When Boris Johnson resigned her successor, Liz Truss, elected in the September primaries with a anti-tax program and far to the right, surprised by stating that the dream of Brexit was near and that Great Britain would be a great Singapore. The recipe, infallible, was the extreme neoliberal of his Minister of Finance Kwasi Kwarteng. A large tax cut of 45,000 million pounds to the wealthiest that would recover investment, employment and growth.
The deficit thus generated would be financed by debt because Britain was solvent, liberal markets and growth would eventually kill the deficit. It was an autumn binge. The pound plummeted, British bonds rose to a 1.8-point spread over the French, and panic ensued. Kwarteng was fired and Liz Truss had to name Jeremy Hunt, a party moderate. But it was not enough and Truss resigned on October 20. The new primaries were won by Rishi Sunak, a billionaire of Indian origin who was already an orthodox candidate against Truss and formerly Johnson’s finance minister, whom he accused, helping his downfall, of making impossible economic promises.
Sunak confirmed Hunt and on Thursday they presented a plan that is the complete opposite of Truss and Kwarteng’s. A crazy £45bn tax cut is succeeded by a maximum austerity plan of 55,000 million (63,000 in euros): of new taxes of 25,000 million (not only to the richest) and of 30,000 million of cuts of expenses. The plan is for 5 years. but many taxes go up immediately and the most striking thing is that the maximum income of 45%, which Truss was going to abolish and which was paid by those who earned 150,000 pounds, not only remains, but will affect those over 125,000.
In eight weeks Britain has turned its life plan inside out like a sock. Let’s point out some causes. The markets do not buy ideas but solvency and Kwarteng’s plan was leaking. Cutting taxes sharply would fuel inflation, which is already over 11%, just when the Bank of England had to raise interest rates to combat it. A contradiction. And public debt will reach 97% of GDP. Those were the true facts while the promised growth was only a wish to be verified.
Therein lies one of the reasons for the rectification why Great Britain has had to embark on a horse austerity when its GDP will fall by 1.4% in 2023. Although Sunak and Hunt are concerned about social balance, they know that they have elections at the end of 2024 and that Labor will He is 20 points ahead today. That’s why they bet on the public healthcare (very damaged) and teaching. And pensions will rise with inflation.
But the big question is why Britain has to go into austerity when GDP falls while euro countries try to fight recession with public spending. The Truss program sank the confidence of the markets and now we have to recover it. Furthermore, the Bank of England is only that of one country while the ECB is that of 19 countries with a combined GDP and much higher power. That is why Spain with 113% public debt and Italy with almost 150% have more margin.
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And behind the swerves of economic policy is the big mistake of Brexit that has generated great political instability. In six years, since Brexit, Britain has had five prime ministers (Cameron, May, Johnson, Truss and Sunak), the same number as in the previous 37 years. In June 2016, 51.9% of the British voted in favor of Brexit. Today, according to the last solvent survey, only 32%, against 56%, believe that the decision was correct.
Parliamentarianism was born in medieval Britain, then built a great empire and was the leading economic power throughout the 19th century, until the world war of 1914. But imperial nostalgia and exacerbated and uninformed nationalism, who thought they could leave the EU to regain their freedom from Brussels, have ended up weakening it. And today the great concern of the new prime minister is that his economic plan, despite the fact that it will not be popular, is approved by the divided and wayward conservative deputies. Otherwise…