Darren Jones: No need for emergency intervention
Harriett Baldwin MP accuses Rachel Reeves of having ‘fled to China’ rather than face MPs over the rise in public borrowing costs, because she realises her budget means she is “the arsonist”.
Baldwin says yesterday’s statement from the Treasury (which said the government has an iron grip on the public finances) was an “extraordinary emergency” effort to calm the markets.
Darren Jones says these “inflammatory” comments are rather surprising, and don’t reflect reality.
The trip to China has been in the diary for weeks, he points out.
And he rejects claims that the Treasury has intervened in the markets, saying yesterday’s statement was simply a response to questions from the media.
Jones says:
There has been no emergency statement or emergency intervention, these are make-believe words being propagated by members on the benches opposite….
There is no need for any emergency intervention, and there hasn’t been one.
[as reported earlier, the Daily Telegraph reported last night’s statement as the Treasury stepping in to halt market mayhem.
Technically, an intervention actually involves a government or central bank actually buying or selling an asset to move the markets, not simply issuing a press release].
Key events
Pound still down
Although UK goverment bonds have recovered from today’s losses, the pound is still weaker.
Sterling is down three-quarters of a cent at $1.2295, having earlier hit a 14-month low of $1.2240.
That will push up the cost of imports into the UK.
But, a weaker currency could also help the UK escape from a vicious circle of higher yields, lesser fiscal space and lower growth.
So argues Deutsche Bank analyst George Saravelos, who told clients:
A weaker pound does three things. First, it helps improve the country’s negative net international investment position by a mechanical revaluation of UK-owned foreign assets. Two, it cheapens up UK assets (= gilts) so eventually they become attractive to buy again for a foreigner. Third, it helps the current account deficit adjust, reducing the reliance on foreign funding.
To be sure, the Chancellor and central bank have an important job to do. The Bank of England needs to maintain the credibility of the inflation target. The Chancellor needs to signal sensitivity to the worsening global environment by potentially paring back some spending.
Both need to avoid any signal of fiscal dominance. But beyond a few tweaks here and there, it is largely the currency that will do the work of stabilizing the bond market combined with an eventual peak of US yields.
UK bond sell-off has calmed
Calm has returned to the UK bond market!
The yields on UK government debt, which had jumped again this morning, have now dropped back to their levels at the end of trading last night.
Investors have, perhaps, noted Treasury minister Darren Jones’s insistance that the gilt market has been functioning as normal and there is no need for the government to intervene.
The yield (or interest rate) on 10-year bonds, which hit its highest since 2008 this morning, has now slipped back to 4.796%.
Thirty-year bond yields have returned to 5.355%, having hit their highest since 1998 earlier today.
Urgent question: What we learned
With today’s urgent question over the rising cost of borrowing over, what did we learn?
1) The government is sticking to its fiscal rules, even though rising gilt yields are eating into their headroom
Chief secretary to the Treasury Darren Jones insisted that meeting the rules (to not borrow for day-to-day spending, and to have the national debt falling in five years) is non-negotiable.
2) No return to austerity.
If borrowing won’t increase further, and taxes won’t go again, isn’t cutting spending the only alternative to keep within the fiscal rules, several Conservative MPs suggested.
Jones said public spending will be “within the numbers set out in the budget”, and didn’t explicitly rule out tax rises.
3) No reason to panic!
Often a witty presence, Darren Jones seemed keen to exude calm from the dispatch box.
After days of rising borrowing costs, he declared:
UK gilt markets continue to function in an orderly way
And he wouldn’t accept that Treasury press releases to journalists counted as an ‘emergency intervention’, saying:
There has been no emergency statement or emergency intervention, these are make-believe words being propagated by members on the benches opposite….
There is no need for any emergency intervention, and there hasn’t been one.
Several Labour MPs argued during today’s urgent question that the Conservative Party should take responsibility for the state of the public finances.
John Slinger, MP for Rugby, argues they should be apologising, rather than criticising.
Darren Jones says it’s very important for the Conservatives to apologise. But the more they “grunt and groan” and claim everything was wonderful under them, the better for Labour, so “long may it continue”.
Tory MP Patrick Spencer, though, doesn’t sound very apologetic, accusing Jones of only wanting to talk about the past.
Spencer tells MPs that borrowing costs are up, busines confidence is down, and growth is going nowhere.
He tells MPs that it is time to admit that the “lefty economic experiment” is failing – the solution is to cut taxes and spending.
Jones insists that fiscal responsibility isn’t a lefty ideology – it’s what the British people expect.
Lib Dems call for emergency fiscal statement
Julia Kollewe
The Liberal Democrat Leader, Ed Davey, has called on the chancellor to cancel her trip to China and instead make an emergency fiscal statement to parliament cancelling the national insurance hike planned for April, to boost economic growth and give the Bank of England more room to bring interest rates down.
The increase in employers’ national insurance costs is expected to push inflation slightly higher, as some companies have already signalled price rises (see earlier post), while the national minimum wage is also going up in April, by 6.7%.
Higher inflation will make it harder for the central bank to make further rate cuts. Markets are now expecting two quarter-point reductions this year, rather than three as forecast before December.
Davey said:
“Instead of jetting off to China, the chancellor should urgently come before the House of Commons to cancel her counterproductive jobs tax and set out a real plan for growth.
“The country is paying an ever-higher price for the total mess the Conservative Party made of our economy, and the chancellor needs to realise that she’ll never dig us out of this hole without a far more ambitious plan to grow our economy, including rebuilding trade with Europe.
The government’s misguided jobs tax is hurting businesses and hitting investment badly, meaning it will hold back growth while failing to raise the funding the chancellor claims for the NHS.
The chancellor should look instead at our plans to raise revenue without hitting jobs and growth, by raising taxes on the profits of the big banks, social media giants and online gambling firms – all of which are making eye-watering profits while ordinary families struggle.”
Liberal Democrat MP Max Wilkinson brings up Liz Truss’s decision to issue “cease and desist” letters to those who accuse her of crashing the economy.
He asks Darren Jones to compare and contrast Truss’s “disastrous” mini-budget with what’s being discussed today.
Darren Jones says he can’t comment on legal proceedings.
But, one of the “huge lessons” for the voting public is that the “hubris, the ego and the lack of focus on working people” frrom Conservative ministers had a direct impact, and “ruined the lives of people across this country”, he adds.
Harking back to the mini-budget crisis of 2022, Darren Jones says people across the country suffered from higher mortgage bills, as well as higher grocery bills.
Conservative MPs should observe “a period of silence while they learn the lessons”, he argues.
Speaking of 2022…Liz Truss has sent a legal letter to Keir Starmer demanding he stops making “false and defamatory” claims that she crashed the economy.
Labour MP Louise Jones tells MPs that many of her constituents (in North East Derbyshire) are “really struggling” with the cost of living crisis, which is why the government must rebuild the foundations of the economy.
Darren Jones agrees, saying that if you play fast and loose with the nation’s finances, you play fast and loose with the public’s finances too.
Liberal Democrat Paul Kohler suggests the opposition MPs have an “incredible brass neck” for expressing concerns about the UK’s debt situation.
Isn’t the solution to growth to re-engage with Europe?
Darren Jones say the UK needs to improve trading relationship with countries around the world – that’s why Rachel Reeves is going to China.
Tice: We are heading towards a financial crisis
Reform MP Richard Tice has warned parliament that the UK is heading towards a financial crisis.
Tice points out that UK GDP fell in September and October (both by 0.1%), while sterling is “falling, almost collapsing”.
Confidence is falling and investors are fleeing, he warns, while the only things going up are “inflation, wasteful public spending, and the cost of debt”.
Tice says:
We are heading towards, be under no illusion, a financial crisis.
He asks Darren Jones to tell the chancellor to return from her ‘ridiculous’ trip to China, and cut daft spending and wasteful regulation to create growth.
Jones replies that he will not tell Reeves to come back from her trade trip to China.
