The news from Washington is, on the surface, a minor skirmish in the eternal culture war of Capitol Hill. The Senate Republican leadership, in a move that has startled few and delighted many in the fiscal conservative camp, has excised a cool $1 billion in proposed funding for what was billed as a 'Presidential Ballroom' in the Trump International Hotel. The market, for its part, barely flickered. But for those of us who obsess over the minutiae of government spending, this is a signal flare. It is a reminder that even in the gilded age of Trumpian excess, the ghosts of fiscal discipline still rattle their chains.
Let us be clear: $1 billion is a rounding error in a federal budget that has long since abandoned any pretence of balance. But it is the direction of travel that matters. The UK Treasury, ever watchful of its own credibility, has noted the move with what officials describe as 'cautious interest'. Translation: if the Americans can start cutting, we had better be seen to be just as, if not more, vigilant. The era of 'Trussonomics' is still fresh in the memory. A former Prime Minister whose mini-Budget sent gilt yields into orbit and forced the Bank of England into emergency intervention. The markets do not forgive, and they do not forget.
What does this mean for the British taxpayer? It means that the Chancellor, Jeremy Hunt, now has a fresh rhetorical weapon. When the spending lobby comes calling with their hands out for more NHS funding, more rail subsidies, more green energy boondoggles, he can point across the Atlantic and say: 'See? Even the President of the United States cannot have his ballroom.' It is a small victory for the hawks, but a victory nonetheless.
The real story, however, is the underlying rot. The US national debt has ballooned to over $34 trillion. The UK's is not far behind, at over £2.6 trillion. And what do we have to show for it? A Presidential ballroom that will now never host a single gala. The opportunity cost is staggering. That $1 billion could have been spent on infrastructure, on debt reduction, on tax cuts. Instead, it was destined for a marble floor and a gilded ceiling. The fact that it was stopped is commendable. The fact that it was even proposed is a symptom of a deeper pathology.
Back in London, the gilt market is watching. Yields have been creeping up again, as the Bank of England hesitates on rate cuts. Inflation is still sticky at around 3.2%, far above the 2% target. The last thing the Treasury needs is a repeat of the 2022 crisis. And so every signal of fiscal sanity, no matter how small, is seized upon. The $1bn axe is such a signal. It says: 'We are not entirely mad.'
But let us not get carried away. This is one cut in a sea of spending. The US deficit is still running at over $1.5 trillion a year. The UK is not much better. The real test will come when the next recession hits, and the spending lobby demand that the fiscal rules be torn up. That is when we will see if the lesson of Liz Truss has truly been learned.
For now, though, the market exhales. The UK Treasury notes the move with a knowing nod. And I, Alastair Thorne, file this report with a heavy dose of scepticism. The bottom line is this: one billion dollars saved is one billion dollars that will not have to be borrowed from the markets. That is a good day. But there are many more billions to go. The ballroom may be dead. Long live fiscal responsibility.
As I write, the yield on the 10-year UK gilt stands at 4.12%, down 3 basis points on the day. A small cheer from the bond markets. But they are a fickle lot. They will demand more cuts, more discipline, more evidence that the politicians have learned their lesson. And they will punish those who fail to deliver. The Senate Republicans have bought themselves a little time. Let us see if the Chancellor can do the same.
