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No clarity or forecast before ‘extraordinary’ mini budget, Bank boss says

The Governor of the Bank of England has said that the lack of communication from the Treasury ahead of September’s mini budget made it an “extraordinary” and “abnormal” process (Frank Augstein/ PA)
The Governor of the Bank of England has said that the lack of communication from the Treasury ahead of September’s mini budget made it an “extraordinary” and “abnormal” process (Frank Augstein/ PA)

The Governor of the Bank of England has said that the lack of communication from the Treasury ahead of September’s mini budget made it an “extraordinary” and “abnormal” process.

Andrew Bailey also told the House of Lords Economic Affairs Committee that the Bank of England “did not bring the Government down” after criticism from economists.

The central bank chief told the Lords that neither he, nor the Bank, knew what was going to be in the controversial fiscal statement.

In particular, the absence of the usual economic forecast from the Office for Budget Responsibility (OBR) made it difficult for the Bank to prepare accordingly, he stressed.

Mr Bailey told the committee: “The lack of clarity between the (then) prime minister and the chancellor (Liz Truss and Kwasi Kwarteng) about what was actually going to be in the statement, I think, illustrates the problem.

“It was just not known. It was not clear what was going to be in this statement.”

He said it was an “extraordinary” process and there was no formal communication of the sort that would normally be had before a fiscal statement.

Furthermore, Treasury officials who spoke to the Bank did not have the full picture of what would be unveiled, he said.

“I didn’t say to the chancellor: ‘You have to tell me what’s in this fiscal statement,’ because, frankly, I would never say that to a chancellor,” he added.

“But, then, in normal circumstances, we have channels of communication. It wasn’t happening in this case.”

The Treasury’s budget is usually accompanied by a report by the OBR which gives a forecast for the UK economy, and which was the case for Chancellor Jeremy Hunt’s autumn statement earlier this month.

But the former chancellor Kwasi Kwarteng unveiled his growth plan, otherwise known as the mini budget, without an accompanying forecast from the OBR.

The plan involved a number of tax-cutting measures which have now largely been reversed.

Mr Bailey said: “By not involving the OBR in the process, that took away a good deal of the substance that we rely upon go with a budget, from the point of view of forecasting and understanding the impact of the measures being taken.

“That was just not there. There was nothing.”

He added that people involved in the financial markets were also surprised by the lack of forecasts, with some telling the Governor it came across as though the Treasury did not want the OBR involved.

People also expressed surprise over the plans to abolish the top rate of taxation, he said.

That measure has now been reversed by the new Chancellor who, instead, opted to lower the threshold when the highest earners start paying the top rate of tax from £150,000 to £125,140 from April 2023.

Mr Bailey also hit out at claims from former Federal Reserve Bank of Minneapolis president Narayana Kocherlakota that the Bank of England ousted former prime minister Liz Truss.

The Governor said an article by the US economist was built on a “false premise”.

He added: “We did not bring the Government down.

“We did a limited operation for financial stability purposes and did exactly the right thing, and ended that promptly.”