While the world is our chessboard in this Wealth Week series, I hope you’ll forgive me in starting in the UK after the tumultuous events of recent weeks. We have a lot to be worried about, starting with the way in which the Truss/Kwarteng Mini Budget was delivered, how it was reported and the way in which a government was brought down by a process that was anything but democratic.

For true conservatives, the first reaction to the budget was euphoric. Casting aside years of social democrat, Blue Labour policies in favour of economic growth and lower taxes. The Johnson  government came to power on the strength of promises to level up the Red Wall and promptly delivered bugger all in three years. The proposed investment zones, with tax breaks and reduced planning restrictions, will deliver far more than Johnson and Sunak ever did, while their decisions to increase NI and corporation tax in the teeth of a cost of living crisis were as politically inept as anything proposed by the Truss/Kwarteng axis.

It was one of my guests from my Money & Me series, former cabinet minister Sir John Redwood, who summed up the presentation issue best. He said they presented one third of the budget, i.e. they majored on their tax cuts without putting them in the context of an overall spending plan or borrowing plan. You also have to question their judgement, and that of their advisers, in removing the bankers’ bonus cap and the 45% rate of income tax. Pandering to the rich was never going to play well ‘up North’.

But here’s the injustice of it. Yes, the nerves were jangling in the gilt markets after the announcement, but what really caused the turbulence was a financial weapon of mass destruction that none of us knew about. LDIs, or Liability Driven Investments, are derivatives used by defined benefits pension providers as an insurance policy against sudden changes in interest rates on the bonds that pay their pension commitments to those lucky enough to have one of these gold plated pensions. As prices moved, pension companies were forced to put up more collateral against their LDIs. They sold the only liquid assets they own – gilts, causing prices to fall further in a self reinforcing doom loop.

They went running to the Bank of England who announced a bond buying programme of up to £65 billion to steady the ship. In the event they didn’t need to commit to anything like that level of spending but they had put in train the events that led first to Kwarteng and then Truss being removed. And to the rather dark process by which Jeremy Hunt suddenly emerges as the new chancellor. At whose behest? Don’t tell me it was Liz Truss’s choice. Was it the 1922 Committee, or was there a call from a posh resort in Switzerland suggesting ‘just the right man for the job’?

Hold on a minute. Who knew that pension funds were exposed to this degree? Who was asleep at the wheel while they leveraged themselves to the hilt on these LDIs? Step forward the Bank of England, in my opinion every bit as much to blame for this fiasco as Kwarteng. But of course, Liz and Kwasi are cut from a different cloth to Sunak, Bailey or his predecessor Mark Carney. They are working to the Davos WEF agenda and saw the arrival of Truss as yet another bad decision that happens when you delegate important matters to the plebs.

In this case it was 150,000 Tory party members who, given the choice between Sunak and Truss, clearly came up with the wrong answer. Just like in 2016 when that nice David Cameron gave us hoi-polloi the chance to decide whether we wanted to remain within the EU and, once again, we came up with the wrong answer. Ever since then the grown-ups have done everything they can to obfuscate, procrastinate and water down the impact of that democratic process.

Their determination not to allow a third wrong decision showed in the coronation of Rishi Sunak without even the members getting a say. But what I’m concerned about now is over-correction. I’m worried that really important babies will be thrown out with the Truss/Kwarteng bathwater.  Sunak and Hunt are briefing that there’s a £50 billion hole in the UK finances and it sounds like the plan is to find half of that from spending cuts and half from tax rises. Sunak has already frozen tax allowances for half a decade and Hunt is apparently thinking of extending that process of theft by fiscal drag.

So it looks like corporation tax is going back to 25% plus potential windfall taxes on the banks and energy companies. Keir Starmer will be proud that such Labour policies are being implemented on his behalf by Rishi Hood and his merry men, but will they be vote winners in 2024?

Let’s put that £50 billon in context. The UK’s total national debt now stands at £2.5 trillion. The IMF says that the UK budget deficit will be 1.4% of GDP by 2025, compared to 3% for Italy, 4% for Spain, 5% for France and whopping 7.4% for America. And to think the barely coherent Joe Biden had the cheek to call Liz Truss spendthrift? It’s the same story with national debt to GDP – the UK figure is forecast to be 68% in five years’ time versus 118% for France, 135% for America, 142% for Italy and a mind-blowing 263% for Japan.

The figure that’s far less welcome is the percentage of GDP that reflects the tax burden. It’s already at an 80 year high of 33.1% and Hunt’s latest plans will lift that to 36.3% by 2025.  It looks like the triple lock on pensions could disappear, hammering another part of the Tory grass roots support and we have to assume the soft target of higher rate pensions relief will be in the chancellor’s cross hairs.

Once again I turn to Sir John Redwood to explain the dilemma: He says that “tightening too much now could create a recession. In a recession, deficits rise and the state has to borrow more, not less. It would not be a good idea to follow the wrong response to current economic conditions in pursuit of a lower number for three years’ time which no one can accurately predict nor deliver.”

The need to give the right message to the markets is such that Rishi has decided to miss out the virtue signalling extravaganza that is Cop27 while Jeremey Hunt has called on chancellor turned investment banker George Osborne for advice on austerity. Maybe he wants some Osborne and Little decorative products to paper over the cracks? But how bad are things really? With wholesale gas prices tumbling from £292 per megawatt hour in August to £86 in October it’s clear that household bills could be below £2500 anyway and no subsidy may be required.

Obviously Rishi has been on the phone almost every day asking my advice – to be honest it’s getting a bit tiresome. But to summarise what I’ve been saying to him it’s this. Remember John Major. If you cause economic pain and recession now, all you will do is hand over a stronger economy to Kier Starmer in 2024. We need something more radical even if it’s toned down from the Truss/Kwarteng rhetoric. You have around 18 months to turn this around. Business as usual ain’t going to cut it.

Compared to other major economies we are in good shape. Use that and our freedom from the EU to do something different. Otherwise, enjoy your brief stint at number 10 before we endure a decade or more of Labour rule.