Beautiful Virgin Islands

Monday, Sep 01, 2025

Biden is about to spend vast sums. Rishi knows inflation is a new risk

Biden is about to spend vast sums. Rishi knows inflation is a new risk

Latest London news, business, sport, showbiz and entertainment from the London Evening Standard.

This time Boris Johnson’s optimism seems well placed. He said this week that he expected the economic bounce back from Covid-19 to be “much stronger” than many expected. I agree, and I haven’t seen the forecasts which the Office for Budget Responsibility will publish tomorrow.

In general, across the western world, that’s the case. In part that is because of the overwhelming firepower which central banks and treasuries have thrown at this crisis — at a speed and with political unanimity we didn’t see last time. For all the talk of division, the US Congress has backed rescue packages and the eurozone has acted as one. Here in the UK there was no argument about moral hazard — everyone agreed that the Government had to step in to help businesses facing ruin and people facing unemployment through no fault of their own.

It’s also the case that, historically, pandemics have been much easier to recover from than banking crises. It may not feel that way to a restaurant or conferencing business or outdoor activity centre, or the many thousands added to unemployment rolls. But this time we don’t find ourselves in the catastrophic situation we did a decade ago when the very arteries of the economy — the credit channels — were blocked and would take years to clear. Nor is this the permanent impairment to trade that an event like Brexit represents. Covid-19 will pass.

The great news from the Health Secretary yesterday that vaccines are working at reducing hospitalisation and death rates here in the UK holds out the prospect that there is an end in sight across the world. This is reflected in stock markets, which in places like the US are higher than their pre-pandemic highs.

So now we need to listen to Larry Summers. Really? You wouldn’t have heard me say that a decade ago. Back then, Summers was the chief economic adviser to Barack Obama and he was telling us we needed to spend more money. Although we disagreed, it was hard not to be impressed by the sheer force of his intellect — and self-confidence in it. As it happens, despite the rhetorical clash of stimulus and austerity, both the Obama administration and Coalition government here followed near identical fiscal paths over the first five years of this decade. So what is Mr Summers saying now?

He says we risk spending too much — especially in the US. There the Biden administration is about to spend the equivalent of £1.3 trillion, on top of a huge package passed in the last weeks of the Trump presidency. I was pleased to see the new President elected, I know his economic team and I can see why they want to act decisively and before the political window for action closes on them. Still, it’s a staggering sum of money, and it doesn’t just plug the hole in output now left by the pandemic — it’s three times bigger than the hole. Most of the money goes straight into people’s pockets to spend, many of whom have already been saving money this last year. Summers warns “there is a chance” that spending on these levels “will set off inflationary pressures of a kind we have not seen in a generation”. Most of us have forgotten the pain of inflation — although I got a short, sharp reminder in 2011 when it hit five per cent and gave me the hardest time of my chancellorship.

Britain is especially exposed to a bout of inflation. Already the yields on gilts are rising — i.e. the interest rate we pay on our debt is going up. More of that debt is index-linked than our peers. If inflation goes up, the Treasury will have to find many billions of pounds extra a year just to service our borrowing — dwarfing the budgets we spend on some public services.

Rishi Sunak knows this, and knows it could derail the Government. He’ll keep spending through the tail end of lockdown, but then he’ll start to turn the spending taps off. He’ll raise taxes too, as I had to. I chose VAT while he’s reported to be looking at business tax. But all taxes are ultimately paid by individuals. However he does it, we have to start repairing the finances so we’re ready for the next crisis. If we hadn’t 10 years ago, we’d be in a far bigger mess than we are currently. Now we can see that the sun is going to shine, we have to start fixing the roof again.

Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
Chinese and Indian Leaders Pursue Amity Amid Global Shifts
European Union Plans for Ukraine Deployment
ECB Warns Against Inflation Complacency
Concerns Over North Cyprus Casino Development
Shipping Companies Look Beyond Chinese Finance
Rural Exodus Fueling European Wildfires
China Hosts Major Security Meeting
Chinese Police Successfully Recover Family's Savings from Livestream Purchases
Germany Marks a Decade Since Migrant Wave with Divisions, Success Stories, and Political Shifts
Liverpool Defeat Arsenal 1–0 with Szoboszlai Free-Kick to Stay Top of Premier League
Prince Harry and King Charles to Meet in First Reunion After 20 Months
Chinese Stock Market Rally Fueled by Domestic Investors
Israeli Airstrike in Yemen Kills Houthi Prime Minister
Ukrainian Nationalist Politician Andriy Parubiy Assassinated in Lviv
Corporate America Cuts Middle Management as Bosses Take On Triple the Workload
Parents Sue OpenAI After Teen’s Death, Alleging ChatGPT Encouraged Suicide
Amazon Faces Lawsuit Over 'Buy' Label on Digital Streaming Content
Federal Reserve Independence Questioned Amid Trump’s Push to Reshape Central Bank
British Politics Faces Tumultuous Autumn After Summer of Rebellions and Rising Farage Momentum
US Appeals Court Rules Against Most Trump-Era Tariffs
UK Sought Broad Access to Apple Users’ Data, Court Filing Reveals
UK Bank Shares Dive Over Potential Tax on Sector
Germany’s Auto Industry Sheds 51,500 Jobs in First Half of 2025 Amid Deepening Crisis
Bruce Willis Relocated Due to Advanced Dementia
French and Korean Nuclear Majors Clash As EU Launches Foreign Subsidy Probe
EU Stands Firm on Digital Rules as Trump Warns of Retaliation
Getting Ready for the 3rd Time in Its History, Germany Approves Voluntary Military Service for Teenagers
Argentine President Javier Milei Evacuated After Stones Thrown During Campaign Event
Denmark Confronts U.S. Diplomat Over Covert Trump-Linked Influence in Greenland
Starmer Should Back Away from ECHR, Says Jack Straw
Trump Demands RICO Charges Against George Soros and Son for Funding Violent Protests
Taylor Swift Announces Engagement to NFL Star Travis Kelce
France May Need IMF Bailout, Warns Finance Minister
Chinese AI Chipmaker Cambricon Posts Record Profit as Beijing Pushes Pivot from Nvidia
After the Shock of Defeat, Iranians Yearn for Change
Ukraine Finally Allows Young Men Aged Eighteen to Twenty-Two to Leave the Country
The Porn Remains, Privacy Disappears: How Britain Broke the Internet in Ten Days
YouTube Altered Content by Artificial Intelligence – Without Permission
Welcome to The Definition of Insanity: Germany Edition
Just a reminder, this is Michael Jackson's daughter, Paris.
Spotify’s Strange Move: The Feature Nobody Asked For – Returns
Manhunt in Australia: Armed Anti-Government Suspect Kills Police Officers Sent to Arrest Him
China Launches World’s Most Powerful Neutrino Detector
How Beijing-Linked Networks Shape Elections in New York City
Ukrainian Refugee Iryna Zarutska Fled War To US, Stabbed To Death
Elon Musk Sues Apple and OpenAI Over Alleged App Store Monopoly
2 Australian Police Shot Dead In Encounter In Rural Victoria State
Vietnam Evacuates Hundreds of Thousands as Typhoon Kajiki Strikes; China’s Sanya Shuts Down
UK Government Delays Decision on China’s Proposed London Embassy Amid Concerns Over Redacted Plans
A 150-Year Tradition to Be Abolished? Uproar Over the Popular Central Park Attraction
×