The bond markets liked the Budget – and that’s a worry

Hunt’s Budget and Reeves’ Mais lecture showed they are vying to be Captain Sensible, but if we want to break the doom loop of low growth, high taxes and big spending, we should expect some friction with the forces that benefit from the status quo, says Charles White-Thomson

What concerns me most about the recent Budget is the bond market liked it, and if the lack of movement in the yield was anything to go by, they liked it quite a lot. They did not like it because they think it is the answer to all our problems, or there was an unambiguous and aggressive growth agenda. They liked it because they viewed it as benign, more of the same; the status quo. The UK continues to be a large and reliable client. The bond market sees no bold plans to unsettle their calm and serene world. This might be good for the bond market, but it is less good for those of us who want to throw off the shackles and deal with our issues – lack of growth, large debt, high taxes and large day to day spending commitments. 

By now, the Budget has been picked over by the think tanks, analysts, strategists, Office for Budget Responsibility, journalists and many more.  Despite varying headlines, neither political party appear to have landed a killer blow and the undecided voter has not been convinced by a brilliant ‘rabbit out of the hat’.  This rabbit and hat analogy is useful, in that it conjures up the image of a magician or magical powers being required to address our financial straight jacket. It is also a fair analogy, as it reminds us that boosting growth, reducing debt and tax are significant challenges.

I am a supporter of a progressive growth plan, which delivers on the full potential of the UK. In order to deliver this, we should expect healthy friction with the bond market and other entities like the OBR. The aim is to have manageable friction, and not the melt down or breakdown in relations, we experienced post the Truss and Kwarteng September 2023 budget. This is a delicate judgement call and that is why we need confident and experienced risk takers at the helm. This friction will be clear evidence and a confirmation that our politicians have embraced risk, pushed the envelope and made bold policies some of which are phased to address our imbalances. Or to put it another way, we have not gone for the easier route of sticking with the sapping status quo and ensuring the doom loop of high taxes, excess debt and anaemic growth continues and becomes the problem for the next generation. Time is of the essence.

This challenge is not helped when we consider that both of the main parties wish to be seen as ‘sensible’ stewards of the economy. A safe pair of hands and not reacting to short term whims is the mantra.  This was further clarified by Rachel Reeves during the Mais Lecture where her number one priority was ‘stability’. 

Unfortunately, though well meant, the strategy of being ‘Captain Sensibles’ will not break our expensive status quo where the books are hugely strained. This is not about ‘Hail Mary’ politics or recklessness. This is about taking on good risk to unlock the financial straight jacket and not procrastinating.   It is also an attitude. Where there are different options, our leaders should take the more aggressive one and be prepared to soak up short term turbulence and keep the eye on the prize. This can be applied to all the major decisions from tax cuts, to house building plans, to spending cuts and increases to name a few.

This message will not resonate with everyone, as there are those who benefit from no-change.  It is also not a hidden message to take away the safety net for the most vulnerable or renege on our responsibilities.  This is about unlocking the economy, improving the efficiency of how we spend our money, and delivering the full potential that will benefit the majority. This will not be easy and will require courage and the ability to soak up short term criticism for the longer term good.  The field is open for a true champion of this cause.

Charles White-Thomson is former CEO of Saxo and senior fellow at the Adam Smith Institute