There are so many questions about where to now for the disastrous Truss-Kwarteng government in the United Kingdom.
Can Liz Truss survive until 2023, let alone an election? Will she sacrifice Chancellor of the Exchequer Kwasi Kwarteng to restore a measure of confidence in her government? Will she dump the unfunded tax cuts for the wealthy that sent the pound crashing and nearly caused the UK financial system to collapse before the Bank of England intervened?
Some of these questions are ones for the Bank of England, too. It has been forced to reverse its recent decision to embrace “quantitative tightening” in response to high inflation: its intervention on Wednesday was to buy UK government bonds (called gilts). instead of selling those it accumulated during the government’s pandemic spending, when it financed Boris Johnson and Rishi Sunak’s massive spending program.
Truss spent her campaign for the prime ministership telling all and sundry that the BoE was partly responsible for the massive inflation because of its bond-buying, or quantitative easing. Now it’s a temporary restoration of quantitative easing — buying long-dated gilts — that has saved the financial system, and possibly the entire economy, from collapse.
How temporary is the immediate question for the BoE — it has committed to bond-buying only until October 14. That date becomes crucial: if gilt yields fall again after that, or the pound resumes it fall back towards parity with the US dollar, what will the bank do? As the Financial Times pointed out, any further bond-buying by the BoE risks looking like the bank supporting reckless fiscal policy, not saving the financial system.
But the bigger question for the UK now is whether Truss and Kwarteng will abandon the tax cuts that have caused the crisis. There is no easy way out of the hole they have dug for themselves and the UK — not to mention the Tory party.
Truss is the result of a Tory party purged of moderates, ministers of substance and rationalists by Johnson, one in which the right-wing press and the provincial reactionaries who make up the membership are the primary audiences for policymaking — not the wider electorate. That’s why Truss, for now, is sticking by her massive tax cuts for the rich.
If she ditches the tax cuts, her prime ministership is unlikely to recover. It is her signature policy, and the one that enabled her to defeat the economically far more mainstream Sunak for the top job.
But if she refuses to ditch the tax cuts, she’ll have to explain to Parliament, the electorate and markets how she’ll pay for them — or watch markets continue to savage gilts and the pound. In interviews overnight, she flagged “targeted” spending cuts to help pay for the tax cuts.
You can’t fund £45 billion with “targeted” spending cuts. They have to be massive — and at a time when British institutions such as the NHS are falling apart, and during what is likely to be a winter of deep discontent brought on by massive energy price increases, supply chain disruptions and soaring inflation.
Major cuts to government spending to fund tax cuts for the rich are likely to unleash something akin to the poll tax riots that fatally wounded Margaret Thatcher.
And the current date for that “explanation” is a long way off — November 23, when Kwarteng is due to deliver a budget. One of the reasons last week’s tax cuts announcement wasn’t part of a budget — and one of the reasons it alarmed markets — was that a budget requires vetting from the UK Office of Budget Responsibility. Now Kwarteng and Truss have agreed to “emergency talks” with that office, to provide more confidence to markets about their fiscal policy.
But November 23 is nearly eight long weeks away of potential rolling political and financial chaos.
No one thought the Tories could do worse than Johnson. But as so often happens with such an assumption, it turns out things can get much worse indeed.
If ever we needed proof that Liz was not up to the job this is it. She has managed to destroy her credibility and the UK economy in a matter of weeks. Her only we out is to cancel the tax cuts but that is asking too much of a very stupid politician.
We should not get too comfortable in our country either. Frydenberg managed to do something similar with his unsustainable tax cuts done simultaneously as the need became apparent for massive financial injections into a range of Government programs. Labor is supposed to be fixing these programs but won’t be able to while supporting Frydenberg’s cuts. Labor could easily reverse them but regrettably is too timid. Perhaps they will become less timid when they see their polls results tank.
This sleight of hand with the Budget That Cannot Be Named as Such, because its authors were intent on dodging the requirement for some independent assessment before it was announced, would be hard evidence of mens rea, a criminal intent, if only there were adequate laws for the conduct of governments.
What a naive question. Changing party leader again within a few weeks of installing this one is not credible. Even less likely is a sufficient Tory rebellion (38 Tory MPs, if the rest of the HoC is united against them) for her government to lose a vote of confidence. As we’ve seen consistently over many years Tory MPs will never voluntarily bring on an election, no matter what. It is never in their interest. If things are going well, there’s no need. If things are going badly, they inevitably choose to hang on to their jobs and privileges for as long as possible before the axe comes down.
Greg Jericho’s latest piece ‘Britain’s trickle-down budget idiocy offers a clear lesson for Australia on our stage 3 tax cuts’ in The Guardian makes the telling point that the UK government’s troubles arise from a tax-cutting package less damaging than the Stage Three tax cuts that our Labor government is determined to carry out no matter what. He describes Kwarteng’s tax plan and says,
I came in to write the same thing – our stage 3 tax cuts are just as irresponsible. I suspect Morrison only left it there to screw with Labor – he would never have been able to justify keeping such a ridiculous promise under the circumstances.
Morrison’s “IEDs” – “Irresponsible Economic Deadfall”
Thatcher was Britains nemesis. Since her the City of London leech has sucked out all the blood and dropped off (Brexit). The patient, looking very pale, is not expected to survive. Howard was our nemesis, and we are moving in parallel with the UK. It’s not pretty.
Blair, Cameron, May, Johnson, weren’t bad enough, now the more I hear about Truss the louder I hear their World Party’s “Ship of Fools” anthem.
This is the lady who earlier this year tried to tell Lavrov that Rostov on the Don was Ukrainian. Justifiably he treated her as intellectually challenged.
“No one thought the Tories could do worse than Johnson. But as so often happens with such an assumption, it turns out things can get much worse indeed.”
Leaders gotta make their mark in history somehow. Going the Jeffrey Dahmer way rather than the Gandhi one.