Key events

Liz Truss was primarily responsible for mini-budget decisions, not Kwarteng, says former Treasury minister Chris Philp

Chris Philp was giving interviews this morning on behalf of the government in his capacity as the policing minister in the Home Office. When Liz Truss was prime minister, he was chief secretary to the Treasury, but he was demoted by Rishi Sunak.

In his interview with BBC Breakfast, Philp was asked about his previous job, and whether he would apologise for his role in the disastrous mini-budget. He declined. But he also implied that Truss herself, rather than Kwasi Kwarteng, the chancellor, was primarily to blame for what happened. He told the programme:

The decisions around the mini-budget were taken principally by the then-prime minister and to a lesser extent the then-chancellor.

Kwarteng, who was chancellor at the time of the mini budget, has not talked publicly yet since he was sacked by Truss about whether he thinks she was primarily to blame, or he was. But it has been reported that he was cautious about abolishing the 45% top rate of tax in the mini budget, and that she insisted the measure should be included. (It was the first mini-budget measure to be abandoned). Interestingly, in an interview shortly before he became chancellor, Kwarteng said he believed the Treasury should be “constitutionally subordinate” to No 10. Speaking to Harry Cole and James Heale for their Truss biography, he also criticised Rishi Sunak for not deferring to the prime minister. Kwarteng said:

In the meetings I was in, they were very much superior, the Treasury, they were the numbers people, they were the details people, and they indulged, they humoured the prime minister. I don’t know whether they ran rings around him; they were very rude and the special advisers were very rude and they didn’t give him any deference or respect.

Kwarteng contrasted Sunak with Philip Hammond, chancellor under Theresa May, who, he said, had the “maturity” to see that May was ultimately in charge because “the prime minister was the person who won the leadership, she was head of the government”.

Minister says it’s ‘a bit of a cheek’ for asylum-seekers to complain about conditions

Chris Philp, a Home Office minister, has said it is “a bit of a cheek” for people who he said had “entered the UK illegally” to complain about conditions. My colleague Jamie Grierson has the full story here.

Simon Coveney, the Irish foreign minister, has welcomed the UK government’s decision not to call an election in Nothern Ireland before Christmas.

Fully share the Secretary of State’s objective; restoration of functioning institutions in NI. We had a good discussion this week, including on legal obligations under NDNA. No election pre Christmas is welcome & creates space for progress on other matters.
We remain in contact.

— Simon Coveney (@simoncoveney) November 4, 2022

Our story about the no early election announcement is here.

Mark Carney defends claim UK economy has shrunk from 90% size of Germany’s to 70% since Brexit

Good morning. Last month, in an interview with the Financial Times, Mark Carney, the former governor of the Bank of England, added to the considerable evidence about the harm done by Brexit to the UK economy with a striking statistic. He told the FT:

In 2016 the British economy was 90% the size of Germany’s. Now it is less than 70%.

This figure was widely quoted on social media, but it was also strongly contested, even by economists who accept that Brexit has held back the UK economy. One of the most prominent critics was Jonathan Portes, a former government economist who is now a professor of economics and public policy at King’s College London, who described it as a “zombie statistic” and “nonsense”. He said Carney was measuring the size of the two economies according to the prevailing exchange rates. But he said the normal method for comparing economies was to use “purchasing power parity”. (Put crudely, this is a measure that tries to evaluate how rich Britain is not by looking at how much stuff we could buy if we took our pounds and went to the US or China, but by how much stuff we could buy if we spent it in the UK.) Portes told the Daily Mail last month:

The pound has risen by almost 10% against the dollar since the Truss nadir. Has the UK economy really grown by almost 10% relative to the US in a few weeks?

Similarly, Carney is choosing a date when the pound was abnormally high against the euro (January 2016), another one when the pound was much lower, and then saying we’ve underperformed Germany by 20%.

That’s just obvious complete nonsense. If you look at actual annual growth rate in domestic currency, the UK and Germany have grown by quite similar amounts since 2016.

But this morning, in an interview on the Today programme, Carney defended his use of the 70% figure. He said the value of the pound started to fall when the referendum was called, it went down sharply when the result was announced and “it hasn’t recovered”.

Carney accepted that there was a difference between the purchasing power parity exchange rate and the market exchange rate. The market exchange rate was what ultimately mattered, he said, because it affected the UK’s ability to buy goods from abroad. He went on:

It’s relatively rare that you get big differences between the two [exchange rates]. But you get them when you have a long-standing shock to productivity in the economy and that is unfortunately what we’re getting in the UK. It was predicted that we would get that. It is coming to pass. And … it is one of the issues the Bank of England is facing.

This is what we said [before Brexit] was going to happen, which is that the exchange rate would go down, it would stay down, that would add to inflationary pressure, the economy’s capacity would go down for a period of time because of Brexit, that would add to inflationary pressure, and we would have a situation – which is the situation we have today – where the Bank of England has to raise interest rates despite the fact that the economy is going into recession.

Carney said that he and Portes had a “difference of opinion” on this. But, Carney said, in his view what mattered was “the purchasing ability, the international weight of the economy”. And that has shrunk, he argued.

Another way to put it is that that structural shift is in part what the government, and all of us, are dealing with in the UK. We’ve had a big hit to our productivity, our capacity in the economy … and we have to take some tough decisions in order to get it back up. And that’s one of the consequences of a decision taken a few years ago.

It is worth focusing on this because it is relatively quiet at Westminster. But in other stories this morning, Sir Graham Brady, chair of the Conservative 1922 Committee, has in effect confirmed that Boris Johnson did have enough support to make it on to the ballot for the latest Tory leadership contest.

And the government has indicated that plans to build a new nuclear power plant in Suffolk are under review and could be delayed or scrapped.

I try to monitor the comments below the line (BTL) but it is impossible to read them all. If you have a direct question, do include “Andrew” in it somewhere and I’m more likely to find it. I do try to answer questions and, if they are of general interest, I will post the question and reply above the line (ATL), although I can’t promise to do this for everyone.

If you want to attract my attention quickly, it is probably better to use Twitter. I’m on @AndrewSparrow.

Alternatively, you can email me at [email protected]

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