The Sunday Times has got it in for Truss and Kwarteng this week. Some shocking revelations are coming out that Kwarteng went to a champagne reception after his mini-budget and met with various hedge fund managers at the Chelsea house of Andrew Law, a financier and Tory party donor, on Friday evening 23 September. They egged him on and he then talked over the weekend about more tax cuts to come. On Monday when the pound collapsed many of the people at the meeting made fortunes. Kwarteng has been described by some City figures as a "useful idiot."
I should remind you at this point I'm talking about the UK's Chancellor of the Exchequer here.
It sounds a lot like insider trading to me. I seem to remember Hugh Dalton was forced to resign as Chancellor in 1947 when he spoke to a journalist before giving his budget speech in the House and some tax changes were printed in the evening papers before he had finished speaking, and while the stock market was still trading. Times change, eh?
The optics look terrible because he is talking about £40 billion of spending cuts to convince the financial markets that he can finance the extra £72 billion of borrowing, part of which is going to fund a tax cut for people earning over £150K a year!
The mini-budget forced the Bank of England to take action — at a cost of £65 billion over the next two weeks — to buy long-dated gilts and prevent a meltdown in the UK pensions sector. Someone at the drinks party said Kwarteng seemed surprised by the reaction of the markets on Friday, saying: “I think maybe he didn’t see it coming.”
The LibDems have called for an enquiry and at the very least it shows an incredible naivety on his part. Kwarteng is supposed to be exceptionally clever, a Ph.D., multi-lingual and so on but on this showing, he looks really stupid. What did he think they were going to do with this inside information?
A second article by Tim Shipman is even worse. It is being claimed that Truss and Kwarteng were warned about the reaction expected by the financial markets by all and sundry but chose to ignore it.
"'Senior Treasury officials made clear there was a big risk,' a senior Tory said. 'The cabinet secretary [Simon Case] made it clear that there was a huge risk. You can do what you said in the leadership election — reverse the national insurance rise and stop the corporation tax rise — but once you get into further tax cuts you have to have someone mark your homework.'
"Far from deterred, Truss seems to have fed off the prospect of negative fallout, using it as evidence that the establishment would always fight real economic radicalism. 'She was told, ‘Don’t do this, no one will like it.’ And her attitude was basically, ‘I don’t care.” Downing Street sources do not confirm this form of words but agree Truss’s attitude was that the economy would have to weather an initial period of turbulence."
"Upon learning what was intended, a very senior civil servant declared privately: 'She is completely mad.' A senior figure at the Treasury called the decision to scrap the top rate of tax in a cost-of-living crisis 'f***ing insane,' the day before the budget. Another said the unfunded tax cuts were 'what Venezuela does."
Kwarteng was even warned about getting the markets on their side by Truss' own economics adviser Gerard Lyons, who apparently contacted Downing Street on the Monday before the budget after speaking to hedge fund managers. Lyons, who is one of the few Brexiteer economists, warned about the febrile state of the markets and told the chancellor to not spook them, to keep them onside by outlining clear fiscal principles and to address their concerns.
Kwarteng ignored it and one ally even said he hadn't read Lyons’s memo, although The ST understands he replied to it. It is sheer arrogance about their own abilities.
One of the ways they hope to reassure the markets that there is a viable plan is by announcing spending cuts. Kwarteng and his chief secretary, Chris Philp, lie Batman and Robin are now circulating letters to cabinet ministers demanding £40 billion in “efficiency savings”. This is after 12 years of austerity when every penny that can be cut has already been cut. It's like asking a starving man to cut back on food.
There is a Twitter thread by a local government researcher at the Bennett Institute for Public Policy, University of Cambridge, Jack Shaw, about what has been happening to council services as they are hit by huge rises in energy costs and inflation generally:
Councils are reducing services, putting on hold capital investment + making employees redundant in order to tackle (a) rising inflation (b) energy costs, and (c) demand pressures on services arising from the cost-of-living crisis.I'll update this thread with case studies:— Jack Shaw (@JackTShaw) September 30, 2022
It is a shocking list of hollowed-out local authorities with projects being delayed or canceled after 12 years of painful cuts to budgets. They are struggling to make ends meet, battling against rising prices that they never expected, and are now told to find more efficiency savings. The same will apply to education, the police (when did you last see a policeman?), the justice system, and even health.
Simon Clarke MP, the minister for leveling up (the irony!) says there will have to be significant cuts in public spending, arguing that for too long the West has lived in a “fool’s paradise”.
Voters in 2016 were told Brexit would allow Britain to "prosper like never before" (B. Johnson) if they voted to leave the EU. They did. Britain left, and economic growth has stalled which means government spending has outpaced growth, taking up a larger and larger percentage of GDP.
Under those circumstances, perhaps the government has no option but to reduce spending but this is NOT what people were led to believe. We could try to rejoin the single market and the customs union which would solve a lot of problems at a stroke (including in NI) but this is anathema to them. They would rather inflict more misery on millions of ordinary folks who are struggling to pay for food, shelter, and heating - the most basic things for human existence.
If growth doesn't get kick-started - and there is little evidence it will - the next step will be further cuts to public expenditure and we will be into a serious spiral of decline.
They really did not need to cut taxes for the wealthiest either. It is insane but thankfully also political suicide.
One anonymous Tory MP said it took seven months to get rid of Johnson but it will take seven weeks to dump Truss. She will be gone by Christmas.
