many to suggest that the UK is particularly ill-placed to put these measures in place compared to the rest of Europe, citing (as always) Brexit as probable cause.
Some of these criticisms of inflationary policy may well be legitimate. Judging by recent price trends, markets are concerned about government promises of debt-financed spending via tax cuts and energy subsidies. But that has little to do with Brexit, and neglects several important indicators. While UK 10-year bond yields are indeed higher than much of Europethey are still below or around the level of the American, Australian and New Zealand equivalents.
The difference between British, French and German yields has also shrunk over the previous year, as the British rate only recently diverged upwards again. Notably, looking at historical bond yields, Brexit itself appears to have had very little effect on perceived UK creditworthiness.
Much of this recent increase likely reflects the comparatively higher inflation seen in the UK over the past year. Yet that gap is narrowing – UK consumer price inflation is thought to have fallen slightly down to 9.9% in Augustcompared to a climb to 9.1% in the euro zone. The United Kingdom debt to GDP ratio, meanwhile, is significantly healthier than many European countries, potentially giving it more fiscal room to manoeuvre. The UK is also unlikely to face a currency crisis, as economist Paul Krugman (if not a budget reviewer) suggests.
While the UK may now be in recession, it is also a more common feature of the global economic scene. France, The Netherlands, Italy and other European economies are expected to enter recession during the fall-winter period of 2022-2023. Like the UK, the ECB has also been forced to raise interest rates in response to recent spikes in energy prices.
The economic situation is certainly alarming, and the distraction of a leadership race for the Prime Minister throughout the summer has not helped matters much. Yet this exercise suggests that pessimists need to put the UK into perspective – like us at Information sessions argue frequently.
We are also on Twitter, posting articles and retweeting daily events that bring Brexit to the fore in national news.
The discussion is also continuing on Facebook.
How you can help
There’s a lot about Britain’s relationship with Europe that remains to be determined. Our MPs listen to their constituents. Keep sending them links to our stories, especially on topics relevant to your constituency – for example, in rural areas, stories about the threat to UK agriculture. You can also make an appointment to speak with them at their next surgery. Let them know what you want Britain after Brexit to look like.
As Boris Johnson said in his post-election speech, now is also the time for unity and reconciliation. Keep reading our articles and share links to our great content to help others understand how leaving the EU benefits the UK economy and our own democratic governance. We aim to educate our critics to think differently and more positively on the long-term impact of Brexit.
A Cambridge PhD student
Economist, Center for Business Research, Judge Business School University of Cambridge
Emeritus Professor of French History, University of Cambridge