News from nowhere: money worries

He is the third prime minister we have seen since the last election. He is the third prime minister we have seen this fall. The ruling party can’t blame anyone else for the economic pain it now feels compelled to impose on ordinary working people in an attempt to fix its own mess.

  • The fact is that the current government was put in power by – and includes key members of – the same political party that earlier this fall plunged the country into chaos.

Last Thursday, the UK government released its much-awaited autumn financial statements.

It was originally scheduled for late November in a bid to calm markets after the meltdown caused by the ill-advised “fiscal event” that Liz Truss imposed on the nation during her unprecedentedly short tenure as prime minister.

Truss’ chancellor has since revealed he urged her to ‘slow down’ – but not before her mini budget had already caused extraordinary economic chaos.

Despite his subsequent policy reversals and promises to balance the pounds, the markets had continued to panic and the value of the pound had continued to fall. And so Mrs. Truss had replaced her chancellor with a somewhat more reliable guy who had said he could get the job done by the end of October.

This had succeeded in calming the financial markets somewhat. They were then given a little more reassurance when Liz Truss was herself replaced in Downing Street by the conservative (and less obviously crazy) tax expert Rishi Sunak. However, Mr Sunak felt he needed a bit more time with his new chancellor to get the economy back on track and so delayed this latest budget statement for a further seventeen days.

At this point, the fluctuating dates of this announcement might have seemed almost as complicated as the budget figures involved, were it not for the fact that, at least in part due to the former prime minister’s eccentric economic background, The progress of the country’s finances had been so derailed that the Bank of England was forced to announce its biggest interest rate hike since 1989 and predicted the longest period of recession since records began. Indeed, earlier this month it was reported that in the third quarter of the year the UK economy contracted by 0.2%.

Then last week it was revealed that the prices of various popular branded food items – including that staple of the healthy British diet, Heinz tomato ketchup – had soared by more than fifty per cent in the last two years. Families struggling to keep their children warm and fed suddenly faced another indignity, which had a curious degree of emotional impact: they could no longer afford a dollop of red stuff, their latest taste of luxury, over their value range. , generic supermarket mixed meat sausages reduced to clear.

The day before the fall budget statement, the inflation rate topped eleven percent, hitting its highest rate in 41 years. The price of a pint of skimmed milk had risen by nearly forty-eight percent in just twelve months. On the same day, amid rising production costs and record cases of bird flu, several major retail chains announced they were rationing the number of eggs customers could buy.

At the height of the Covid-19 crisis, Rishi Sunak had, as chancellor, somehow managed to keep government bills going and kept the hand- the country’s workforce almost afloat (or at least ready to return to work) thanks to its furlough scheme – a mechanism by which the state has paid for the continued employment of those unable to work during these months of closure of non-essential services required by the pandemic.

It had even subsidized restaurant dining in a bid to boost the hospitality trade in the immediate wake of the first wave of the pandemic. For the Treasury, all this had required a Herculean effort, unprecedented in times of peace. He had put the nation in debt for generations to come. But, in the fall of 2022, thanks to a combination of outbreaks of war in Europe and madness in Downing Street, this time things were going to be really tough.

Mr Sunak had already overturned his short-lived predecessor’s plans for a massive program of unaffordable tax cuts. He now had to make what his government had repeatedly warned were “tasteful” decisions on tax hikes and spending cuts in public sector services.

This comes precisely at a time when these services are already in crisis, with health care and social services struggling to meet growing demands, and education facing rising costs due to runaway inflation, which which led the Headteachers’ Union to report this month that two-thirds of its members expected to have to cut teaching staff.

Everyone in the country, the government repeated in the days leading up to this week’s budget, should pay more taxes. No arguments. Done. Full stop.

Yet the strategy eventually chosen by Chancellor Jeremy Hunt was essentially to do nothing: or rather to do nothing in a very categorical way. He chose to freeze lower tax thresholds even as revenues are expected to rise, thereby ensuring higher proportions and levels of those revenues end up in the hands of the Treasury. He also froze inheritance tax thresholds and decided to limit long-term increases in public spending despite the huge increase in costs resulting from the highest inflation rates in decades.

The government is thus planning to plug a huge hole in its finances by raising revenue to the tune of £24 billion and cutting spending by £30 billion in real terms over the next few years (while protecting spending from public health and schools). Meanwhile, plans for state subsidies to social care costs have been put on hold for a few more years.

It also significantly raised the level of a one-off levy on the burgeoning profits of energy companies, originally introduced by the current prime minister when he was chancellor.

He raised the national living wage and increased social benefits and state pensions by the rate of inflation recorded last month. This is a surprisingly positive development, although inflation has risen further since then and looks set to continue to do so.

It also lowered the level at which the top income tax rate is paid, attracting several thousand top earners into that bracket, while leaving the top earners relatively unscathed (apart from reductions in dividend tax abatements and capital gains income).

Much of this may seem quite reasonable, at least by the standards set by the previous administration. It wasn’t a redistributive budget, but at least it didn’t try to channel wealth to the super-rich. There are, however, three main problems with the government’s fiscal strategy.

The first is that by increasing their investments in the exploitation of fossil fuels (contrary to the UK’s commitments to net zero carbon emissions), multinational oil companies have so far been able to activate sufficient tax relief to offset the vast majority of previous windfall levies. It remains to be seen whether they will be able to continue exploiting similar flaws.

The second is that doing nothing is not standing still. This requires scaling back efforts to ease the economic pain felt by millions of families facing massive increases in food prices and heating costs for their homes. Although these families, for example, will continue to receive assistance with their energy bills, this assistance will be rather less generous than before. One-off hardship payments will go to pensioners, disabled people and those on means-tested benefits, but many would say more action is needed. You can’t just walk on water when you’re hurtling down the rapids and you’re about to plunge into the rumbling abyss.

And the third problem is this: the nation’s financial difficulties have been both exposed and exacerbated by the brash actions of the previous Prime Minister and Chancellor who, just two months ago, panicked the markets and destroyed the economy with their own patently absurd budget plans.

It would be politically acceptable if the previous administration had been kicked out of Downing Street and replaced, with democratic sanction and the mandate of a general election. But the fact is that the current government was put in power by – and includes key members of – the same political party that earlier this fall plunged the country into chaos. Indeed, many senior civil servants appointed by ministers and cabinet members have retained their positions. Amazingly, the Home Secretary and Foreign Secretary who let Liz Truss get away with the craziest act of economic self-harm imaginable (unless they traded the gold stash for a hamster of company or to double the national debt to buy very good sweets) are still in Publish.

Never mind that last summer the current Prime Minister warned his party of the inevitable repercussions of his predecessor’s plans. What matters is that they were told that and elected her anyway – and many of them went on to serve and support her patently unworkable agenda.

He is the third prime minister we have seen since the last election. He is the third prime minister we have seen this fall. The ruling party can’t blame anyone else for the economic pain it now feels compelled to impose on ordinary working people in an attempt to fix its own mess. It’s hard to see how they could manage to shoot or survive this one. Yet they most likely will.

The sudden presence at the top of government of a well-mannered, composed, hard-working, conscientious and intelligent leader should certainly not be enough to get the Tories out of this predicament – ​​although it does obviously bring a welcome change. If Mr Sunak manages to pull off an economic miracle and somehow ease the pain that the British people are going to feel over the next two years, then he can successfully keep his party in power until the next scheduled elections. It is suspected, however, that the only way for him to achieve this would be to abandon most of them.

About Kristina McManus

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