Truss’ ideals crashing the economy
‘‘THE Queen’s final act of service to the nation was to selflessly buy the economy one last fortnight,’’ said one tweet, when all four wheels finally came off the British economy.
The Queen’s death and funeral took up the first 12 days of Liz Truss’ tenure, so the new prime minister’s work of destruction could not get properly under way until last Friday. Then, however, Truss and her faithful sidekick Kwasi Kwarteng, the new Chancellor of the Exchequer (finance minister), got to work with amazing speed.
Kwarteng’s ‘‘miniBudget’’ on Friday was a suicide note that virtually guarantees defeat for the Conservative Party at the next election, two years from now. There is growing doubt that Truss’ government can even survive that long.
She is the fourth Conservative prime minister in the past six years, and at each turn of the wheel, the party she currently leads has grown more mutinous. Moreover, it did not choose her as its leader.
That choice was made not by her fellow Conservative members of parliament, but by the party’s 160,000 paidup members, who tend to be old, white, nonurban and very ideological.
What drew them to her was her fanatical devotion to the cause of lower taxes and a smaller state, as exemplified in a book she and Kwarteng coauthored ten years ago called Britannia Unchained.
So as soon as the Queen’s obsequies were safely past, she and Kwarteng gave them what they longed for: a Budget that is the political equivalent of assetstripping. It contains unfunded tax cuts, mostly to the benefit of the rich, of around £50 billion (about $NZ100 billion) a year.
Where will the money come from to make up the lost tax income, plus an extra £65 billion to help voters cover horrendously high energy costs this winter due to the Russian invasion of Ukraine?
Why, they’ll just borrow it all. All that extra spending will allegedly boost the growth rate of the British economy from an average of 1.5% a year to 2.5%, and the extra tax revenue will easily cover that.
At least that’s what Liz Truss believes, in the firm belief that she is walking in the footsteps of her heroine, sainted former prime minister Margaret Thatcher. She is not.
The Blessed Margaret cut taxes, but she also cut government spending. The TrussKwarteng partnership is spending like a drunken sailor on shore leave. It’s not ‘‘Britannia unchained’’; it’s ‘‘Britannia unhinged’’.
Nobody believes this will work except a few rightwing thinktanks that try to justify low taxes for the rich by touting the old ‘‘trickledown’’ model, also known as the ‘‘horse and sparrow’’ theory: feed the horses enough oats, and eventually there will be lots of horsepoop for the sparrows to eat.
The sad news for Truss and Kwarteng is that the ‘‘free market’’ they so revere isn’t stupid. The value of the British pound is already collapsing. Former US Treasury secretary Larry Summers says: ‘‘My guess is that the pound will find its way below parity with both the dollar and the euro.’’
Meanwhile, investors look at Truss and Kwarteng’s business model, do the math, and flee.
In the words of UBS Global Wealth Management chief economist Paul Donovan, they now see the Conservative Party as a ‘‘doomsday cult’’.
And as interest rates soar to fight runaway inflation, millions of Britons find they cannot afford to pay their mortgages. The poor cannot even afford to feed their children. The strikes and protests proliferate.
It’s probably around this time — midwinter, say — that the next rebellion occurs in the Conservatives’ parliamentary party. However, changing horses would make little difference unless the policy changes. It wouldn’t.
The next prime minister would be chosen by the same tiny band of Conservative Party members, no matter who the MPs want — and the members’ mindset favours the ideological purist over the pragmatic realist. As one MP said: ‘‘You can have as many leadership elections as you like. You are only going to end up with the nutter winning.’’
The International Monetary Fund (IMF) has already issued its first warning to the United Kingdom to get its house in order. Larry Summers accuses the British government of ‘‘behaving like an emerging market turning itself into a submerging market’’, but Truss is not shifting.
It’s a bit like the slowmotion car crash that brought the Sri Lankan government and economy down, which took more than six months from start to finish. Liz Truss’ government will not last a year, and the Conservative Party may then split, leading to an early election (due anyway by 2024).
The Labour Party is already 17 points ahead in the polls, and its lead may even widen. It will be a wild ride, but the next British government will be led by Labour, which will rapidly reverse everything that Truss aspires to do.
TODAY is Monday, October 3, the 276th day of 2022. There are 89 days left in the year. Highlights in history on this date:
1574 — William of Orange raises the Siege of Leiden in the Netherlands.
1739 — The Treaty of Nissa is signed by the Ottoman Empire and Russia, ending the RussoTurkish War of 173539.
1824 — A republican constitution is adopted in Mexico. Until then it was an empire.
1849 — American author Edgar Allan Poe is found delirious in a gutter in Baltimore, Maryland, under mysterious circumstances. It is the last time he is seen in public before his death on October 7, aged 40.
1863 — United States president Abraham Lincoln issues a proclamation designating the last Thursday in November as Thanksgiving Day.
1864 — Wellington is chosen as the seat of government in New Zealand.
1888 — The New Zealand Native team plays its first game in Great Britain, against Surrey. The privately organised rugby team is the first national team to wear the silver fern. During a tour lasting a little over a year, the team tours New Zealand,
Australia and the British Isles, playing 107 games of rugby, eight of Australian Rules and two soccer matches; explorer Fridtjof Nansen and his team complete the first known crossing of the Greenland interior when they arrive in Godthaab.
1908 — McLeod Brothers Soap Works in Cumberland St is extensively damaged by fire.
1918 — Reports emerge in Auckland that a deadly influenza is becoming well established; a German Austrian note is sent to the US via Switzerland calling for an armistice in World War 1.
1922 — The first facsimile photo is sent over city telephone lines, in Washington, DC.
1929 — The name of the SerboCroatSlovene kingdom is changed to
Yugoslavia.
1941 — Germany’s Adolf Hitler announces that the Soviet Union has been defeated in World War 2 and never will rise again; the aerosol can is patented in the US by L.D. Goodhue and W.N. Sullivan.
1948 — Blue Smoke, with vocals by Pixie Williams, is the first New Zealandmade record.
1976 — Bishop Abel Muzorewa returns to Rhodesia after two years in exile in Tanzania.
1977 — Indian former prime minister
Indira Gandhi is arrested in New Delhi on two charges of corruption while in office. She is released a day later.
1981 — Irish nationalists at the Maze Prison near Belfast, Northern Ireland, end seven months of hunger strikes, which had claimed 10 lives.
1990 — East and West Germany are reunited. The West German flag is raised above the Brandenburg Gate on the stroke of midnight.
1995 — The O.J. Simpson trial ends with the former American football star controversially being acquitted of murdering his wife and her male friend. In 1997, he is found guilty in a civil lawsuit.
2005 — Designed for the thousands of New Zealanders who tinker in their sheds or garages, the first issue of The Shed magazine is published. Within the magazine’s first decade, a copy of the first edition fetches $75 at a secondhand sale.
2012 — KiwiRail confirms it will not reopen the Napier to Gisborne line after large portions of the line were destroyed by slips and flooding in March, deeming repairs too costly on a line that is unprofitable.