‘Bank of England got it wrong’ says Peston as he defends Liz Truss
The Bank of England may have been partly responsible for Liz Truss’s mini-budget that nearly collapsed the British economy, presenter Robert Peston has argued.
The co-host of the Rest is Money podcast argued that for all her budget’s failings, the Bank of England “got it badly wrong” in its communication with the Government during the crisis.
Appearing alongside journalist and former BBC presenter Steph McGovern, Mr Peston said he did sympathise with Ms Truss in her claims that she hadn’t been informed of the instability of pension funds.
Liz Truss’s mini-budget, announced by her Chancellor Kwasi Kwarteng, included a slate of tax cuts including scrapping the 45p top rate of tax on earnings of more than £150,000, cancelling the planned rise in corporation tax and National Insurance, doubling the threshold for stamp duty and bringing forward a cut in the basic rate of income tax.
The result was a meltdown of trust in the Government from investors, causing a crash in the value of bonds and the pound plummeting to a historic low against the US dollar.
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Explaining the issue, Ms McGovern said on their podcast this week: “Lots of tax cuts, but the problem was, there was no information on how she was going to pay for them.
“That was the big problem. We were looking at a £45billion black hole in all of this, and that caused chaos.”
As a result, investors no longer had faith that the UK Government would be able to pay back its loans – as Mr Peston described, the country had become an “ugly” investment opportunity.
But one of the most devastating impacts of this – the knock-on effect on pensions – was one that Ms Truss could not have predicted, he argued.
He said: “The problems were compounded by something that wasn’t her fault. And that is that pension funds over a period of years had in effect, borrowed very, very large sums of money to invest in UK Government bonds.
“And the reason they invest in UK Government bonds is actually a function of what I would regard as really pretty poor regulation in this country. And it’s to do with the way pension funds are forced to invest in what are seen to be the safest assets.”
Mr Peston added that he sympathised with Liz Truss in that she said neither she nor Mr Kwarteng was warned about the “perilous” state of pension funds, and “no one” has contradicted them on this claim.
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He said: “So it does look to me as though neither the Bank of England nor the Treasury was apprised enough of what was a desperate weakness in British finance.
“I think that is a scandal and I think we need to find out how the Bank of England got it so badly wrong.”
However, he was clear that the mini-budget was poorly received across the board regardless, adding: “Hedge fund managers, in some cases personally worth hundreds of millions of pounds, were literally pulling their hair out at what Liz Truss had done.
“The super-rich, who she presumably thought she was appealing to, thought she had gone bonkers.”
Ms Truss has been making a return to mainstream politics after addressing the Institute for Government think-tank in London on Monday – the first time she has chosen a British location for a major public appearance outside parliament since becoming the shortest-serving prime minister in history.
She faced ridicule for offering economic advice to her successor Mr Sunak, demanding he cut taxes, rein in the welfare budget and raise the retirement age.
Conservative MP and former minister Conor Burns said the “only service she could provide is sustained silence” and branded her a “drag anchor to any cause she attaches herself to”.
Others felt her comments on welfare were hypocritical, given she will be entitled to a £115,000 a year payout from the taxpayer despite serving just 44 days in office.
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