The Truth Behind Two Organisations Which Helped To Sink Kwasi Kwarteng
Your new tax rises will now be based on wildly inaccurate forecasts from OBR & IMF
Plus, the attacks from the IMF chief — ex-EU Commissioner and graduate of Karl Marx University
After the PM threw Kwasi Kwarteng overboard yesterday, tax rises are once again on the way. We look at two institutions which played a part in sinking the Chancellor — and which will strongly influence the UK’s economic performance and the taxes you will pay.
As has been widely reported, the head of the International Monetary Fund had been making thinly-veiled attacks on Liz Truss’ economic policies, which now appear to have been thrown overboard along with her former Chancellor. I take a look at the IMF, its record, and its chief.
Secondly, I look at the Office for Budget Responsibility (OBR), which now seems set to resume a pivotal role in the country’s economic prospects — and the taxes we will end up paying.
1. The IMF’s inaccurate and misleading forecasts
We start with the IMF’s forecasts for UK economic growth. These have been consistently wrong. In October 2020 the IMF predicted growth in the UK in 2021 would be 5.9%. This was just 3 months before the start of the year.
Even when the UK was nine months through the year, in October 2021, the IMF had only upgraded its forecast to 6.8%. In fact, UK growth was 7.4%, beating all other G7 countries.
The IMF’s unreliable economic forecasts for the UK
- Oct 2020 forecast for 2021: 5.9%
- Oct 2021 forecast for 2021: 6.8%
Actual UK outcome for 2021: 7.4%
[Sources: IMF World Economic Outlook, 2020 and 2021.]
2. Critical statements by the head of IMF, an ex-EU Commissioner from Bulgaria
The IMF’s Managing Director is Кристалина Георгиева who hails from EU member state Bulgaria, where she secured a postgraduate degree from the Karl Marx Institute, as it was then called. For those readers whose Bulgarian is a little rusty, the anglicised version of her name is Kristalina Georgieva.
Bulgaria became a member of the EU in 2007. Its population is just 6.5 million and its economy is ranked №71 in the world. Bulgaria’s economy is just 2.7% of the size of the UK economy, according to the IMF itself.
Ms Georgieva was EU Commissioner for International Cooperation, Humanitarian Aid, and Crisis Response in the Juncker EU Commission.
Ah, I now see your eyes are lighting up and the little grey cells in your head are twirling a little because you did not know that did you?
In October last year, Ms Georgieva was on the wrong end of a damning report prepared by the law firm WilmerHale for the World Bank’s board, where she had worked before moving to the IMF. The allegations were that Ms Georgieva put “undue pressure” on World Bank staff in their preparation of a major report, to boost China’s rankings. That report subsequently had to be withdrawn.
Following an IMF investigation Ms Georgieva was allowed to stay on as IMF MD after US Treasury Secretary Janet Yellen said the report raised “legitimate” concerns, but “absent further direct evidence” no action would be taken.
It was Ms Georgieva who made the critical comments about the UK’s new economic strategy, albeit not specifically mentioning the UK by name. Everyone knew to whom she was referring, though.
3. The OBR’s inaccurate and misleading forecasts
The other organisation which helped to seal the fate of the former Chancellor of the Exchequer is the Office for Budget Responsibility (OBR). They let it be known they had offered to participate in the Chancellor’s ‘mini-budget’ but their request had been declined.
This then spooked the markets. Given that the tax rises on the way under new Chancellor Jeremy Hunt will now be based on the OBR’s forecasts, it seems only reasonable to see how accurate these forecasts have been to date.
The OBR’s forecasts versus the reality
1. Government borrowing
- OBR borrowing forecast July 2022: £131.2bn LESS than forecast in Mar 2021
- It’s even £48.3bn LESS than they forecast only in October last year
- May 2022: £3,312,568 — a 24.7% increase since the EU Referendum
2. Tax revenues and Government spending
- Tax revenues are £77bn MORE than the OBR forecast
- In addition, the OBR overstated Government spending by £48.7bn
[Sources: Sir John Redwood MP | OBR 21 July 2022.]
Just who/what exactly is the ‘Office for Budget Responsibility?
The ‘Office for Budget Responsibility’ (OBR) is the ‘independent’ organisation set up by pro-EU Chancellor George Osborne in 2010. It is led by three people who have executive responsibility for the core functions of the OBR, including the judgements reached in its forecasts.
These individuals are typically plucked from the Treasury and Bank of England. Here are the opening remarks of the OBR’s first Chairman in 2010.
“It is quite remarkable that the Chancellor has given us authority to produce independent forecasts for the budget and the pre-budget report and to provide a public assessment of the action needed to achieve his fiscal mandate.”
“We are not claiming that we shall get the fiscal forecasts right. Above all, we shall be emphasising the risks and uncertainties; but every judgment will be ours and we guarantee the independence and integrity of our work…. We hope that the result will be greater credibility and an improvement in the quality of the fiscal decisions that will have to be made.”
- — Sir Alan Budd, first Chairman of OBR, former chief economic adviser at the Treasury and one of the first members of the Bank of England’s monetary policy committee, 2010
Today the news will be full of stories about political personalities and the plots to un-seat Liz Truss as Prime Minister.
As ever, I have tried to give readers some relevant facts. When organisations have a direct effect on the economic policies of our country, and on the tax and spending regimes which will impact our lives, it seems only fair to question the backgrounds and track records of these organisations.
Final point: The new Chancellor Jeremy Hunt is on my list as an extremist Remainer. This is based on his voting record in Parliament and on his public statements. Whilst he has said he accepts the result of the EU Referendum, a leopard doesn’t change his spots and I will be watching like a hawk.
Sources: IMF | OBR