Less than a month into her time in office, Liz Truss has managed to turn an economic crisis into a catastrophe, with serious damage to the country’s reputation and future prospects, a massive hit to people’s pockets, and an unexpected turnaround in Labour’s electoral prospects. We now learn that on the evening of his budget announcement, even after learning of the markets’ reaction, Mr Kwarteng was celebrating with city speculators who had become even richer by betting on a falling pound, and more than one of whom later branded him “a useful idiot”. Neither PM nor chancellor have shown any sign of contrition. The temptation to write to a hypothetical Tory MP is virtually irresistible.
Letter to a Tory MP
“If the facts change I change my mind, what do you do?” is what John Maynard Keynes allegedly and very wisely said. This is a good time to reflect on that.
It is clear that the recent “mini budget” has been massively disruptive to the UK economy. The pound lost 10% of its value against the dollar in a matter of days. We are now hearing unprecedented criticism of this change in policy direction from the IMF, from the former Governor of the Bank of England, Mark Carney, and from Moody’s, who have revised their projections to predict an even more disastrous recession in this country. Every single person whose assets are held in pounds is 10% poorer than they were a month ago. Mortgages will be more expensive and more difficult to obtain. There has been a flight of capital out of the UK, which it would be difficult if not impossible to reverse. Inflation has been accelerated. It is difficult to express in words the level of pain which ordinary people are experiencing or expecting from the combination of rapidly rising prices, higher interest rates and endangered pensions. And now they are being told that the only way to make good the damage is to inflict cuts on the services they will be receiving.
As you know, Friday week’s decisions were made without any input from the OBR, whose views will not be heard for another eight weeks: that to my mind resembles having an MOT after the car has crashed. You will be aware of the departure of Tom Scholar, a highly respected and experienced civil servant who would undoubtedly have wished to make it clear to his political masters that their policy is the diametrical opposite of what the country needed. And of course from a party political perspective abolishing the 45% tax rate is not only deeply regressive and favourable to only a tiny minority of the country’s population, but it is an extremely bad look and will severely damage the party in future elections (now YouGov is giving Labour an unprecedented 33% lead). Even committed Conservative voters will be alarmed because they wish to adhere to the party’s long standing commitment to sound money and the avoidance of uncosted borrowing. Very few members of the public believe that they will ever see any of the money spent on enriching the top 1% of earners. They know this money is more likely to be invested abroad than spent in the public interest. After all, government policy is making the UK a much less attractive investment prospect.
The Chancellor’s justification is based on a theory of trickledown economics which as you know has long been discredited. I am aware that you yourself supported Rishi Sunak and would undoubtedly have agreed with his strongly expressed view that this was “fantasy economics”. I imagine that you would also have agreed with Michael Gove that it is a “holiday from reality”. Indeed it must be both difficult and painful for any Tory MP to speak or vote for an approach which a few months ago the entire party agreed in condemning.
In her repeated and humiliating local radio interviews Ms Truss, who was clearly out of both her depth and her comfort zone, not only harmed herself but further harmed the economy by doubling down on policies which she must by now be inwardly regretting. That was not enough: she damaged her reputation even further by providing wrong information even when in her comfort zone, ie the fuel price cap. She declared that no household would have to pay more than £2500 – this is the cap on average payments, not the maximum for all. It is entirely inevitable, and I would say reasonable, that critics will accuse her of either lying or of having completely misunderstood the basic facts. In this respect many of us hoped for something better than her predecessor but we are learning that we are getting more of the same.
The PM has repeatedly been asked whether the consequences of Friday week’s actions had been anticipated, as was Chris Philp on the BBC Today programme. In both cases no answer was forthcoming. If the Government admits that the catastrophic consequences were foreseeable then we have a right to know why we were not warned and how it could defend actions which it knew to be so profoundly damaging. If it denies it then it is showing a singular lack of preparation and competence, and an inability to listen to the many warnings which were given. If this is the case it must adopt Keynes’ advice and admit that a change of direction is required.
You and your fellow MPs now have the opportunity to speak out at Conference and point out these obvious facts, of which I have no doubt you are already well aware. You also have the opportunity in Parliament to oppose the new policy root and branch. I very much hope that you will do so.
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