UNITED KINGDOM: British Prime Minister Elizabeth Truss has landed herself in hot waters after her finance chief Kwasi Kwarteng was sacked over his disastrous formulation of a new economic plan, which unleashed powerful, dormant forces in the global markets, threatened to impose unfunded tax cuts and energy subsidies.
Kwarteng’s economic agenda focusing on restructuring the struggling economy, which adhered to Truss’s ideals as portrayed in her election trail, prompted the central bank to intervene and prevent the collapse of the British pension system.
Truss’s track record is now in question as her faulty decisions have garnered the wrath of the British people and some of her own colleagues in the Tory party, who now demand her resignation.
Below are the details of Truss’s somewhat disastrous first month at 10 Downing Street
Delving deeper into her election promises and how they have panned out, in comparison to her predecessor’s equally problematic and tumultuous term in office.
Liz Truss’s election campaign was most vocal about fissures in the economic machinery that needed mending. Her lavish promises of unfunded tax cuts and energy subsidies (during an energy crisis) backfired on her when pension funds had to sell their gilts to meet margin calls on long-term interest rate swaps. The selling then pushed the fund’s hedges even further beyond the market, requiring more margin and more liquidations.
The operation of the Bank of England (BoE) is still ongoing, with a total cost of 65 billion pounds. Even if it succeeds, the government’s haphazard, tone-deaf approach to business has all but destroyed its credibility with financial markets.
Truss inherited a crumbling economy no doubt, with a number of acute short-term problems like soaring energy bills, raging inflation and other equally acute long-term dilemmas like the pandemic stasis, low productivity and growth, the lack of access to neighbouring markets due to Brexit, need to transition into net zero carbon emissions and so on.
Her main task at hand was to mitigate the most chronic failures and urgent emergencies in the system while gradually moving towards solving longer-term ones.
Instead, in a thinly veiled attempt to boost the economy just enough for Truss to live until the next election in 2024, Truss and Kwarteng conjured up out of thin air nearly £100 billion in tax cuts and energy subsidies.
The country was understandably outraged by the generous tax cuts for the 2% earners when British people are struggling to buy food and heating. Truss then announced a withdrawal of the previous plan, sowing confusion and discontent over her skewed plans to either reduce public spending or impose the tax cuts. The pound continues to languish in Truss’s term, hurting importers and consumers alike.
Short-term market rates have risen in response to expectations that the Bank of England will have to raise interest rates more aggressively and more quickly than it would otherwise. This will ensure that whatever benefit voters and businesses received from their tax cuts is offset by higher mortgage and credit card payments.
However, the Prime Minister’s newly-appointed chancellor, Jeremy Hunt, has outlined a fresh, new economic plan that has given confidence to financial markets, who are now welcoming the prospect of changes as the sterling gained 1% against the dollar to trade around $1.13 in morning trading.
Now as per Truss’s economic agenda as portrayed on her campaign trail, her central argument is that tax is a drag on growth. Giving tax benefits would result in greater consumer spending and investment, pumping more money into the economy for greater economic activity and a general increase in prosperity.
“I believe that viewing everything through the lens of redistribution is incorrect because what I’m about is growing the economy, and growing the economy benefits everyone,” the UK leader added.
What is intriguing about Truss’ position is Is her primary focus on development? Because, for all that Truss is branded as the continuity candidate, her economic philosophy appears to be diametrically opposed to Boris Johnson’s.
Her predecessor, Boris Johnson’s economic ideas are on a different plane altogether, since he possessed none; no prime minister since Tony Blair has matched his lack of interest in economics.
Here’s Johnson in March 2021, laying out a “growth strategy”. He stated that over the past few decades, London and the South East have experienced growing affluence, but the rest of the UK has not seen corresponding gains. He also added that the government’s top priority is to fix it.
In that sense, Johnson’s ideologies seem to align with Theresa May; he realised that the Conservatives’ economic and political mission was thus to deliver a different kind of economy in which growth benefits everyone – and everyone feels the benefits of growth.
His agenda was to spend more and sometimes tax more to deliver services and other things in places such as the southeast of England, where the benefits of economic growth were sometimes hard to feel.
Perhaps another peculiar line of similarity between the two Conservative leaders is their penchant for rousing drama and scandals.
Johnson was forced to prematurely abdicate his premiership over the infamous Partygate Scandal during the highly-sensitive years of 2020 and 2021, when COVID-19 was at its peak, with almost the entirety of England under strict lockdown.
Johnson’s involvement in hosting and celebrating over drinks at those forbidden parties while several active lockdowns in the country were in place, was the ultimate nail in his political career’s coffin. Ultimately, his political stasis was initiated when he was forced to resign in July 2022 following intense backlash and criticism from party members, the British populace and international media alike.
Meanwhile, present Conservative leader Truss is no great shape either, with a flurry of controversies and scandals lining her political career. A leaked audio recording, indicating Truss was then a chief secretary to the Treasury till 2019, portrayed Truss as public enemy no. 1, who claimed that British workers lacked the “skills and application” of foreign rivals.
Her controversial remarks echo a problematic passage about British workers being the “worst idlers in the world” in the book Britannia Unchained, which she co-authored in 2012 as a new backbencher looking to make a name for herself as a neo-Thatcherite.
Despite her new chancellor Jeremy Hunt’s efforts to amend the crumbling economy by lifting the sterling without threatening the global markets or sabotaging the livelihood of the British population, Truss cannot heave a sigh of relief.
The Tories are now calling for her head following her catastrophic start to her premiership. The foggy and damp British air is now thick with rumours about her possible resignation in the midst of intense backlash over her faulty management and execution of an economic plan.
At least 50 per cent of Tory MPs must then vote “no confidence” in a ballot for a PM to lose. A leadership contest would then start.
Truss’s leadership is now in jeopardy, even as Hunt’s scrapping of all previous government budgets shows hope for the British economy. There is ample time to mend mistakes, but difficult for a country’s people to trust a leader they voted in, to fail so early into her premiership. The world stage now waits with bated breath as Truss attempts to regain the trust of her people.