Former Prime Minister Liz Truss has blasted Labour’s plans to to give more statutory power to the Office for Budget Responsibility (OBR) as the Bank of England admits its own failures were the primary cause of the Autumn 2022 crisis.
The former PM’s intervention comes as it emerges that even the Bank of England is acknowledging that it was its failures, rather than action by her government, which predominantly caused the crisis that spooked the markets following the 2022 mini-budget – and that handing more power to the OBR would have made no difference to the situation.
Speaking ahead of this Tuesday’s Second Reading of the Budget Responsibility Bill – which would require an OBR assessment of all future government fiscal announcements – Truss has dismissed the legislation as handing more power to a failing arm of the unaccountable state while turning a blind eye to the real causes of the market turmoil that occurred during her premiership.
She said:
“The OBR has been found time and time again to have been wildly inaccurate in its forecasting, so enhancing the status of this unelected and unaccountable body is a fatuous move that will only serve to restrict the ability of elected ministers to make decisions in the national interest.
“Since 2010, the OBR – according to its own assessment – has, on average, misjudged the UK’s public sector net borrowing by £52.5 billion and miscalculated the UK’s annual growth by £46.5 billion every year. These are hardly rounding errors, yet its incorrect projections are used to put politicians in a straitjacket, as I discovered when attempting to boost economic growth with relatively modest tax cuts.”
It is known that the Bill’s introduction is predicated on the claim that it will prevent “the mistakes of Liz Truss’ ‘mini budget’” from being repeated because that is how it was explained in the King’s Speech Briefing Notes issued by the government, since amended online following a complaint from Ms Truss about the inclusion of personal and political attacks in a document prepared by civil servants.
However, it is now clearer than ever that the autumn 2022 crisis in the leveraged Liability Driven Investments (LDIs) sector came about primarily as a result of a series of bad decisions by the Bank of England.
These included:
- the failure to raise interest rates earlier and in line with the U.S. Federal Reserve;
- the announcement of a gilt sale on the eve of the mini-budget; and
- the failure properly to regulate pension funds, allowing them to take on excessive debt-fuelled exposure to government bonds through leveraged LDIs.
A hitherto unreported Working Paper published by the Bank of England itself in May 2024 calculates that two thirds of the spike in gilt yields in September 2022 was caused by Liquidity After Solvency Hedging (LASH) risk – risk created by pension funds with leveraged Liability Driven Investments, as a result of the Bank of England failing to oversee these funds effectively.
Ms Truss said:
“While my political opponents continue to parrot lazy, meaningless and false narratives about ‘crashing the economy’, virtually no-one is asking the pertinent questions of the Bank of England about the impact of its decisions and regulatory failures. It would appear that the Bank of England itself acknowledges the yield spike was not my Government’s fault.
“Rather than introducing legislation handing even more power to unelected bureaucrats, the new Chancellor ought to be ordering an urgent investigation into what her former colleagues at the Bank of England were up to prior to the LDI crisis and holding them to account for their actions.”
Ms Truss has also renewed her call for answers from the Cabinet Secretary as to how repeated political attacks on her were included in the supposedly impartial briefing on the King’s Speech issued by the Civil Service on the first day of the new Parliament:
“The fact that such blatant attacks on me and my Government were included in what was supposed to be an impartial briefing that will have been prepared by dozens of civil servants certainly goes to suggest that Whitehall groupthink has a settled worldview that is hostile to conservative thinking.
“When I wrote to Simon Case on the day of the King’s Speech pointing out that my name was being impugned in a document prepared, edited, proofed and signed off by civil servants, I had a reply two hours later promising that the egregious attacks would be swiftly removed from the online version of the document. However, I am yet to get a response to the letter I sent the following day asking a series of questions about how such a transgression had been allowed to occur in the first place and how those responsible will be held to account.
“More than a week later and we still don’t know whether he is investigating how political material was allowed to be included in the document or the identity of the senior civil servant who gave final sign-off to the document. Was it Simon Case himself?”
Main photo by Simon Dawson / No 10 Downing Street. Licence: CC BY-NC-ND 2.0
