As I promised earlier week, there is a way that Prime Minister Liz Truss and Chancellor Kwasi Kwarteng can deal with the 45% tax rate.

Before I go into that, however, the hysteria from the past few weeks, beginning with Kwarteng’s September 23 fiscal event, has gone into overdrive.

Truss’s dresses

During the Conservative leadership contest in July and August, Liz Truss has worn a particular style of dress.

During last week’s Party conference, The Guardian went a bit mad and accused the Prime Minister of dressing like a dictator. One can only hope that whoever tweeted this looked at the reply with Liz Hurley wearing the same style of dress …

… which is very popular at the moment.

On October 5, The Telegraph wrote about the new ‘power dress’, a Karen Millen creation called Forever.

If Truss is dressing like a dictator, then so is Catherine, Princess of Wales (emphases in purple mine):

You may not be familiar with the term “inverted notch lapel”, or what it might look like. Until now, that is, after two of the country’s most high profile women stepped out wearing it.

The first was the new Princess of Wales, who wore the Karen Millen Forever dress in sunshine yellow for a visit to a maternity ward. Kate rarely puts a fashion foot wrong so, as PR opportunities come, this is the holy grail. The Kate Effect is as powerful as it was 11 years ago when she married Prince William and, at the time of writing, the dress is already sold out in every size.

The other person modelling this style, Prime Minister Liz Truss, wore a red Karen Millen dress for her leader’s speech at the Conservative Party Conference in Birmingham. This in itself is not new; she has several dresses like this in different colours. For her, the inverted notch lapel is almost a style signature.

Truss’s look has gone viral on social media though, because it appears to be uncannily similar to the dress worn by Emma Thompson in the dystopian Russell T Davies drama Years and Years. It could even be the same one. Named the “Forever” dress, Karen Millen has been selling it in various iterations since 2015 and it’s a consistent bestseller. At £225, it’s not cheap, but also not prohibitively expensive. It’s inclusive too, available in sizes 6-26. 

Note how selective the perception is. Russell T Davies notices when Truss wears the dress, but not the Princess of Wales:

The fact that Thompson plays an ultra-far-right politician in a terrifying imagined future in Years and Years is less than ideal for Truss. As Davies himself pointed out on Instagram: “This is getting weird.”

The dress’s appeal is all about its neckline:

“The V-neck does all the right things,” says personal stylist Annabel Hodin, who regularly works with women in the public eye. “It elongates the neck in an unprovocative but very feminine way and allows for delicate but pretty jewellery. This highlights the collarbone and draws the eye upwards. The neckline also creates a narrow shoulder effect. This all exudes confidence very subtly.”

We know that both the Princess of Wales and Truss are fond of delicate jewellery; the inverted notch allows the PM to put her “Circle of Truss” necklace front and centre.

Here’s the ‘power dress’ angle:

But it’s not just famous women – it’s regular women who desperately need smart clothes for work and don’t have the time to trawl the high street for other options. They need clothes that aren’t cut too low at the chest, don’t expose their upper arms, conceal their knees, and allow them to get on with their work without being distracted by their clothes. They are the lawyers, finance executives and general managers at fine dining restaurants. Ask those women where they found their well-fitting skirt or sharply cut dress and they’ll whisper, “Karen Millen”.

That’s enough about dresses.

Liz-slamming continues

Labour, along with the media, are doing their best at slamming Liz — Truss, that is, not Hurley.

After Truss criticised the ‘anti-growth coalition’ in her conference speech on Wednesday, Labour’s Sir Keir Starmer wasted no time in attacking her:

On Thursday, October 6, Guido Fawkes reported (red and bold emphases his):

On cue, Sir Keir has hit the airwaves this morning to go on the counterattack after Liz’s conference speech. As expected, Liz’s “anti-growth coalition” line is doing all the heavy lifting, with Starmer erupting into a kind of “I know you are, but what am I?” defence on BBC Radio Sheffield:

Oh for heaven’s sake… the enemies of growth? She has just passed a kamikaze mini-Budget which has lost control of the economy, is putting hundreds of pounds on people’s mortgage bills […] that is the absolute opposite of growth. She’s…she- she’s absolutely not just anti-growth, she’s the destroyer of growth!

Like Liz last week, Starmer made a whistle-stop tour of local media this morning, so inevitably he was asked about this repeatedly. He reacted more of less the same way in each interview, as though it’s the first time he’d heard the accusation.

Labour are also ‘cultivating business’, which is interesting as they normally cultivate unions. Sir Keir is pictured with his Shadow Chancellor Rachel Reeves:

On October 6, Guido posted an excerpt from a new Labour document laying out the Party’s strategy:

Labour has in the past made much of cash for access attacks on Ministers – most recently on Kwasi after the mini-budget. Now the party has its eyes on government it too plans to get closer to corporate interests. In an internal document obtained by Guido, the party intends to raise an initial immediate target of £250,000 by deploying shadow ministers to “business engagement” events. They also plan to “cultivate and maintain” corporate contacts. A Labour press release from just days ago criticised the Tories for “prioritising the rich and big business”. Perhaps they might want to rethink that attack line…

… they are clearly aware that they are going to be pushing the legal boundaries, to generate hundreds of thousands coordinating with the leader’s office and glad handing at business engagement events without being caught offering policy changes. They may claim euphemistically to be “engaging with business”, the document makes clear that the real purpose is to “ensure income maximisation from events” and “to work closely with the fundraising team to ensure business contacts who may also be interested in a donor relationship are identified and effectively managed”. In other words, businessmen are to be flattered and fêted in return for their cash.

Keir is already facing internal criticism for moving away from the unions, who in turn are threatening to withdraw funding. He might now have the “who funds you” cash for access brigade on his case too…

Meanwhile, Rachel Reeves continued pumping out more inaccuracies about Kwarteng’s fiscal event economic policies:

Guido reminded us that Reeves used to work for the Bank of England (BoE) and should be able to handle dead hard sums. Furthermore, she was a few days behind the curve, as the BoE had stopped its intervention during this week’s Conservative Party conference:

The Bank of England has been easing off its interventions in the gilt market, leaving Rachel Reeves’s hyperbolic attack lines exposed for their inaccuracies. Julian Jessop points out the fact the Bank did not have to buy any gilts again today, leaving total purchases stable at £3.66 billion. A tad short of the £65 billion she repeatedly claims. This is a further sign market jitters have been effectively mitigated, far from Labour’s claims of an “economic crash”. As a trained economist and former Bank of England employee, Rachel really must know better. Her sums were out by a factor of 17…

On October 4, Reuters stated that the BoE had already slowed down its purchases of long-dated government bonds:

The Bank of England rejected all 2.23 billion pounds ($2.53 billion) of long-dated government bonds which it was offered on Tuesday at its daily auction aimed at stabilising markets and stopping a fire-sale of assets by pension funds.

The BoE said last week that it was open to buying up to 5 billion pounds of long-dated gilts a day at reverse auctions which it is holding until Oct. 14, subject to a reserve price which would vary depending on market conditions.

The BoE announced the operations on Sept. 28, when 30-year gilt yields hit a 20-year high above 5% in market turmoil after Kwasi Kwarteng’s mini-budget. Thirty-year yields dropped 100 basis points (bps) shortly after the BoE announcement.

The actual volume of gilts purchased by the BoE so far has been low and looks unlikely to come close to the 65 billion pounds which initially looked possible.

On Monday the BoE bought just 22.1 million pounds of gilts with a maturity of 20 years or over, and in last week’s three auctions it only bought 3.64 billion pounds in total …

Late on Monday the BoE issued a statement reaffirming its willingness to buy up to 5 billion pounds of gilts, but reiterating that it would not buy gilts at any price.

The lies and the truth

On October 6, The Guardian wrote that the BoE warns that pension funds are in meltdown because of Kwarteng’s fiscal event, or mini-budget.

However, as usual, all the Conservatives’ critics, including their own rebel MPs, miss the point that currencies are fluctuating all over the world.

One of Guido’s readers responded to the article as follows:

1) It’s the G[uardian]

2) It’s an opinion piece

3) Explain why the € is STILL below parity.

4) Explain why every currency crashed (except the Ruble).

Was that all to do with Liz?

Grow up and grow a pair.

Another of Guido’s readers explained that many years of quantitative easing (QE) need to be corrected:

I’m afraid all the “listening” … in the world to the current myopic economic orthodoxy and vested interest groups, will not lead to a result contrary to that which it has already caused i.e. stagflation, merely more of the same.

Further, the real reason Sterling fell in value (which the deluded mainstream media dare not countenance) is because the Bank of England are running nominal interest 1% below that of the Federal Reserve (over 3% in real terms), and that they also announced the reversal of the Quantitative Easing programme (currently standing at over £1 trillion in asset purchases sitting on the Bank of England’s balance sheet).

Unfortunately the bond markets (along with every other asset market, including junk bonds) have been bid up into the stratosphere because of fifteen years of QE and ZIRP, without which, the huge manipulation of asset markets, including Gilts, is going to unwind, resulting in huge price falls, and a large rise in Gilt yields.

It has gone on so long, nobody can remember long term averages of bond yields or interest rates, and trillions of debt has been secured on this basis, which has skewed the economy toward speculation, idle whimsy and a reliance on huge government subsidy, none of which is productive.

In essence we have been producing too little and consuming too much, for far too long, expecting to borrow ever further into the future to fund it, or papering over the cracks with ever greater tranches of money printing.

Quite reasonably lenders are questioning our ability to pay, and the underlying value of our currency.

That is to say, the bill is coming due, and I’m afraid blindly following the prevailing economic orthodoxy, with more debt, money printing, state entitlement, etc., is only going to deepen the economic stagnation and inflation, quite probably to the point of hyperinflation if we continue to “listen” to vested interests unwilling to countenance their folly.

The long-serving Conservative MP John Redwood watches the economy closely and posted these observations on October 5:

The United States has experienced similar turbulence:

Overall, this is a global situation:

Let us now look at the global situation and how the United Kingdom compares.

We are better off than some countries and worse than others.

The point is: we are not an international outlier.

On Wednesday, October 5, The Times‘s David Smith looked at debt-to-GDP ratio across Western countries:

… according to International Monetary Fund figures compiled by the UK’s Office for National Statistics, only Germany in the G7 has a lower debt-to-GDP ratio. The UK’s debt to GDP is 102.8 per cent, slightly higher than the ONS’s own estimate. This is above Germany, 70.2 per cent and the EU, 90.3 per cent, but lower on this measure than Canada, 112.1 per cent, France, 112.3 per cent and America, 132.6 per cent. Then you get to the very high levels of debt of Italy, 150.9 per cent and Japan, 263 per cent.

Some countries have surprisingly low government debt, such as Sweden, 35 per cent and Denmark, 33 per cent. Switzerland, perhaps more predictably, is on 25 per cent. New Zealand is a low-debt country, 33 per cent, with Australia on 48 per cent.

It is worth noting that:

Singapore’s debt-to-GDP ratio, interestingly, is 176 per cent.

The panic narrative in the UK seems to centre around the debt trajectory:

More important is the trajectory of debt; the rate at which it is rising. Fifteen years ago, on the eve of the global financial crisis, under one of the rules followed by the Labour government then, UK debt was just under 40 per cent of GDP. Now it is close to 100 per cent, with a further rise to come, whose size will be determined by the forthcoming assessment by the Office for Budget Responsibility (OBR).

I’ll get into the OBR shortly.

David Smith has more:

Other countries have not seen anything like this rise. Germany’s debt-to-GDP ratio, having risen during the financial crisis, is back close to pre-crisis levels, despite the pandemic, thanks to tough fiscal rules. America has seen close to a doubling of its debt, but a smaller rise than the UK. Italy had high debt at the launch of the euro in 1999, roughly 120 per cent of GDP, from which the rise to just over 150 per cent now does not look spectacular.

Japan’s very high government debt has never been a particular problem because it is funded by Japanese savers and financial institutions. A significant proportion of UK debt is held by foreigners and is thus more vulnerable to shifts in sentiment.

Whenever I write about UK government debt, a small contingent raises the issue of unfunded public sector pensions. A much bigger liability, on top of this, is unfunded state pensions. But all countries have unfunded liabilities and the way the OBR deals with this issue is to look at the future cost to government of funding those public sector pensions, which is expected to fall marginally relative to GDP in future because of the reform of those pensions.

He says that everything will hinge on the OBR, rather than the Chancellor, hence more doom and gloom:

The OBR, in its July fiscal risks report, had a baseline projection of UK government debt rising to 267 per cent of GDP over the next 50 years because of the upward pressure on spending on health, the state pension, social care and the loss of motoring taxes from the switch to electric. Returning debt to the 75 per cent of GDP considered sustainable before the pandemic would require significant future tax increases and spending cuts, it said.

Since then, the government has abandoned the health and social care levy (originating with the rise in national insurance) and the receipts in prospect from higher corporation tax. The question now is whether the OBR, later this month, can offer some reassurance on the short-term trajectory of UK debt. With markets still jumpy, that reassurance is still required.

All hail the OBR, in other words.

However, can the OBR be trusted?

Some of the OBR people come from a left-leaning organisation called the Resolution Foundation.

Those who watch parliamentary debates know that one name that comes up a lot is the Resolution Foundation, founded by Torsten Henricson-Bell, who now goes by the name Torsten Bell. Labour quote him and his Resolution Foundation frequently. Bell is also a frequent guest at various select committee inquiries.

This is because Torsten Bell was Ed Miliband’s policy advisor several years ago. It was Bell who carved Miliband’s 2015 Labour manifesto pledges into stone, which, after David Cameron won the general election that year, mysteriously disappeared. Even today, no one knows what happened to the Ed Stone, as it is called.

Bell was always opposed to Brexit.

Once, in 2018, BBC Radio 4 called the Resolution Foundation ‘left-leaning’.

Guido says that the Resolution Foundation, a registered charity, plays a bit fast and loose with the Charity Foundation’s rules on politicising matters. In their case, that involved promoting Labour at one point in February 2019.

This brings us to the present day and the intertwining of the Resolution Foundation with the OBR and the Treasury.

Conservative Chancellor George Osborne created the OBR — Office for Budget Responsibility — in 2010 when the Conservatives were in coalition with the Liberal Democrats. Whether Osborne realised it or not at the time, the OBR took stances that opposed later Government policy.

On Monday, October 3, Guido posted ‘Office for Budget Responsibility’ Not-So-Independent Leadership’:

There’s been plenty of media squawking in the last couple of weeks over the lack of an Office for Budget Responsibility (OBR) forecast in the mini-Budget. Never mind the fact the OBR didn’t even exist until 2010, without its explicit blessing, how can any fiscal policy ever be trusted?

Even a cursory look at the OBR’s personnel gives you an idea of which school of thought its leaders belong: both the chair of its Budget Responsibility Committee and its Deputy Chief of Staff are former colleagues or protégés of Torsten Bell, chief executive of the left-of-centre* Resolution Foundation (RF). Torsten Bell will be a familiar face to co-conspirators. Before he spent his days pushing for ever-higher welfare payments at the RF, Bell was Labour’s Director of Policy under Ed Miliband. For years it seemed carving Labour’s manifesto into stone would be his crowning achievement. It turns out seeing his friends land top jobs overseeing government fiscal policy has won out…

Richard Hughes, now the chair of the OBR’s Budget Responsibility Committee, spent a year alongside Bell at the Resolution Foundation as its research associate, where he:

• • Co-authored new fiscal rule proposals which were “urgent” because the Government was promising “a flurry of spending commitments and promises to cut taxes” in 2019.

• • Warned of the “economic disruption associated with a no deal Brexit“, and claimed it would lead to “a smaller and slower-growing economy in the long run.”

• • Claimed the impact of Brexit on the economy would be “worse than Covid” which was responsible for over 100,000 deaths.

Laura Gardiner, OBR Deputy Chief of Staff responsible for policy costings, expenditure, receipts and “fiscal risks“, worked for Bell for six years. In that time she:

• • Claimed it “makes sense” to bribe 25-year olds with £10,000 handouts – an £8 billion-a-year policy which was soon swept under the rug, presumably once everyone realised how bonkers it was.

• • Attacked the government for “the era of austerity“, and proposed reforming Universal Credit. Learned plenty from her days alongside Bell, obviously.

• • Served as a “Lambeth Equality Commissioner“.

Lambeth is a long-time Labour borough in south London.

Guido is perplexed:

It baffles Guido that Richard Hughes was recruited to head the OBR from an organisation, the Resolution Foundation, which has been unremittingly critical of every Tory chancellor since George Osborne. Is it any wonder that Kwasi didn’t fancy having his plans benchmarked by known ideological opponents who favoured staying in the EU and egalitarian redistribution on a gargantuan scale. It doesn’t take a great insight to guess what the OBR will say when a budget that doesn’t align with their values and objectives lands on their desks…

*David Willets, the foundation’s president, is used as a token Tory shield against accusations it is a left-wing campaigning organisation. Guido would not go as far as to say Two Brains is a useful idiot, he is however an ideological fig-leaf…

No wonder that Kwarteng felt free to joke about the OBR at a drinks reception sponsored by the think tank Policy Exchange that night at the Party conference:

On Thursday, October 6, Guido made another OBR revelation. Another Resolution Foundation alum favours huge tax rises :

He wrote:

It turns out there’s a third we missed…

Cara Pacitti, the OBR’s Senior Fiscal Analyst, also spent two years as an economist at the Resolution Foundation, where she worked alongside her future OBR boss Richard Hughes on one paper assessing the “damage” of a no-deal Brexit, and another which claimed “tax rises tend to harm the economy less than spending cuts“. The latter paper, “How to support the economy today and repair the public finances tomorrow”, may as well have been drafted by Gordon Brown. 

Here’s a flavour of what it proposed:

• • Public support is necessary and so taxes on corporate crisis windfall profits should be considered – which is Labour Party policy.

• • Freezing tax thresholds and raising the Corporation Tax rate should be seen as low-hanging fruit for raising revenue – a massive stealth tax on individuals and a jobs destroying burden on businesses.

• • Reforming wealth taxes can improve the functioning of the tax system and raise significant revenue – the Corbyn agenda.

So that’s three senior members of the OBR who are about to assess a budget which obviously runs contrary to their declared ideological objectives. The Resolution Foundation has never seen a tax it doesn’t like, is run by the Labour Party’s former policy chief and advances an agenda that is socialistic. How is it that out of the thousands of economists turned out by British universities every year, the OBR over and over again keeps hiring senior economists from the one think-tank run by Labour’s former policy chief? What are the odds?

No wonder Kwarteng didn’t bother consulting the OBR before issuing his mini-budget.

Another hard-hitting truth is that average families are paying more tax than the Left and their water-carrying media chums would have us believe:

A full report is available:

How to abolish the 45% tax rate

Now to the nub of the matter.

All the above provides a backdrop as to how difficult it will be to get rid of Gordon Brown’s — Labour’s — 45% tax rate.

I wrote about Kwarteng’s U-turn on Monday. It was spurred on by Sir Graham Brady of the 1922 Committee of Conservative backbenchers who can make or break a Prime Minister.

If Parliament had a vote on its abolition, the Government would have lost, leaving Liz Truss in a precarious position. On Monday, The Telegraph reported:

Rebels told journalists they were confident that at least 36 of them would vote with the Opposition on the 45p cut – the number needed to overturn Ms Truss’s working majority – and it became increasingly clear that the policy was unsustainable.

On Tuesday, the veteran editor and author Charles Moore wrote a Telegraph article implying that dropping the abolition of the top tax rate was the right thing to do under the circumstances, although he did say:

Yesterday, unfortunately, the wrong side won. Kwasi Kwarteng may be right that the top-rate cut had become “a terrible distraction” from the rest of the growth plan, but its removal is a setback for that plan. It weakens the Truss/Kwarteng attempt to change our economic culture and return to enterprise.

However, all is not lost.

The Spectator‘s Matthew Lynn has a cracking plan on how to get rid of the 45% tax rate — by stealth:

The tax only raised a trivial £2 billion a year or so and prevented the UK from being the lowest-taxed major economy in Europe.

Getting rid of it might even raise more money. Clearly abolishing it in the middle of a cost-of-living crisis is too difficult politically. It is, however, still the right thing to do. So here’s what Truss – who has spent all her political capital on a botched attempt to scrap the tax – should do instead.

The PM should start by steadily raising the threshold so that it impacts far fewer people. If she’s feeling brave, she should take it all the way up to £500,000. In the United States, for example, the top rate of 37 per cent kicks in at $539,000 (£480,000) – and hardly anyone apart from a few fanatics on Twitter have much to say about that.

Next, Truss should add in various exemptions and allowances that could only be set against the top rate. Mortgage relief, for example, or travel expenses for work.

Finally, she should dramatically increase the thresholds for the 40 per cent rate as well. Given that £50,000 a year is a ridiculous level for people to start paying almost half their income in tax, Truss could push that all the way up to £150,000 a year, and then eventually to £200,000. And then once that had been achieved, the PM could merge the two top rates, and sell the whole package as an increase for the rich. Add up all those changes, and it would no longer exist.

Some of the biggest changes in political direction are best done under cover. Margaret Thatcher and Gordon Brown achieved some of their most significant policy changes by stealth: Thatcher did so with her slow and gradual reduction of trade union power; Brown with a steady expansion of the tax and welfare system that turned the UK into a country addicted to state support.

The Truss government – if it is not already too late for it to make any meaningful reforms – should learn to follow them. The 45 per cent rate should go: but it can only be done if nobody notices.

No doubt, either Truss or Kwarteng reads The Spectator. Let’s hope they did not miss this brilliant way forward on getting rid of the 45% tax rate. And never mind the OBR.