Editor’s Note
There is a theory that the implosion of UK prime minister Liz Truss and her chancellor Kwasi Kwarteng had a lot to do with the death of Queen Elizabeth II. Truss and Kwarteng assumed their roles on September 6 and their monarch died two days later. That was the cue for 12 days of non-stop reflections on the queen’s life, taking everyone back yet again to the finest hour in the 1940s and reminding the English public of the glory years of Commonwealth. News helicopters tracked the King Charles motorcade from the airport into London city centre, and the city was awash with global leaders. Throw in extravagant and sombre fancy dress processions tied to centuries-old tradition, and people at the centre of this couldn’t help thinking, ‘Golly, England really is exceptional’.
Four days after the monarch’s burial, when the UK emerged from its trance, Kwarteng unleashed his growth budget. The centrepiece was an almost unlimited debt-funded energy price cap for consumers, and promises of tax cuts too, on the basis that trickle-down economics would grow the economy and eventually boost tax revenues. As we now know, Truss and Kwarteng acted totally irrationally. Within a month almost all their budget measures were dumped or modified, and the pair lost their jobs. It was if the PM and her finance minister convinced themselves that England is exceptional, that it can do what it wants, and that everyone would go along with it.
The unfortunate reality is that the UK is up to its eyes in debt and needs to tighten the belt, not loosen it. Debt interest spending in 2023 will be the highest relative to GDP in over two decades. Debt servicing is becoming a real issue for the Treasury because one-quarter of the UK’s sovereign debt is linked to the consumer price index. So when inflation goes up to the current 10.1%, the UK has to pay a lot more in debt servicing costs.
The proportion of index-linked sovereign debt in the UK is around twice as large as the second highest G7 country. One reason is that over the decades UK chancellors have obliged their chums in the City who run pension funds and love these debt instruments. Ironically, it was the earthquake that rippled across UK pension funds after the mini-budget that did for the Tory new broom.
New PM Rishi Sunak understood all this when campaigning for hearts and minds in the Tory leadership contest. The shires preferred the Truss exceptional messaging, and now Sunak is left to pick up the pieces.