The chancellor’s claim of a £22bn “black hole” in government finances was “unnecessary and probably unhelpful economically”, a former Bank of England chief economist has said.
Andy Haldane told Sky News’ Politics Hub with Sophy Ridge that Rachel Reeves’s statement in July was a “bad idea” because it generated a sense of “fear and foreboding” just when there was a new-found confidence in the UK.
Ms Reeves made the claim within weeks of taking office in what was widely seen as a warning that her first budget in October would be a painful mix of spending cuts and tax rises.
Mr Haldane said he hoped the government did not pursue a path of austerity – but warned wealth taxes also posed a risk to the economy.
He said: “The black hole event was unnecessary and probably unhelpful economically.
“It’s one thing to reveal a black hole, if that indeed is what it is. But just leaving that to sit for three months I think was a bad idea.”
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Asked what the government should have done, he said it was “much better to say nothing until you provide solutions”.
Mr Haldane added: “That’s generated a fear and foreboding and uncertainty among consumers, among businesses, among investors… which is unfortunate because just after the election, there was a sense of refresh, a sense of renewal, a confidence about the UK both domestically and internationally.
“That [speech] just set it back on its heels a bit, which I felt was unnecessary alongside the partial measures that were taken which I think have also aroused some concerns about what might come next.”
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The chancellor spoke to Sky News on Wednesday
Ms Reeves made the black hole claim as she unveiled proposals to cut winter fuel payments and scrap some government spending programmes.
She laid the blame on the Tories, who she accused of “covering up” the extent of the shortfall in the nation’s finances.
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Mr Haldane said he did not want to see a return to austerity and in particular cuts to capital expenditure projects.
He said: “That’s a path I think we can’t afford to go down if we are to fix these NHS problems and the well-known, rather too long list of other areas where we have chronically underinvested as a country for too long.”
However, he went on to say that the government should “tread carefully” when it came to wealth taxes to raise money, warning it could scare off investors at a time when ministers will need to do a lot of “heavy lifting from the private sector” to drive growth.
Ms Reeves has refused to say what will be in her budget on 30 October.
However, she has ruled out increasing personal income taxes, National Insurance and VAT, as well as corporation tax, leaving a limited field of other taxes on private wealth and business.
Speaking to Sky News on Wednesday, after official figures showed the economy flatlined in July, the chancellor said she had made it clear that “tough choices lie ahead”.
“It is important to bring stability back to our economy, but we will do that in a way that helps promote growth, so we can grow our economy and make our country better off,” she added.