The chancellor’s economic experiment will test the patience of his party and the markets
by 0 by 0 In the end, Kwasi Kwarteng’s statement indeed cost more than £2 billion a minute and turned politics on its head.
Threads that linked the three preceding Tory governments since 2010 were severed, while slogans, billboards and arguments about what it has meant in recent years to vote Conservative clattered into the waste bin.
The new approach by Liz Truss’s government is bold, controversial and will worry some on the government benches.
But today is too early to pass judgement – this is an experiment that will take months to measure.
Any outcome is now possible: petri dish economics outlined today could end as a colossal failure, with investors fleeing Britain amid spiralling toxic inequality.
But equally, the big new dividing lines set out today could trap opposition parties into making unpopular arguments about the politics of envy with little equivalent vision on growth and aspiration and no cash anyway to pay for their own plans. Today is not automatically a day for the Labour Party to cheer.
Perhaps fortune does favour the bold. For a decade, Truss has supported the opposite of the plan she authorised today as Tories came into Downing Street 12 and a half years ago promising to “share the proceeds of growth” among all sections of society, rejecting tax cuts funded by borrowing and worrying about the debt and deficit.
Tory orthodoxy, not Treasury orthodoxy, was the casualty in this statement. Today’s biggest immediate winners are the top 1% – the 660,000 people who earn more than £150,000 – who will now benefit by an average cut of £10,000 a year.
The tax cuts will do little to help those at the very bottom of society. The government is unafraid of the contrast that those in work on low incomes and Universal Credit are now facing being penalised if they don’t work harder, for more hours.
The Treasury simply did not publish an impact assessment of the measures on rich and poor, though they know others will.
And to pay for all of today’s plans, the Treasury has ordered an additional £72 billion of borrowing on the financial markets – markets whose concern was evident in currency charts and borrowing yield curves streaking red across TV screens and Bloomberg terminals.
Truss and Kwarteng hope they will win the argument with the public, providing a clear plan for growth that costs money to generate money and rewrites economic rules.
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It remains to be seen how Labour will respond, though they will have to work hard not just to sound like perpetual naysayers or to drown the public in complex plans about green jobs that do little to excite voters.
The biggest danger for Labour is they now spend conference week in Liverpool answering questions about which elements of the Truss plan they would adopt and which they oppose – once again effectively accepting the terrain in which the government wishes to fight rather than reframing the political debate in their favour, as Tony Blair did but Keir Starmer has from time to time struggled to do.
In fact, the success of this plan may not live or die in Parliamentary debates and TV studios. The sugar rush of today will quickly give way to the hard yards they now need to do.
The tax cuts may be imminent, but across-the-board attempts to slash rules will take primary legislation, with restive and uncertain Tories being asked to support things which never appeared in a manifesto across months and months.
The new investment zones will need new laws to make the tax changes happen, strike rule changes will need primary legislation, as do the plans to make infrastructure projects easier. In particular, it will be hard to convince Tory MPs to abandon their veto over unwanted local developments.
Meanwhile, all of this is being watched by the financial markets. They’ve seen the spending and initially appear unconvinced. But there will be no decisive decision on the future of UK PLC today or this week.
They will want to wait to see whether the whole package – the promised growth will follow, knowing it’s easy to announce borrowing-funded tax cuts but harder to overturn the longstanding NIMBY objections of Tory MPs to projects in their backyard. Patience is needed to evaluate the full impact of what happened today.
