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Video Editors: Pawan Chauhan, Abhishek Sharma
The United Kingdom’s economy was left in disarray after Prime Minister Liz Truss and her chancellor of the exchequer, Kwasi Kwarteng, announced a £45 billion tax cuts package as part of the new Conservative government's "Growth Plan."
Following the announcement, the pound collapsed and the London stock market, Financial Times Stock Exchange (FTSE), also called Footsie, went into free fall.
Kwarteng was later forced to reverse part of the tax cuts, announcing that the government would not go ahead with the abolition the 45 percent top tax rate for high earners. The 45 percent tax rate was to be abolished from 6 April 2023, according to Truss-Kwarteng's "Growth Plan."
While some hoped that the consequences would also be reversed to some extent, the damage was already done.
Crashing Pound: Following the announcement of the tax plan, the British Pound sterling fell to unprecedented lows, subsequently gaining a few points.
Inflation slows, prices rise: Despite a small Inflation drop in August, consumer prices are still rising at the fastest pace in 40 years.
High Interest Rates: On 22 September, the Bank of England raised the key borrowing rate and tried to keep high inflation further from the UK’s economy.
Soaring Energy Bills: Gas and electric charges for the average household are set to increase by 80 percent, stoking inflation and squeezing pockets
Worried Investors: Financial markets remain in a spiral over the unease over the UK’s economic outlook. The government plan to freeze energy bills and cut taxes is not easing concerns.
Soon after coming to power, Truss and Kwarteng announced extra borrowing for tax cuts, they sacked the Treasury’s top bureaucrat, and have insisted that they will continue on the same path despite a hostile market reaction.
Subsequently, bond prices collapsed, sending borrowing costs to all time highs, and spooked investors sold off British assets worth $500 billion.
The British financial markets were already febrile because of the rising risk of a global recession and the three outsized rate increases as US banks aim to fight rising inflation.
But there’s one man who can brag and say, 'I told you so.’ Truss’ main rival for the PM post – Rishi Sunak.
Early in his contest with Truss, former Chancellor of the Exchequer Rishi Sunak had made it clear that he was against tax cuts. He even predicted the impact of Liz Truss’ tax-cutting plans.
On the other hand, PM Liz Truss said:
But in reality, the UK economy reacted poorly to Truss' tax cuts, and followed the same course as per Rishi Sunak's predictions.
Here's what Truss and Sunak respectively said when they was discussing the viability of her proposed tax changes before the election:
Rishi Sunak was proved right after projections from international financial institutions showed that under the proposed changes and the reactions to the announcement, the British economy was indeed headed for a recession.
But Rishi Sunak had denounced Truss’ economic policy-making methods, or ‘Trussonomics’ for months before the election but he was dismissed as a pessimist, and in some cases, had to face severe criticism.
Despite the criticism, Sunak doubled down on his warnings and reminded Truss that cutting taxes for the ultra-wealthy would be a "huge mistake."
While Sunak made no public statement on the impact of Truss’s policies, the UK's current financial woes are Sunak's 'I told you so' moment.
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