The IMF issued this statement last night:
Moody's rating agency did, two hours later, threaten to downgrade the UK's credit rating.
The Bank of England had already indicated that very large increases in UK interest rates are now likely in November.
Mainstream media are now reporting that the cost of mortgages will increase by the sort of sums I have been suggesting for a while and that 2 million households might be hit by these increases in the next year when they will very clearly not be able to afford them in most cases.
The reality of the mess we are in is dawning, and all of it because Truss and Kwarteng have set us on what is very obviously an unsustainable and utterly irresponsible economic path which was not the choice of the people of the country or even of Torty MPs, but of the Tory membership.
I have one simple question that follows on from this, given the scale of this crisis so early in the premiership of an unelected leader of the UK, and that is can Trss survive this? Remember that to do so she must have the support of the House of Commons. That is the essential quality that determines who can lead the country. Usually this is easy to work out because the leader of the largest party usually has an overall majority in the UK's rigged electoral system.
But Truss was elected with the support of less than a third of Tory MPs.
There is no guarantee she has the support of most of those MPs now.
The chance that she can get policies through the House to continue on the course she has set when it is already so glaringly obviously disastrous is very low.
So can she be prime minister? I candidly doubt it.
I gather that George Canning was the prime minister with the shortest ever term, of just 119 days. But he died in office. Truss could take his record. Why would Tory MPs want to support this disaster knowing that whatever happens now many of them will be losing their jobs at the next election?
I am sincerely hoping that Truss does not last, for the sake of the people of this country.
And what then? The country needs government more than it needs an election at this precise moment. So I would hope that a very short-term minority government, probably on a cross-party basis, could be put in place to enact measures to stabilise the economy before an election. But we need that election after that. And we need it to be a truly radical government, committed to real reforms, enlightened economics and the green agenda.
Maybe I am too optimistic. But I have to live in hope when for many Truss is destroying it. This country needs enlightened thinking to get us out of this mess. Will it get it? Who knows?
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
I suppose Truss just needs the support of her own MP’s given the majority the Tories hold.
Maybe the choice for Tory MP’s is simple, support Truss and vote through her legislation or a General Election and leave Government given that Labour have such a lead in the polls.
There can’t be another leadership race surely (?) Months of effectively no government while internal selections and elections take place would be catastrophic.
Could forcing her to do a complete U-turn work ? Or is the damage done too late to save her ? Would sacking Kwarteng and a reversal of policy be enough ?
Goodness, this situation is both horrifying and compelling
Truss could be replaced overnight. The lengthy “Leadership election”, nearly three times as long as a General Election, was just a giant PR con trick designed to make the British people forget the previous 12 years of disaster and try and make them believe it was nothing to do with Truss.
Adding to the bizarre nature of the process was an obviously dying Queen.
It is not hard to imagine that Elizabeth Windsor was determined to see off the Prime Ministership of Johnson, after all who wants a moral cesspit reading a lesson at their funeral, but what were the Tories hoping to get out of it?
This has all been quite remarkable. I’m sure you will approve of this
https://www.huffingtonpost.co.uk/entry/david-blanchflower-truss-kwarteng-raging-incompetence_uk_63333440e4b0b7f89f3a49fc?fbclid=IwAR0P8Rsm_AUe2HfV5HqEkdcEaz36rgLJscdFJ-5zj1qd0mqp71PTJto88Wc
I do
This is easily worked out. If your estimates are right (and they seem to have been ‘ahead of the game’), then someone with a typical mortgage would pay £6,000 more in mortgage interest per annum (p.a.). The 1% reduction in income tax will give an offset to the mortgage increase of between circa £350 (c£20k p.a. income) to circa £1,000 (c£40k p.a. income). That leaves borrowers with a mere £5,000-£5,650 shortfall to find. The average gain for UK tax payers across the earning spectrum is £170. However, if you earn somewhere around £160,000 then the shortfall is covered. That’ll fix it! What’s not to like?
I am pointing toward how we need to look at effects. My calculations are both hastily worked and very rough, so by all means pile in if I am way off beam. It all helps understanding.
You are definitely in the right range
I should clarify: the £170 tax benefit across the income spectrum is a UK Government figure – “31 million taxpayers will benefit from this policy in 2023-24, with an average gain of £170” (https://www.gov.uk/government/publications/the-growth-plan-2022-factsheet-on-income-tax/income-tax-factsheet). So the mortgage holders among that 31m taxpayers, will broadly be facing an income shortfall of something upwards of £5,870. What’s not to like?
If the rumour mill is to be believed, then the first letters of no confidence in Truss were received after just 19 days in office. That she has also failed to elicit a poll bounce as is usual for a new PM (or party leader) also bodes ill for her continued residency in Downing Street. This is meant to be her honeymoon period. That neither Truss nor Kwarteng appear to possess sufficient knowledge of economics to scrape a pass at A-level appears to be increasingly obvious among the more recent Tory converts further damaging support for the Conservative Party. Their plan (from what I have been able to reason) appears to be a short-term attempt to spend big and butter-up the electorate in the hope of regaining sufficient support that Truss could hold an early GE in order to gain the mandate she so desperately needs. It might be fanciful of me but I thought Truss was aiming for a May election in the hope of repeating the success of her hero Thatcher – something that the Tory faithful and media would zealously pick-up on and uncritically lap-up. Considering just how dire the national situation has become I wouldn’t be at all surprised that she does lose the confidence of enough Tory MPs that her government falls even if only to save their own hides and preserve as much support as they can amongst their own base for future elections. It is also conceivable that the Tories are quite happy to endure a term or two of Starmer’s safely unambitious reheated New Labour to put their own house in order while allowing their rivals to deal with the fallout from their greed and ineptitude. Considering their previous form, Tory ministers would also likely take this opportunity to try and tar their successors with being responsible for the nation’s current woes. They have form for this behaviour and wouldn’t be the first instance of them attempting to re-write history using this ploy.
Will we get radical reforms and enlightened thinking? Not without many lengthy bouts of grudge match style conflicts and there’s no guarantee of winning such necessary changes any time in the near future. The atmosphere of political debate is still choked with too much emotion and too little reason for policies of pragmatism and compassion to quickly be accepted and implemented in the Commons or mass media. Your mention of hope (and optimism) Richard is a timely reminder that it is the fuel of progress and needs to be generated in profusion and shared generously.
How much knowledge or economics, or experience of business, do Truss or Kwarteng have?
Apparently she studied Maths and Further Maths (and presumably one or two other subjects) at A-level, and then PPE at Oxford, but PPE is a broad church, and she may have steered more towards the philosophy or politics than the economics. She is a chartered accountant (CIMA) and worked at Shell and then Cable & Wireless from 1996 to 2005. And then she spent time at a think tank before becoming an MP in 2010. But that sounds like a reasonable background – maths, economics, accountant, working in business for almost a decade.
Kwarteng was at Eton, and then studied history and then classics at Cambridge. He completed a PhD on “The political thought of the recoinage crisis of 1695–7”. Isacc Newton was brought in as Master of the Mint in an attempt to crack down on clipping and forgery, and the sale of silver coins as bullion because the metal was worth more than the face value. He worked as a financial analyst in the City, and has written, for example, “War and Gold” which the Guardian described in 2014 as: “This clever history of capital and its speculators weighs the enduring ability of money to ruin” societyhttps://www.theguardian.com/books/2014/may/12/war-gold-500-year-history-study-money-society-kwarteng-review
That review concludes “Kwarteng might not know how to stabilise a financial system that floats on credit, but he certainly understands the forces and the mistakes that have led to that destabilisation.” Ha ha ha.
Both of course contributed to “Britannia Unchained”, published in 2012, with some others you may have heard of – Priti Patel, Dominic Raab, and Chris Skidmore. They have been playing a clever game, with someone in each of the opposing Tory camps.
Very amusing on Kwarteng
Both think they are very clever
Kwarteng has written a history of money, ‘War and Gold’ (2015), which I confess I spent little time reading when I came across it; the book seemed to me to focus on gold, but entirely missed the crucial British use (and wholesale dependence on very high levels) of Debt to build and hold the Empire (and even to change the whole focus and direction of imperial effort in a sprawling world empire). I confess I dealt with the book very hastily as rather superficial (so if someone wishes to make a serious case for the book, go ahead).
What men like Walpole said, and what they did; what Britain believed about debt, and what it actually did, to survive and prosper from the late 17th century to the modern world: were quite distinct, and far more often, completely contradictory. Comparing the widespread British political dogma of eliminating the national debt, and Britain’s consistent actual practice in pursuit of economic and imperial powe,r are so far apart Britain seems to have functioned like two different countries, in two different worlds; one ‘conscious’ and debt adverse; the other largely ‘unconscious’ and committed wholelsale in the use of debt, establishing itself as the world’s first ‘modern’ reserve currency, and the dominant world financial power.
From a modern perspective, for someone with political aspirations, who may become Chancellor, Kwarteng would have been better spending more time historically focused on tally-sticks and Exchange Alley if he had wished to understand what was happening.
Your response frames their actions as being even more conceited and mendacious than even I had considered before – and I wouldn’t have described my level of confidence in any Tory minister to act in good faith using positive terminology. Reading through that old Gaurdian article was actually quite chilling. Its not often that I discover myself to hold an insufficiently cynical opinion of the Tories. Apparently every day is a school day.
Thanks for the post Andrew.
Truss is simply increasing the rate of decline in the UK. The UK credit rating has been reduced several times since 2012, so it’s a much more systemic problem than what’s happening just now. Brexit of course was a huge red flag, but that was swamped by the lies that are now coming home to roost, as they inevitably were always going to.
Aa3 stable 16 Oct 2020
Aa2 neg 8 Nov 2019
Aa2 stable 22 Sep 2017
Aa1 neg 24 Jun 2016
Aa1 stable 22 Feb 2013
Aaa neg 13 Feb 2012
Aaa stable 31 Mar 1978
The UK balance of payments has likewise being going south for decades, with the latest quarterly figures due out on Sep 30th. This is maybe the biggest of all red flags that the UK is and has been in serious economic trouble for decades. Despite this, the UK still shows no sign of accepting this reality and therefore it looks as if until it does, the economic (and inevitable) social decline will simply continue no matter who is in charge in Westminster.
https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/timeseries/hbop/pnbp
Thanks
For people who worry about these things, Moody’s rating of Aa3 is three rungs below a prime triple-A rating, which the UK had until 2013.
From the top rating, Moody’s scale goes Aaa, Aa1, Aa2, Aa3. The next three rungs are A1, A2 and A3. Then – still so-called “investment” grades – are Baa1, Baa2, Baa3. And then you hit junk at Ba1. So the UK still has a long way to slide.
But to put this in context, UK government debt ranks below the US, Germany, France, Australia and Canada, and on a level with Belgium, Hong Kong, Qatar, and Taiwan. Most individual most US states have a higher rating. Only Illinois and New Jersey are lower.
I would like to agree wholeheartedly, but there is a Juvenal maxim from his Satires that I can never quite allow myself to forget, and serves very, very well: Quis custodiet ipsos custodes? Roughly transposed as – Who guards the guards?
The Ratings Agencies lost me quite decisively in 2007-8. What have they done to earn redemption now, pray tell?
The uncomfortable truth may turn out to be that Truss might be able to survive because she is the leader of the Tory party and not the Labour party (or any other).
It’s all based on a common and wide spread mistaken belief that if you are affluent/ the establishment and /or have power, you must be extremely clever and are assumed to be capable to govern.
This post Thatcherite belief completely ignores the fact that most of this wealth is either sought for self interested reasons or by means that could be considered criminal or seditious and is sometimes just that which has been passed on to lesser offspring if the wealthy – lightly taxed of course – rather than being earned.
In other words, we worship wealth and the social status it brings a little too much unfortunately.
A Labour Government at this stage would be in the throes of being hounded out of office.
We now have John Redwood on Radio 5 Live criticising; not the Government, but the BofE for its interest rate policy effect on mortgage holders. He wants the BofE to change interest rate policy because of the effect on mortgages (or rather because it clashes with Government policy now).
Redwood’s Diary Blog (27th September, 2022) begins with this headline: “We all believe in an independent Central Bank”. He then goes on to turn this assertion inside out in a Delphic spin that allows him both to believe in central bank independence, and not cbelieve in entral bank independence, simultaneously. Independence doesn’t mean independence: “he independence of the Bank of England is widely asserted and almost universally applauded. Let me begin before I am condemned for views I do not hold, by saying I do support the Bank of England continuing to have the important independent power to fix and change short term interest rates by setting an official influential Base rate. The wider problem is money policy (anti inflation policy) is about much more than just fixing the short term official rate. In most of the other areas that matter the Bank is not independent.” This is Redwood Speak. Make it up as you toddle along.
In effect, aside from having it both ways (as Neoliberals always do when they are in a muddled bind) Redwood is conceding what you have always argued, Richard; the BofE isn’t “really” independent. Redwood is playing a baffled public for fools; now you see it (BofE independence); now you don’t. The problem is, Redwood never figured out that the phony independence granted the BofE would ever lead to a critical policy clash from which there is no escape from it being very publicly obvious to absolutely everyone. This is all supposed to happen without anyone noticing. He is trying to turn this into substance by his standard intellectual trope: creating a solution that is a bottle of smoke.
This is a man who supported austerity, claimed it didn’t fix the deficit (which was true), but went on backing a Conservative Government that delivered austerity, didn’t effectively eliminate the deficit, didn’t reduce the “debt mountain” (Redwood’s term), and didn’t produce economic growth or productivity, or prosperity either. They reduced Britiain’s economy to inertia and stagnation 2010-2022; an economy and financial position worse able to cope with the next international crisis (which duly and not entirely unpredictably in the form of Brexit, Covid, Putin, and Conservative self-inflicted stupidity – again) The Government failed disatrously, both the country, and its own objectives. Redwood backed the Conservatives anyway, and backs it now.
The northern Ireland protocol is still being dealt with as well. Silence after the announcement besides “we’ll explain in 2 months” isn’t helping things either.
The federal reserve is destroying America’s economy, although in a different way. So I guess truss figured why not do what everyone else is doing.
Maybe this will end up being a good thing in the end. By doing so much damage, folks may finally vote different