Paul Johnson, head of the independent Institute for Fiscal Studies, has called Kwasi Kwarteng’s fiscal statement “the biggest taxation event since 1972”.
That was a reference to the widely disparaged period in British economic plicymaking history that came to be known as the Barber Boom, after Anthony Barber, Conservative chancellor from 1970 to 1974 under Ted Heath.
The parallels with today, both in rhetoric and policy, are striking but far from exact. Barber believed “a dash for growth” was the answer to the UK’s problems of rising inflation and stagnant output. It was in 1970 that the word “stagflation” entered common parlance.
Tax, said Barber, pre-empting Kwarteng by 50 years, “too often stultifies enterprise”. He boasted how he planned to produce economic growth of 10 per cent over two years, which was twice the long-run average at the time for the UK.
He cut income tax and purchase tax (the forerunner to VAT), while also drastically relaxing monetary policy: he liberalised the rules governing bank lending, which led to an explosion of credit.
And he did it mostly on borrowed money: government borrowing rose from £1 billion in 1970-71 to £4.5 billion in 1972-73.
It was seen as a bold experiment for a while. The economy did indeed pick up speed. Mainstream economists approved: the National Institute for Economic and Social Research could see “no reason why the present boom should either bust or have to be busted”.
Stresses, however, were becoming apparent. The pound was under huge pressure as households splashed out the extra cash on imports. In 1972 Barber abandoned fixed exchange rates and sterling slumped by 15 per cent over the next 18 months. That helped exporters and added to the economic momentum, but it also pushed up prices.
The inflationary pressure was to get a lot worse the following year when oil-producing Arab nations embargoed the UK and other nations, leading to a fourfold increase in the crude oil price.
Strikes erupted as public sector workers demanded pay rises to offset the cost of living squeeze and the government was forced to introduce a three-day week to conserve energy supplies. Meanwhile, all that extra bank credit led to the secondary banking crisis and a collapse in financial markets.
Inflation erupted to more than 20 per cent and unemployment lines lengthened. Heath was voted out in the first election of 1974.
Analysts at the asset manager Ruffer later said of the period: “The Barber Boom is the story of an economic gear shift, which sent postwar Britain careering around country lanes, before skidding on an oil slick and being sent ditchward. There it was left, engine smoking, entangled in the brambles of inflation.”
The big difference between then and now is that today there is an independent Bank of England with the tools to counteract those inflationary forces, if it chooses to use them forcefully enough.
Barber was known as the **Confetti Chancellor** because of the money he threw at the electorate to secure an election victory.
Caused the sterling crisis in the late 70s which they blamed on Labour.
Ironically, wasn’t the financial disaster that followed one of the main drivers that subsequently pretty much forced the UK to join the European *Common Market* (as it was back then)?
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non paywall link: https://archive.ph/xLfuZ
Paul Johnson, head of the independent Institute for Fiscal Studies, has called Kwasi Kwarteng’s fiscal statement “the biggest taxation event since 1972”.
That was a reference to the widely disparaged period in British economic plicymaking history that came to be known as the Barber Boom, after Anthony Barber, Conservative chancellor from 1970 to 1974 under Ted Heath.
The parallels with today, both in rhetoric and policy, are striking but far from exact. Barber believed “a dash for growth” was the answer to the UK’s problems of rising inflation and stagnant output. It was in 1970 that the word “stagflation” entered common parlance.
Tax, said Barber, pre-empting Kwarteng by 50 years, “too often stultifies enterprise”. He boasted how he planned to produce economic growth of 10 per cent over two years, which was twice the long-run average at the time for the UK.
He cut income tax and purchase tax (the forerunner to VAT), while also drastically relaxing monetary policy: he liberalised the rules governing bank lending, which led to an explosion of credit.
And he did it mostly on borrowed money: government borrowing rose from £1 billion in 1970-71 to £4.5 billion in 1972-73.
It was seen as a bold experiment for a while. The economy did indeed pick up speed. Mainstream economists approved: the National Institute for Economic and Social Research could see “no reason why the present boom should either bust or have to be busted”.
Stresses, however, were becoming apparent. The pound was under huge pressure as households splashed out the extra cash on imports. In 1972 Barber abandoned fixed exchange rates and sterling slumped by 15 per cent over the next 18 months. That helped exporters and added to the economic momentum, but it also pushed up prices.
The inflationary pressure was to get a lot worse the following year when oil-producing Arab nations embargoed the UK and other nations, leading to a fourfold increase in the crude oil price.
Strikes erupted as public sector workers demanded pay rises to offset the cost of living squeeze and the government was forced to introduce a three-day week to conserve energy supplies. Meanwhile, all that extra bank credit led to the secondary banking crisis and a collapse in financial markets.
Inflation erupted to more than 20 per cent and unemployment lines lengthened. Heath was voted out in the first election of 1974.
Analysts at the asset manager Ruffer later said of the period: “The Barber Boom is the story of an economic gear shift, which sent postwar Britain careering around country lanes, before skidding on an oil slick and being sent ditchward. There it was left, engine smoking, entangled in the brambles of inflation.”
The big difference between then and now is that today there is an independent Bank of England with the tools to counteract those inflationary forces, if it chooses to use them forcefully enough.
Barber was known as the **Confetti Chancellor** because of the money he threw at the electorate to secure an election victory.
Caused the sterling crisis in the late 70s which they blamed on Labour.
Ironically, wasn’t the financial disaster that followed one of the main drivers that subsequently pretty much forced the UK to join the European *Common Market* (as it was back then)?