October 17th 2022.
It’s been a while since my last letter as I have been laid low with non-covid Covid. All the benefits and symptoms but with negative tests. This is apparently a not uncommon occurrence in parts of the country. The remedy recommended was the same as it has always been for mystery viruses – lots of bed rest and peace and quiet, the worst thing being that it just seems to linger. Anyway, it compelled me to sit out Hurricane Liz until it blew itself out and I could give a considered, rational view of events in the United Kingdom. Oh, to Hell with it!! She’s screwed the country, wrecked its economy destroyed the Conservative brand and made them unelectable in just three weeks. This is a talent that should not go unrecognised.
At face value, she is to be applauded for a bold, expansionist view and going for growth, rather than doing the traditional thing and instituting an austerity regime. As a well-trained (but non-academic) observer with 2 postgraduate business degrees (with distinction) and a doctorate, researching financial systems and development in least developed countries I can understand what she was trying to achieve. She was going to fund the tax cuts etc with borrowed money (non-conservative approach) and pay for it by growth in GDP and a resulting higher tax take, thus in theory balancing the books.
Unfortunately, she made a complete pig’s ear of the implementation. Probably through a combination of hubris, arrogance, inexperience and incompetence, although she was previously a treasury minister. The first move that Truss and Kwasi Kwarteng did was to remove the most senior civil servant at the Treasury, Tom Scholar, from his position. The reason? He was allegedly obstructive and too wedded to the concept of cake sharing rather than cake growing and would be a blockage in their vision of growing the economy.
The rollout of the vision was a complete fiasco. They did not get the PR done properly, they didn’t get the optics right, they didn’t refer the plans to the OBR (Office of Budget Responsibility) they introduced a tax reduction from 45% to 40% for the higher-paid (£150,000 + pa) without explaining why and they abolished the ban on bonuses in the banking industry.
All this, as part of a race for growth made economic sense, but it wasn’t sold or explained to the public and the finance industry. Backup figures and costings weren’t supplied and they tried to bulldoze the measures through. Of course, it bombed with the result that the exchange rate on the US$ fell to $1.01 to the Pound, and interest rates were raised.
On October 5th in an average of the polls, Labour was on 49% support and the Conservatives on 26%. This would all but wipe out the Conservative party in Parliament and put enormous pressure on the Union, giving encouragement to the Scottish Nationalists.
Truss (Leeds secondary and Oxford) and Kwarteng (Eton and Oxford) thought that as natural leaders, all they had to do was command and things would happen because of their superior intellect. Cameron, (Eton and Oxford), Johnson (Eton and Oxford) also displayed similar traits. Well, they forgot to do the groundwork, get stakeholders on board soften up the public by judicious leaking of proposals and obtaining independent, auditable assessments of the proposals. By their furtive actions and deferring OBR (Office of Budget Responsibility) audits until late November they spooked the bond markets, the Forex markets, the credit agencies etc. They also ruined the relationship between the (supposedly) independent Bank of England and the Treasury.
So, on Thursday last week, Truss recalled Kwarteng from Washington and on his arrival back in the UK on Friday, sacked him as Chancellor. In a totally unexpected move, she appointed Jeremy Hunt as Chancellor. For some reason, Hunt gets poor press but he has always seemed competent. He has been Foreign Secretary and for many years an underrated health secretary. He does, however, display a solid, competent face to the world at large.
He immediately reversed most of the proposals of the Truss/Kwarteng mini-budget and since his appointment, the pound has stabilised, the banks have started talking to him and he has rebuilt relations with the Bank of England. He gave a solid performance in the House of Commons today and answered all the questions honestly and with competence ( I know, I couldn’t believe it either!!). He was on top of his brief and was solid and reassuring.
He should be well received internationally and already we are seeing favourable signs from the markets.
Unfortunately, the latest poll results released today show support for Labour on 56%, Conservatives 20% and Scottish Nationalists 11%. Because of the constituencies and the fact that the SNP support is concentrated in Scotland, this would result in the second largest party in the Commons being the SNP who would have more seats than the Conservatives. It really does get more like Alice in Wonderland here.