FANCY FINANCIAL FOOTWORK

 

Very quickly, amid great national turmoil, Liz Truss has had to get her government together, decide on her priorities and make an impression on financial and political markets.

Truss and Kwarteng (in prudently protective gear!)

 A comprehensive Energy Protection package for businesses of all kinds was announced on 21 September, organized by Jacob Rees-Mogg.. The “fiscal event”, not a budget, was duly unveiled on 23 September by the new Chancellor Kwasi Kwarteng. It was intended to:

(1)    Reinstate some promises Boris and Rishi Sunak had broken (e.g. abolition of the 45% top rate of tax, halting a rise in corporation tax),

(2)    Open up the UK economy from ingrained restrictions, sacrificing some equality for incentives to business and workers (removing the cap on bankers’ bonuses, reforming IR35, easing of planning restrictions, reducing income tax)

(3)    Reassure UK and overseas markets that the UK was an attractive business-friendly place to invest in and make profits.

Although delivered with some aplomb and confidence, the reception of this package was hostile and questioning, the exchange rate nosedived and gilt yields rocketed. Partly this was a revival of historic bad memories – the Tory “dash for growth” by Anthony Barber in 1970 under Heath ended in dust and ashes. Many worried that there were contradictions in the package – how could large tax cuts be made, which would be inflationary, when inflation was already alarmingly high? Where were the revenue rises or spending cuts to pay for it all? Short and long-term issues were being confused.

Unluckily for the government, this brouhaha arose as the Labour Party was ending its annual Conference and every loony Leftie in the land was in insurrectionary Liverpool, hogging the cameras of a compliant media. Keir Starmer put on his responsible face and claimed Liz Truss had “lost control” and he was the man to sort it out. (The world knows that Labour could not run a whelk-stall.) Somehow Conference was persuaded to sing God save the King at the start (unconvincingly) but was much surer when singing The Red Flag at the end. Of course, once a Commie…………

The venal British media joined the noisy chorus. All the doom-mongers, all those with a grudge against Truss, all the residual Remoaners, all the half-baked “experts” crawled from under their stones and spat out their bile. Even my Telegraph descended into incoherence in describing the dilemma of the Bank of England as it rushed to buy long gilts:

The contagion risks of margin calls, caused by higher gilt yields, meant that a reflexive negative feedback loop into falling UK asset prices had become too high, risking a doom loop. (Is this plain English, editor?)

 

Anyhow, I gather this intervention steadied the market on 28 September and the Bank rather than the unrepentant Government blinked first. We do not need dramatics – we want expansionary policies introduced competently. Our political world calls out for bright new ideas, out-of-the-box thinking and above all the courage to face down the dead-beats of the establishment and the leaden weight of the past.

Go to it Liz, Kwasi and Jacob!

 

SMD

28.09.22

Text copyright © Sidney Donald 2022