In September 2022 a new Conservative government led by Liz Truss embarked on a new path for economic policy, ostensibly challenging “Treasury orthodoxy”, leaving aside the fact that they never defined what Treasury orthodoxy was. The initiative did not start well! Chancellor Kwarteng’s statement in the UK parliament on Friday, September 23rd led to a run on the pound Sterling. The Bank of England then intervened by buying UK government bonds, with the bond market already experiencing depressed prices, linked to the US Federal Reserve’s aggressive increasing of interest rates. The BoE intervention had little to do with supporting sterling (see next section). It was to to protect the potential insolvency of some pension funds. A problem that had nothing to do with the Chancellor’s statement.
The media, political commentators, and so-called economic and financial experts were guilty of substantial distortion of the content of the Kwarteng’s proposals. There was much tendentious discuss of whether the previously suggested £30 billion “headroom” in the public finances had suddenly become a £70 billion “hole”. These figures are unreliable different estimates that can be adjusted over short time periods. The media discussion concentrated on the announced tax cuts, rather than the less well-defined measures to increase economic growth. In fact, the major public finance impact was the cost of the Truss promise to cap energy bills for two years. Precipitate and ill-prepared though the Kwarteng announcement on September 24th may have been, it perhaps did not deserve the calumny that was heaped upon it.
The purpose of this paper is first to examine how far the Truss administration was really challenging UK neoliberal, austerity economic orthodoxy; second to suggest that the Sunak/Hunt government’s return formally to this orthodoxy, and to the “balanced budgeting” approach that will impose short and medium-term social hardship and further economic damage, and third to suggest that a more radical and effective transformation of the UK’s economic fortunes, taking account also of global factors, is certainly required.
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