The dramatic scenes in Parliament on Wednesday understandably dominated the news cycle. They also had an impact on the financial markets with the value of the pound and UK bonds falling while gilt yields spiked.
It is true that the markets were spooked by the tearful scenes in the House of Commons but this is because they feared it meant that the Chancellor was about to resign or be fired and be replaced by a Chancellor who was less committed to fiscal discipline. They had seen that the Government had failed to tackle the botched welfare system and any future attempts to constrain spending by the Government would ultimately end in vain.
As such, they deduced that any successor would not take the difficult decisions on the public finances and instead continue down the path of profligate spending which would have to be funded by increasing borrowing or even more growth-hampering tax rises.
Both of these would be a mistake.
We have already seen the impact of recent tax rises on the economy. Despite the Government claiming that its increase to Employers National Insurance Contributions was not increasing taxes on working people, this is clearly not the case. National Insurance is a payroll tax and there is a great deal of evidence that the incidence falls on workers, mainly in the form of lower wages but also in fewer job opportunities.
Moreover, this tends to have a disproportionate impact on younger people and the low-skilled. It is not surprising that the most recent data from the ONS shows that the vacancy rate has decreased.
The tax burden on workers and firms is already far too high with highly productive people leaving the country and major corporations such as AstraZeneca considering moving operations to countries with more competitive tax systems where hard work and innovation are rewarded rather than penalised.
The Chancellor should also rule out increasing borrowing. It is becoming increasingly expensive for most countries around the world to borrow money and the UK is no exception. What is more, this is not free money and it will have to be paid back by current taxpayers and our children, grandchildren, and great-grandchildren.
More borrowing will increase the National Debt which already sits at an historic high of around 100% of GDP. Financing the National Debt is already one of the largest areas of Government expenditure, costing over £100 billion a year which is more than on Defence, Education, and the Criminal Justice System.
Money spent servicing the National Debt represents an opportunity cost as it is money which otherwise could have gone towards funding more teachers or nurses or purchasing more equipment for the military. Alternatively, it could help to fund tax cuts so that people can keep more of the money that they worked so hard for. Instead, it is being used to finance the irresponsible spending decisions of successive Governments.
The Government should heed the warning signs in the financial markets. The Chancellor should commit to not placing even greater pressure on the public finances by increasing borrowing. Furthermore, the Government should rule out further growth destroying tax cuts. Instead it should do the responsible thing and cut public spending while introducing supply side reforms to boost economic growth.
Ben Ramanauskas is a Senior Fellow in Economics at Policy Exchange