Whenever a new person becomes leader of a democracy, especially one who replaces a highly unpopular one, they are usually given a grace period of 100 days or six months or so before they start getting seriously criticized, a period often referred to as a honeymoon. This is so that they can assemble their team and formulate policies that will implement whatever they promised to do.
In the case of Liz Truss, who was elected by Conservative party members in September to replace the unpopular Boris Johnson as prime minister after weeks of turbulence, she has managed within the space of less than one month after taking office to create serious turmoil within the country, so much so that even members of her own party are calling for her to either quit or fire her Chancellor of the Exchequer Kwasi Kwarteng or reverse the policies that he had revealed to parliament in a so-called ‘mini-budget’ that gave large tax cuts to the rich, reportedly the biggest tax cuts in 50 years, without any serious thought being given to how the resulting revenue shortfall would be made up. This article describes in detail how it all went down.
As is always the case with tax cuts for the rich, we are told that the supply side fairies will magically wave their wands and create high levels of growth that will generate rapid growth and thus new revenues that will make up for the initial losses. What usually happens is that the only business sector that grows is the one that involves selling luxury yachts, private planes, and mansions for the wealthy to buy with their tax windfalls. Since the promised levels of revenue never materialize, the government then says that austerity measures are necessary to reduce the deficit, measures that largely adversely affect the poor. That two-step chicanery has been played out many times before in the US as well.
That usually takes some time to come about. What is extraordinary in the UK is how quickly the consequences to Truss’s policies have come, along with the backlash. She apparently did not get a review of the financial implications of her policy that is usually given to the government by the Office for Budget Responsibility before a new fiscal policy is implemented. And even though the OBR said that such a review would be available on October 7, Kwarteng has said that it would not be presented to the parliament until November 23.
This lack of information spooked the financial sector in a big way, with the prices of bonds dropping and interest rates correspondingly shooting up and the value of the British pound dropping precipitously. In the UK, home mortgage interest rates are more sensitive to changes in interest rates than in the US since I believe they do not have the long term (10 year, 15 year, 30 year) fixed rate mortgage system that exists in the US where rates remain stable once mortgages are issued. Mortgages deals are being cancelled all over. The Bank of England said that they would step in and spend up to £65 billion to buy government bonds to shore up their prices and bring interest rates down but much damage has already been done.
So why the rush to make these drastic changes? Truss and Kwarteng have claimed that the economy was in crisis and heading for chaos and needed a shot in the arm to spur growth. This and other claims by Truss justifying the policy have been challenged. It is true that the global economy is sputtering with high inflation and low growth rates but it is not clear that there was an emergency that required this scale of action so soon. It seems more likely that this is the kind of giveaway to the rich that rightwing politicians like to pass when they are in power and Truss and Kwarteng felt that they should rush this through during the honeymoon period. I think they did not expect this torrent of criticism from sources all over the political and economic spectrum and now seem to be determined to grit their teeth and try and ride out the storm rather than reverse course and appear weak.
John Cassidy looks at what happened.
The enormous tax cuts are heavily slanted toward the rich and will amount to close to two per cent of Britain’s G.D.P. Kwasi Kwarteng, the new Chancellor of the Exchequer, presented them as part of a broader effort to boost the underlying growth rate of the U.K. economy. Many independent commentators condemned them as crackpot economics. It’s “the biggest package of tax cuts in 50 years without even a semblance of an effort to make the public finance numbers add up,” Paul Johnson, the director of the nonpartisan, London-based Institute for Fiscal Studies, said. The most biting verdict came from Larry Summers, a former U.S. Treasury Secretary. “It makes me very sorry to say, but I think the U.K. is behaving a bit like an emerging market turning itself into a submerging market,” Summers told Bloomberg. If the Truss government sticks to its new policy, the value of the pound could drop to less than a dollar, he added.
I don’t always agree with Summers, but in this case it’s hard to argue with him. One of the characteristics of emerging-market economies is that investors tend to be skeptical of their public finances and demand additional compensation for holding their government’s debt. That’s what is happening to U.K. bonds. On an average trading day, bond yields may change by two- or three-hundredths of a percentage point. Since Friday, the yield on ten-year British bonds has jumped by far more than that: from 3.46 per cent to 4.28 per cent. “It’s effectively the market saying, A, we don’t believe in trickle-down economics and that growth is going to miraculously occur,” Paul Donovan, UBS Global Wealth Management’s chief economist, told the Wall Street Journal. “And B, you see that magic money tree you just planted—we’re taking a chainsaw to it.”
The tragedy is that all this is unnecessary. Although Britain has been through many tribulations in recent years, it is the world’s sixth-largest economy, it has a stable political system, and London is one of the world’s biggest financial centers. If its government were even reasonably competent, the risk of a financial blowup would be minimal. Unfortunately, that basic civic requirement isn’t being met.
In the past six years, the Conservative Party has jettisoned economic skepticism, and embraced wishful thinking and self-sabotage.
John Crace writes that Truss has a robotic style of speaking and seems to be somewhat unsure of her facts and this has resulted in her public defenses being counter-productive, as evidenced by the series of successive short interviews that were hastily arranged with eight regional BBC broadcasters, where she repeated the same non-answers each time, with long pauses signifying that she did not know what to say and seeming to have not learned from the previous encounter.
But the Tories are just playing with us. It’s as if the members said: “So you think David Cameron is useless? Just wait until we give you Theresa.” And once we’d all had about enough of May, they gave us a narcissistic, sociopathic liar instead.
Now, to top it all – at least we hope so; surely there can’t be another one who is even worse? – we’ve been landed with Liz Truss. Someone who is not just half-witted and robotic, but reckless enough to bankrupt the country. The ideologue with only a tenuous grasp on reality.
Inevitably, [the eight interviewers] all mainly asked the same questions. After all, there really is only one game in town. What the fuck did you think you were doing? Didn’t it occur to you that your mindless mini-budget could wipe £500bn off the markets, putting pensions at risk and increasing the cost of borrowing? Thanks very much for the £100 or so tax cut that the least well-off will be getting, but did you know that you’ve just made most people even more broke?
But there was a virtue in hearing the same question asked on eight separate occasions. Because it reinforced the key message that Librium Liz doesn’t have any coherent answers. She really didn’t seem to have any idea of the scale of the damage she had done. She was in total denial. Like an arsonist caught with a can of petrol.
Come the end, Truss was little more than a puddle on the floor. A pool to be mopped up and taxied back to Downing Street. She couldn’t even answer any of the local questions she was asked. Who would have guessed local journalists might ask local questions? She was clueless on fracking. Clueless on everything. When she was talking to her own local radio station in Norfolk, she didn’t just seem unaware that the roof was falling in on the hospital in King’s Lynn. She also seemed to have forgotten she was prime minister and in a position to do something about it.
Public opinion has been devastating, with polls showing huge increases in support for the opposition Labour party. The next UK general election has to be held no later than January 2025, leaving her with just a little over two years at most to bring back confidence in her leadership, and Conservative party members of parliament are rightly worried that the party will go down in flames. The annual Conservative party conference will be held this coming week and one can expect Truss and Kwarteng to be in the hot seat.
Liz Truss is struggling to persuade Conservative MPs to back her controversial mini-budget, with some even threatening all-out rebellion amid fears that they will once again become known as the “nasty party”.
The prime minister faces with a rising drumbeat of discontent that is overshadowing the Tory conference after she insisted she would “stand by” her plans to cut the top rate of income tax and ram through public spending cuts.
Michael Gove launched a dramatic broadside at Truss’s economic plans, saying it was “not Conservative” to fund tax cuts from borrowing or trimming the welfare budget and warning that she had to change course or risk her mini-budget being voted down.
UK bookmakers are already taking bets as to the length of Truss’s tenure as prime minister with the trend increasingly towards a short term.
Odds have been slashed on Liz Truss making an early exit from Downing Street amid economic turmoil.
The prime minister’s odds of a swift exit were cut from 40/1 to just 7/1 in a matter of days, according to Ladbrokes.
Meanwhile, Rishi Sunak leapfrogged five other Tory MPs overnight as the favourite to replace her at just 4/1.
“What a week Liz Truss is having. Confidence in the newly-appointed PM is fast dwindling and 7/1 says she’s sent packing before the end of the year,” Alex Apati of Ladbrokes said.
Elsewhere, Kemi Badenoch remains a 7/1 shot ahead of Boris Johnson on 8/1, while every other name is now 12/1 or bigger.
Truss and Kwarteng seem to have inflicted an own goal. One person likely to be enjoying all this is the ousted prime minister Boris Johnson. That egotistical liar may well be working behind the scenes riling up the backbenchers, trying to get Truss dumped by the party and have them put him back as their leader. He has already shown in his earlier rise to the top that he will say and do anything to become prime minister.
Even this understates the scale of Truss’s achievement. Consider: about half the time since she came into office has been spent in the nonsense of the death, mourning and memorialising of the Queen. She’s really turned the government round from rudderless irrelevance to actively evil disaster zone in a little over a week. It’s amazing.
Don’t worry, the left in the UK are there to show the Tories how self-sabotage is really done. See below.
Don’t fucking bet on it. Next in line? Maybe Michael “had enough of experts” Gove? “Ready for” Rishi Sunak? More likely IMO -- Boris again. Never write that fucker off. You wondered why he left office quietly, with no Trumpoid attempts at insurrection? Simple: he knew the calibre of what would follow him, and likely calculated that once Truss was in post, the party would quickly come crawling back begging him to win another election for them. AND THEY WILL.
Don’t worry, there are Labour “supporters” just waiting in the wings to do their best to reverse that trend and make sure that the only party that gives two shits about them and their concerns is never, ever returned to power. This, from the most left-wing paper in Britain, now, during the only time in the last decade that Labour have felt positive about anything: https://www.theguardian.com/commentisfree/2022/oct/02/labour-party-racism-allegations-prejudice-keir-starmer
While longer-term fixed rates are (or rather, were) available, it’s unusual -- even a 5 year fixed term is regarded as long-term over here.
Not just bringing interest rates down -- most pension funds rely on these bonds, and the leap in yeilds meant that many were suddenly on the brink of insolvency. For a while there, UK gilts were cheaper than the equivalent bonds from Greece and Italy.
Deepak Shetty says
Its like the Game of Thrones with about the same level of greed and evil but with the nudity/gore replaced by incompetence and GoT had a lot of nudity/gore ! Though the actors in GoT were better looking
Truss is not going to last two and a half years. Long before too many conservative representatives will become too afraid to lose their seats and turn against her.
Deepak Shetty says
Also I think , this time Marina Hyde outdid John Crace
I never thought I’d live to see the day where (some? many?) conservatives found a situation that they think can’t be helped by giving tax cuts to the rich. Maybe it’s only a UK thing; I’d guess the ones on this side of The Pond don’t get what the fuss is about.
Johnson’s problem was not that he was impopular. His problem is that he is lazy and largely incompetent. He basically wanted to *play* prime minister without doing all the hard work.
He did introduce the Tory party to the concept of the swift U-turn in case of unpopular or nonsensical policies, of which there were many during his tenure. And apparently Truss/Kwarteng will proudly carry on that tradition.
John Morales says
This interview is… beautiful to behold.
The Chief Secretary to the Treasury has denied reports he presented Liz Truss and Kwasi Kwarteng with a paper suggesting scrapping the 45p top tax rate.
Say what? Day one of office, conservatives blame every deficiency of the nation -- real or imagined -- on the new leader, provided that leader is not their own.
Raging Bee says
@8: “This is a government that listens.” That’s not much different from Teresa May’s refrain of “We heard the people, we know the people want Brexit, and we’re all about giving the people what we heard them demand!” Then they spent WAY TOO MUCH TIME listening to a tiny sliver of their base, and that’s how they got Truss. So to that extent at least, that Tory twit wasn’t exactly lying — the Tories will do a lot of listening, and most likely not nearly enough LEADING.