The two are not mutually exclusive. Iâm not overly bothered as to whether Johnson and now Truss are so supportive of Ukraine because they think it makes them look good. Iâm just pleased that theyâve committed the UK to supporting Ukraine to such a significant degree.
Is she though? Have the rags turned in her yet? Torygraph is still publishing that shitstain Bluntâs lies that the remainers are responsible for the pound losing value, all the while ensuring he extracts maximum value from the situation and at the same time provide downward pressure on the Sterling.
so in laymens termsâŠ
what has she actually done that is so damning?
its hard to imagine shes managed to do anything so negative or positive in such a short time to affect the economy to such a degree?..
dumb it down for me can you, to a level for a stupid aussie who cant even be arsed about his own countries politics?
Listen, Iâm glad that the Tories are for once being called out, especiallyâŠfinallyâŠby BBC affiliates across the board, but why wasnât there this pressure when 200,000 of our fellow countrywomen and men were killed due to our extremely poor response to COVID? Do peopleâs bank accounts need to be affected for them to give a fuck?
BorrowingâŠheavilyâŠat a time when we shouldnât be borrowing.
Thatâs not the problem.
The problem is that sheâs borrowing heavily to fund tax cuts for the wealthy, which has been shown time and time again will not stimulate the economy in any way.
The resulting maths of this suggests that this is a massive debt increase (long-term, meaning that any supposed economic growth and subsequent increase in tax receipts will not cover the shortfall that it creates), one that is almost fatal to the financial stability of the UK.
EDITED TO ADD:
If one was to perhaps borrow heavily to invest in infrastructure that would yield returns to improve the supply side, then one would argue itâs the right thing to do right now since the inflation was started by supply-side issues. When you have an overheating economy you either damp the demand or you increase the supply. This does neither.
And of course, this is a very rough overview, itâs not even targeted in any meaningful way. Itâs just âletâs give money away to the rich and let the younger/poorer people deal with the problems in the futureâ.
Someone else can correct me if Iâm wrong, but itâs not meaningfully small-c conservative in any way, unless your main goal is to collapse basically most government functions as they exist today by creating a need to take an axe to government expenditure a la drown the government in the bathtub.
Is that causing the market reaction? The 45% top rate cut accounts for âonlyâ ÂŁ6B of the target cuts.
In Aussie parlance, sheâs fucked it, mate.
(Google âHow Kwasi Kwartengâs mini-Budget broke the UK bond marketâ and click on the FT link from there)
But in any case, youâre right in the narrow sense that specifically only the cap on banker bonuses and getting rid of the highest tax bracket affect the wealthy directly (Iâd love to see what the justification for either of those are).
However, in a narrow sense, nearly every single analysis suggests that the less well-off will see almost no benefit from these plans, while the rich stand to benefit by thousands, if not millions.
Sheâs also axing the corporation tax increase, the economic result of which is debatable, but I recall seeing an analysis that most of the time, any such savings get passed on directly to shareholders anyway. So weâre looking at people with the capital to benefit from such things, which are hardly your average person on the street. One could argue that pension funds will benefit from this, which is true, but at the same time, the already wealthy are disproportionately better positioned to benefit from this.
What if Truss and Kami had instead kept the 45% rate in place, and the ÂŁ6B that was to be spent on that cut was instead given as a tax cut across the entire working population, would the markets have reacted the same? Better? Would this cut be conducive to growth any better than the 45% cut?
just to clarify
âfucked it right upâ
or just
âfucked itâ
The analysis I saw that that if you are on ÂŁ20k a year, you will be about ÂŁ3 a week better off. If you earn a million, you will be about ÂŁ1,000 a week better off.
Basically Truss and Kwarteng are following one of these paths.
One path is that they are low tax ideologues who genuinely believe in the kind of trickle down economics that this is based in. The idea that giving lots of money to rich people in the hope that they will use this money to stimulate the economy and improve the lot of poor people is now so hopelessly discredited it should not have ever been on the table. If Kwuss really do think this is the best way to grow the economy, then thatâs a big problem.
The second path is a bit more sinister, but assumes that Truss and Kwarteng know exactly what they are doing, and under no illusions that any of this money is trickling down to the rest of the country. But they press ahead anyway because they are beholden not to the public, but to the elite financial interests that shape so much public policy. These interests fund their campaigns, look after them in office, and then employ them when they leave (like they have Cameron). Some people will have made a lot of money betting against the pound, as they do whenever there is a shock to the economy.
It might even be a combination of the two, where Kwuss are just too thick to understand how they are being manipulated. On her radio rounds this morning Truss seemed like a deer in the headlights, totally unprepared for what hit her.
Perhaps the reaction might have been better, but youâre right that in isolation it might not matter that much.
Definitely would have been better for growth by putting the money into the pockets of people who would spend it (in large part because on the lower end, incomes are already tight enough as they are with the inflation environment), although itâs arguable that the BoE would take steps to tamp down demand anyway.
The larger giveaways taxation-wise in terms of total amounts are the NI increase reversal, accounting for ÂŁ15b of the deficit, which disproportionately affects middle-to-higher income earners. The same goes for the 1pp income tax cut, which accounts for ÂŁ2b. The IR35 changes again affect mainly middle-to-higher income earners at a cost of ÂŁ2b, and the cancellation of the corporation tax increase accounts for ÂŁ18b.
I think the bigger issue is still that theyâre trying to fund the expenditure for the energy price cap through borrowing and fantasy-world tax cuts that they think will stimulate the economy, that wonât.
Undoubtedly. Youâre describing a form of quantitive easing, and not much different to what Brown did to shore up the markets in response to the crash.
Essentially, I think what the markets have reacted to is the UK robbing its own economy of liquidity.
The reason why trickle-down does not work is obvious when you think about it. Itâs giving people who are already wealthy enough to pretty much do whatever they want, and expecting them to react to extra cash by spending it. Nobody who is on 500k a year is going to get an extra ÂŁ500 a week in tax cuts, and think âfinally I can buy that iPad Iâve always wantedâŠâ
When already wealthy people get more cash they generally offshore it. It ends up in hedge funds and and investments that have absolutely no benefit to the UK. If they do spend it, it tend to be on high end luxury items from abroad that again yield little benefit to the UK.
This is borne out by analysis of fiscal multiplication of government spending (basically an ROI) that show consistently that tax cuts for wealthy people returns only something like 0.2-0.3 for every pound. The country loses money. If you contrast this with policy aimed at putting money into the pockets of poorer people that multiplication rate soars to 2 and above. By the way, by far the most profitable way for public money to be spent is flood defence. It returns something mad like 8:1. Flood defence spending has been slashed by the Tories.
So in short, if you want to stimulate the economy, get money into the hands of the people who will actually spend it, and keep it away from people who will just squirrel it away in the Cayman Islands.
This is a double whammy, as not only have the government funnelled a load of money towards wealthy people, but they have borrowed the money to do so. Itâs like taking out a bank loan to go on the piss - itâs reckless irresponsible.
I have absolutely no problem with borrowing, as long as that spending is targeted on activity that has that stimulates growth. Borrowing to invest in schools, or hospitals, on infrastructure is a problem. But borrowing with the end result that the money exits the UK economy and has no stimulating effect is absolute insanity. Weâve just taken put a huge loan and effectively given the money away. That is what the markets have responded to.
A bit of both. Wrecking the fiscal stability of the country is the main thing. Doing so for tax cuts that almost no one believes will lead to meaningful increased growth is just another layer. Notably, when the increase in spending needed to face up to the energy crisis was announced, sterling barely moved. What that really points to is the complete loss of confidence in the British government, and the accompanying expectation that monetary and fiscal policy will be working at cross purposes.
In short, what has been called a MRP.
Moron Risk Premium
I was delighted to learn that this term is actually used in finance.
Apologies if this has ever come up before, but has the UK considered reviving the economy by joining a large economic and political consortium of countries nearby, say in Europe?