Jeremy Hunt “courageously” stepped into the breach, playing his new chancellor “can’t be sacked” card to unwind the illiteracy of Trussonomics, but he can’t wipe away the indelible stain it’s left on the economic outlook for the nation. He clearly upset Truss - No 10 started actively briefing against him almost from the start. The only Truss “policy” to survive was the removal of the banker bonus cap… Why? Did his scriptwriter miss it? Hunt, and many traditional, orthodox Tories, believe Truss and Kwarteng failed because they didn’t balance the budget, thus upsetting the markets. That’s a massive mistake. Take your pick of the many reasons markets lost confidence in them: • Markets sold off because the mini-budget was chaotic and dangerously ill-informed. • Markets sold off because it was patently unfair and regressive. • Markets sold off not just because there were unfunded spending plans, but because the proposed tax cuts blithely assumed “trickle-down” economics would up UK growth by 2% per annum. • Markets sold off because there was no clarity or vision of the policies to drive growth. The new problem is Hunt has ditched Truss’s growth plans and presented a new mini-statement committing the UK to financial conservatism – effectively switching policy from Growth to Austerity. Hunt and the rest of his party have hunkered down, convinced the only way to restore the financial stability of the UK is to address the £70 bn hole in the accounts (they created) is tax hikes and spending cuts. Austerity is never a route to growth. One of my chums is fellow Scotsman Professor Mark Blyth, Rhodes Professor of International Economics at Brown University. His 2013 book, Austerity: The History of a Dangerous Idea, picks apart the notion of austerity will boost growth by slashing debt. “In general, the deployment of austerity as an economic policy has been as effective in bringing us peace, prosperity, and crucially, a sustained reduction of debt, as the Mongol Golden Horde was in furthering the development of Olympic dressage.” Blyth goes on to show how Austerity doesn’t work, it increases inequality, and it can’t work in a competitive global economy where prices and currencies are volatile. He asks: “Is everybody supposed to run current account surpluses? If so, with whom—Martians? And if everybody does indeed try to run a savings surplus, what else can be the outcome but a permanent global depression?” I spoke to Mark following Hunt’s statement and his disbelief was palatable: “The UK’s growth model, such as it was, was built around asset protection for the south and nationalism for the north. When you can’t even do the asset protection right anymore, what’s the point? And if you think further cuts to a welfare state that is already one of the worst in the OECD will bring back growth I would ask you to look at what happened the last time you tried this with Osborne for a bit of a reality check. Benefit Street and ’strivers vs skivers’ makes for good tabloid headlines but does nothing for GVA (Gross Value Added).” Yet cutting debt and services provided by Big Government is default libertarian conservatism and will appeal to all 81326 party members who voted for Truss as Prime Minister of the UK. They may be happy. The rest of us are not. 12 years is a long, long time in politics. Time for a change. Finance Monthly. Fron t Cove r Fea t ur e 11
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