How the 'Barber boom' provides a warning for Liz Truss - Greg Wright

He was about to unleash a series of sweeping tax cuts designed to add rocket fuel to a UK economy which was being buffeted by global economic headwinds. But from the outset, cooler heads feared he had over-reached; egged on by a Prime Minister who lacked a firm grasp of financial reality.

Sound familiar? Well this was the scene in the House of Commons in 1972, as the Conservative Chancellor Anthony Barber delivered his second Budget, which, he said, provided radical action to help British industry to modernise. He aimed to achieve this by providing a colossal boost to demand, which included measures to cut £1bn off income tax.

Although he was applauded by some at the time, the “Barber boom” which followed did not provide stability. Far from it. Inflation and industrial unrest were to force a reversal of Barber’s policies as the country's economy teetered on the brink of collapse.

At the time, Barber must have sincerely believed that the measures he had introduced would lead to significant gains in productivity and slash unemployment. In the long term, his critics, who feared he was over-stimulating the economy, were proved right. As the historian Dominic Sandbrook says in his book, State of Emergency: “Thanks to Barber’s stimulus measures the previous year, unemployment would have come down anyway, but by throwing even more money at the economy Heath was stoking the flames of inflation.

"At any time it would have been a naive, irresponsible gamble..

"It was the product not only of good and noble intentions, but of panic and arrogance, and it was a classic example of a disease to which British politics was peculiarly prone in the 1970s: the economics of wishful thinking, based on rosily optimistic predictions that were never, ever vindicated.”

If Barber had canvassed a wider body of opinion, he might have avoided implementing a series of rash polices, which over time, simply led to the tax increases and cuts in public spending he had been determined to avoid.

It seems incredible that the Chancellor Kwasi Kwarteng and Prime Minister Liz Truss did not heed this warning from history. How many economists and City analysts did Mr Kwarteng consult before delivering his mini-budget, which must rank among the most disastrous statements ever made by a Chancellor of the Exchequer?

There is growing international pressure on Mr Kwarteng to change course after he upset the markets with his package of tax cuts and increased borrowing. In an extraordinary statement, the International Monetary Fund (IMF) said it was “closely monitoring” developments and urged the Chancellor to “reevaluate the tax measures”.

It’s time for Mr Kwarteng and Ms Truss to explain themselves. Only a screeching U-turn can save their jobs. The Bank of England has launched an emergency UK government bond-buying programme to prevent borrowing costs from spiralling out of control and stave off a “material risk to UK financial stability”. The debacle over the mini-budget suggests that the ‘British disease’ of the 1970s, the arrogance, over-optimism and belief we are set apart, still has a debilitating force today.