A new policy

Binoy Kampmark
Wednesday, Sep 28, 2022

It’s impossible to know whether the new British Prime Minister is genuinely serious about constructive policy or not. She is certainly interested in greasing palms and calming the storms, if only to delay the inevitable. Having proven herself the shallowest of candidates to succeed her disgraced, not wholly banished predecessor, Liz Truss has leapt into economic policy as her starting point.

Kwasi Kwarteng, the newly minted Chancellor of the Exchequer, has given us a sense of what Trussonomics looks like in his ‘mini budget’ announced on September 23. In line with this new policy, undertaken at a time of stroppily rising inflation (currently 9.9 per cent), more fiscal stimulus is promised: GBP30 billion per year (or 1.2 per cent of GDP), and mammoth subsidies to soften energy bills with costs that could rise to GBP150 billion.

Cuts have been promised across the board, from income tax to stamp duty on home purchases. The 45 per cent additional rate of income tax for those earning above GBP150,000 will be scrapped, leaving the rate of 40 per cent for those having incomes above GBP50,271. A cut in the basic rate of income tax from 20 per cent to 19 per cent will be brought forward to April 2023. Corporation tax would remain at 19 per cent, and not increased to 25 per cent as had been initially planned.

High tax rates, the Chancellor claimed in a Commons statement, “damage Britain’s competitiveness”. The focus, instead, should be on growth. “For too long in this country, we have indulged in a fight over redistribution. Now, we need to focus on growth, not just how we tax and spend.” It was time to get away from the “vicious cycle of stagnation” and focus, instead on “a virtuous circle of growth”.

This is a curious statement, given that virtue here will only shine upon those on the wealthy scale, who will be receiving twice as much aid in softening their living costs as the poorest. Companies, notably oil and gas entities, will also continue to rake in staggering profits without fear of windfall taxation.

While one should never treat the markets as omniscient, there was something ironic in how Kwarteng’s announcement was greeted in an environment of high natural gas prices, sluggish growth and labour shortages. The sacred British pound received a terrible battering, falling to a 37-year low against the US dollar. Government bonds were sold off at a rate unseen since 1989, when the Tory heroine, Margaret Thatcher, was still clinging to power.

Another feature of the new policy is that old neoliberal favourite, deregulation. This is hardly surprising, given that two authors of the 2012 tribute to the free market, Britannia Unchained, now occupy the posts of prime minister and chancellor.

Having witnessed the vicious effects of an unregulated financial sector – think the Great Financial Crisis, subprime mortgages, vigilante banks – Truss is putting economic history to one side.

Excerpted: ‘The Rise of Trussonomics’.