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Farewell to Trussonomics

Hunt has bought the UK govt some breathing space; Truss shouldn’t squander what may be her last opportunity

Farewell to Trussonomics
Conservative Party had preferred Truss’ “boosterish” vision just a couple of months back.

A picture is indeed worth a thousand words: Television shots on Monday showed a pale and motionless Liz Truss in a brief Commons appearance, where she listened to the new chancellor Jeremy Hunt reading the last rites over her grand “long-term” economic plan that lived exactly three weeks and three days. Notwithstanding her apology to her countrymen for going “too far too fast,” Truss’ credibility has taken a massive knock after one of the biggest and swiftest U-turns in any country’s economic policy. Though it may not lead to her immediate exit from premiership despite noises to the contrary, it is unfortunate that the UK, which has been seeing bad politics so far (post-Brexit, two prime ministers have resigned), is now forced to see worse economics.

Her party colleague Robert Halfon has said Truss’ initial plans had made the government look like “libertarian jihadists” who had treated the whole country as laboratory mice on which to carry out ultra free market experiments. That is being hypocritical as Halfon, and his colleagues in the Conservative Party had preferred Truss’ “boosterish” vision just a couple of months back. Going by the challenges, it was obvious that Truss was barking up the wrong tree as the new government had no option but to increase spending in the short term because of the need to aid families hit with high energy bills stemming from Russia’s de facto natural gas embargo. But, rather than raising taxes to help cover this additional expense, Truss announced tax cuts, notably a big reduction in taxes on the highest earners.

Also Read: British PM Liz Truss says ‘sorry’ for mistakes, policy U-turns 

For the moment, Truss has been saved by Hunt, who has succeeded in ending the market turmoil that followed the mini-Budget. The chancellor has reversed most of the tax cuts and has also signalled plans for tax increases and public spending cuts in his fiscal statement due on October 31. It is a relief that the markets seem prepared to give the new chancellor a chance to turn back the clock—the pound rose, and government borrowing costs fell on Monday. Whether this will last is anybody’s guess, as question marks will remain until the chancellor outlines how he plans to cut government spending in order to plug the multi-billion pound budget shortfall, raising concerns about the prospect of a new era of austerity.

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That the uncertainty will continue is evident from a Financial Times report that the Bank of England is set to delay the sale of billions of pounds of government bonds in a bid to foster greater stability in gilt markets. The bank had already delayed the start of its sale of £838 billion of gilts bought under its quantitative easing (QE) programme from October 6 to the end of this month. It is now expected to bow to investor pressure for a further pause until the market becomes calmer. The BoE’s shift is set to put on hold the start of the UK’s unwinding of QE—a process other central banks have begun in order to reduce swollen balance sheets and increase their freedom of manoeuvre in any future monetary or financial crisis. Overall, one tends to agree with the view that it is still too soon to write the UK off. Jeremy Hunt has bought the embattled government some breathing space—Truss should not squander what may be her last opportunity.

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