Truss is trying to look like there is a chance of avoiding a catastrophe, turning the wheel this way and that but with little effect. The plan - according to The Sunday Times anyway - is to kick off four days of furious activity from Wednesday with Kwarteng delivering his economic plan sometime on Friday. As I posted on here a couple of days ago, keep an eye on the pound. Plenty of commentators are talking about the recent precipitous fall in Sterling to a 37 year low, fuelling inflation by making imports more expensive and I don’t think it has reached the bottom yet.
Kwarteng seems to have swanned into The Treasury and sacked Tom Scholar, the well respected permanent secretary, within an hour. It is hardly calculated to boost the new chancellor's standing in The City, with international investors or with the rest of civil service in and out of The Treasury. There are claims that it was Truss’ doing after her stint as chief secretary to The Treasury when she ‘took against’ Scholar. If so, it’s even worse.
There is also a report about Kwarteng demanding twice weekly visits from Bank of England governor Andrew Bailey, undermining the very idea of him being independent of government. The foreign exchange markets, already jittery, will take a dim view of that.
The ST say the government is ‘worried’ about the pound and so they should be, but they’re acting as if their actions somehow don’t matter. They are making a very bad situation even worse.
Truss is being warned of mass bankruptcies unless businesses get immediate help with soaring energy bills with some suggesting its already too late.
It looks as if her government is going for broke with all sorts of wild policies being floated including a lower rate of income tax for workers in freeport areas. This is in addition to lower business taxes. As far as I can see there is zero evidence any of this will work and certainly not in the short term. If I was an international investor I would want a steady hand on the tiller not someone who is switching everything on in a flat panic to see if it helps.
Truss is hell bent of pushing the NI Protocol Bill through parliament which will do nothing for the economy except risk further damage by provoking a trade was with our largest overseas market. It is madness and all done simply to satisfy her ERG backers and the DUP.
Those of us of a certain age will remember the 'Barber boom' of the early seventies when Heath and his chancellor Anthony Barber made another 'dash for growth' by artificially pumping up the British economy. I was a young sales support engineer at the time and remember discussing with a friend how well things were going with new orders flooding in. It was I am afraid very short lived.
Barber tried a lot of experimental monetary and fiscal policies aimed at driving growth to 10 per cent over two years, about double the economy’s long term productive potential. Barber cut income tax, overhauled the old purchase tax and introduced VAT.
At the same time he liberalised the banking system and bank lending soared with the money supply rising rapidly, all intended to break out of the cycle of 'stagflation' that had trouble the British economy for years. It didn't work. Inflation really took off and Labour came in in 1974 facing massive economic problems which forced Denis Healey to ask the IMF for a loan to tide us over. What a humiliation that was. We are now in the process of repeating all of the same mistakes.
Britain's economy has usually grown at a pedestrian rate of about 2-2.5 per cent a year on average. This is apparently 2 per cent for organic growth and 0.5 per cent due to a rising population. But now, economists expect the UK workforce to shrink by 0.1 per cent - due, as we know, to Brexit. That is a 0.6 per cent cut before you start.
This is in addition to making trade with our wealthy neighbours more difficult for purely ideological reasons.
There is zero coherence to any of the government's economic plans. They want to steer things in one direction even as they swing the wheel in the opposite direction. People notice. We are relying on strangers to keep us going but unless they have confidence we are able to exert a degree of rational control over the money they have loaned us, they will stop lending.
When this happens the pound will sink and Truss will be toast. It won't be too long.
