Juggling act for new PM: Easing fiscal policy might just be the magic potion that’s needed, says MAGGIE PAGANO
It is going to be a nightmare for the new prime minister to choose which of the big crises to address first when he or she makes their inaugural speech to the nation next week.
Which of the mountain of tricky issues will they focus on?
Will it be the scorching energy and food prices, the falling pound, jittery stock markets, fears of a bond market bloodbath, the sharpest collapse in manufacturing output for two years or the thousands of small businesses that face closure because of soaring electricity bills?
Challenges: On Monday afternoon Britain will find out who will be its next Prime Minister – Rishi Sunak or Liz Truss
He or she will need to be a magician to fix all these disasters, yet the truth is that all of these issues must be addressed if the PM is to restore confidence – and credibility – to the various audiences ranging from householders to overseas investors and the financial markets.
Some of the solutions to the energy crisis were set out by Boris Johnson in one of his final speeches yesterday as PM when he gave the go-ahead for eight nuclear power stations, with the ambition of approving one plant a year until 2030.
About time too. As part of the package, Johnson has given the green light for the construction of Sizewell C and, most importantly, committed the Government to fund a 20 per cent stake in the £30billion project.
It is the right decision as it is only by the Government acting as guarantor that such a massive project as Sizewell C has any hope of getting off the ground and attracting private investors.
But that’s an ambition for the long term, and one which may prove to be one of Johnson’s more positive legacies if the next government sticks to the plan.
For now, though, the next PM – let’s call her Liz Truss – will have to continue with the recent steps to beef up domestic production and new energy deals to ensure there are no blackouts or shortages this winter. More tricky is what she will do about helping households with energy bills.
So far, she has promised an emergency budget with up to £30billion of tax cuts, including abandoning the recent national insurance rise and next year’s corporation tax rise, as well as unfreezing the income tax threshold rather than going for more handouts. Allowing taxpayers to keep more of their own money is the sensible approach.
But it is more likely that Truss and her team will also have to look at more ways of helping, such as cutting VAT, support through the benefits system for the more vulnerable and cuts to business rates for small firms.
What about fears being stoked in some quarters that we are heading for a sterling crisis and a bond market massacre?
Sterling has recorded its steepest monthly decline against the dollar since the Brexit referendum, falling 4.5 per cent to $1.16 in August and down by almost 3pc against the euro.
The pound’s decline is mainly a story of the dollar’s strength, which has also seen falls in many other currencies.
But there are other factors which are feeding concern, such as the sharp rise in borrowing costs for the benchmark 10-year UK gilts.
These have rocketed over the past month, with yields on short-term gilts rising by one percentage point to 2.8 per cent on fears for the economy.
That makes sense. Yields on bonds rise to reflect the risk involved in investing. Yet the recent sell-off in UK bonds is mirrored across the eurozone with far bigger falls being registered in Spain, Italy, Greece and Portugal.
There have even been sharp falls in German debt as the country heads into recession territory and double digit inflation.
As economist Julian Jessop tweeted, the missing context for the rise in UK bond yields is that they have jumped across Europe too.
This, he added, is because the outlook across the continent is bleak due to rising interest rates and inflation rather than the fear of Trussonomics. Quite. We are, as they say, all in this together.
Easing fiscal policy will be a gamble – all such radical measures are – but it’s one worth taking if it restores confidence. Might just be the magic potion that’s needed.
There has been much joking of a comeback for puddings like Angel Delight and Fray Bentos tinned pies as we head into our 1970s-style winter of discontent.
Joke no more. The latest figures from Campbell Soup show strong sales of its tinned soups and other packaged products as shoppers stock up on the bare necessities.