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Whatever the budget brings, let’s hope it’s not a tribute to Nigel Lawson

Jeremy Hunt is an admirer of the chancellor whose policies caused a massive recession

British Chancellor of the Exchequer Nigel Lawson at work with his budget box on March 08, 1989. Photo: B. Barrett/Express/Getty Images

It was, admittedly, a long time ago now. I was starting out in financial journalism and Margaret Thatcher was starting her third term. But it is not like it is ancient history, and it is the kind of story today’s Tories should know all about; the stuff they were raised on.

Which begs the question: Who in their right mind would want to base their economic policies on those of Nigel Lawson? 

Apparently, Jeremy Hunt does. Though economic bad news may have limited his ability for a Lawson-style giveaway in the budget on March 6, the current chancellor of the exchequer has been boasting about wanting to emulate the man who held that position between 1983-1989. Any tax cuts he does manage to scrape together will no doubt be hailed as a potential trigger for a “new Lawson boom”.

Can Hunt really be one of the few who does not remember what Lawson caused? Nigel’s cuts in the late 1980s resulted in soaring inflation, higher unemployment, a house price crash and a massive recession. 

What happened to the Tories after they won a third straight election in 1987 was a lesson in hubris. Having delivered unfeeling monetarism and swingeing cuts to social welfare, they began to believe their own hype. They had taken the hard decisions (well, hard for those who lost their jobs, for the unions and for manufacturing industry) now they could let the good times roll for their people. Lawson’s 1988 budget was supposed to start that party, but it ended in a massive hangover.

The first and biggest mistake was a reckless cock-up. Lawson gave the public six months’  advanced warning about the abolition of Mortgage Interest Relief at Source, a tax break that meant the government subsidised your mortgage payments. Multiple people could claim this tax back if they pooled their money and bought a house.

As a result of the six-month MIRAS warning, hundreds of thousands piled into the housing market, many clubbing together to buy a property. Prices duly soared, until the moment multiple MIRAS tax relief was abolished. Guess what happened then?

If that had been Lawson’s only mistake, he might have got away with it. Yet at the same time, he slashed income tax, especially for the rich. The highest rate went down from 60% to 40%, meaning a 20% pay rise for the rich.

Petrol was thrown onto the fire as estate agents and sellers realised that the rich had 20% more money than they had thought they had the day before and the banks fell over themselves to lend money to buyers. 

Maybe what Hunt remembers is the immediate aftermath of this budget. I can still remember the cheers and gleeful smiles of the City dealers listening to it live and being told they were suddenly tens of thousands of pounds better off. Yuppies abounded – even Del Boy became one. City dealers dashed to the Porsche salesrooms.

But then Del Boy fell through the bar and the economy went with him. The house price boom became a bust, with negative equity for millions. Inflation surged. The trade deficit widened.Unemployment, already high, spared. The economy crashed.

Lawson tried to dampen down rampant inflation by shadowing the Deutschmark and then joining the EU’s Exchange Rate Mechanism. This would cost him his job, then Thatcher hers and then Norman Lamont his when the pound was kicked out of the ERM.  We ended up with 15% interest rates. It destroyed the idea of Tory economic competence for 20 years.

This is the world that Hunt wants to return to. 

Of course, it is not just tax cuts (or Nigella, or late-life climate crisis denial) that Nigel Lawson is famous for. In an article for the Mail on Sunday a few weeks ago, Hunt wrote: “Just as Nigel Lawson positioned the City of London for the finance boom in the 1980s, this period of Conservative government has seen the UK positioned for the massive technological boom we’re set to see in the coming years.”

This is an extraordinary claim. If this government has done anything to “position” the British economy as a tech world leader it has passed me and British industry by too. No Big Bang of Britain’s tech industries is expected, which is probably just as well because before Lawson died last year, even he was admitting that his Big Bang, the deregulation of the City and the country’s financial services industries that he oversaw in 1986, was a direct if unintended cause of the 2008 credit crunch. 

Britain has some impressive tech companies but the idea that we are a world leader in new tech and that a small cut in headline tax rates is going to lead to a revolution in British industry is fanciful.

America, China, Japan, Taiwan and even parts of the EU are at the cutting edge of new technologies. They are pouring hundreds of billions into research and development, new factories, new industries, new infrastructure, and new investment. Battery factories, microchip labs and solar panel plants are springing up everywhere.

Meanwhile Britain does not have a proper industrial strategy, is behind in the battery boom and is seeing its tech companies floating in New York, not here. We will innovate and we will adapt, but we will not be major players.

Neither are we going to get Lawson-style tax cuts, not least because we are paying more in tax than since the second world war with more rises to come. When the chancellor lowers income tax or VAT, he will be bribing people with their own money. He also hints that lower corporation tax is the way to encourage growth, this from a government that has just increased it from 19% to 25%. 

It is bad enough that the government seems to have forgotten that Nigel Lawson oversaw a boom and bust economy with dire consequences. But to “forget” that it is increasing company and personal taxation and then boast that it is cutting it is beyond satire. 

Lawson was at least running a small budget surplus when he cut income tax rates. The current chancellor is borrowing tens of billions a year and the overall debt level is near 100% of UK GDP. Any cuts to taxes will be paid for with money that should be used to reduce debt or money that could be far better spent on the NHS or defence, or infrastructure, or flood defences or even developing tech industries. 

But then Hunt and Rishi Sunak’s top priority is not being sensible with the British economy. It is creating enough headline hype to swing the election, and damn the consequences.

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