Liz Truss blunders on with her economic plans (Picture: 10 Downing Street)
Liz Truss emerged from hiding on Thursday morning to tell a series of local radio interviews that she was blundering on with her economic plans despite the carnage they had caused.
A sell-off driving down the value of the pound and government bonds resumed as she spoke.
The day before the Tories had nearly brought down the pension industry. Facing mass collapse, the Bank of England suddenly announced that it would buy £65 billion of government bonds—money which essentially it was just printing.
Such sums are not available for workers’ wages, key services or people who are terrified they can’t pay their bills.
The bank had warned on Wednesday of a “material risk to UK financial stability” sparked by chancellor Kwasi Kwarteng’s plan for tax cuts for the rich funded by borrowing.
“At some point this morning I was worried this was the beginning of the end,” a top London-based banker told the Financial Times newspaper. He added, in a reference to the 2008 banking collapse, that at one point on Wednesday morning, “It was not quite a Lehman moment. But it got close.”
The latest crisis followed the plunge in the value of the pound against other currencies.
That led to a fall in the price of gilts—government bonds that deliver interest payments to their holders. Pension funds often buy gilts as an investment.
As the price fell, it mean pension funds had short-term problems in meeting their payments. This then meant they sold more gilts, which pushed prices even lower.
The most directly affected groups were final-salary pension schemes that have used complex methods to ensure they can make future payments. These so-called liability-driven investment strategies that are very sensitive to fast-moving gilt yields.
So the Bank of England restarted the money presses.
Throughout her campaign for the Tory leadership, Truss blamed the banks’ “quantitative easing” programme—which involved printing money to purchase £875 billion of government bonds to fatten banks and corporations’ profits—for causing inflation. Now there’s another £65 billion of handouts.
It’s all easy to watch the three-cornered fight between the government, the Bank of England and financial markets with amazement and, perhaps, relish.
But these moves have horrific effects for ordinary people. The rising interest rates mean spiralling mortgage costs. Many people will be hundreds of pounds a month worse off and face deep poverty or eviction.
Landlords will transfer the costs to their tenants, meaning rent rises and people turfed on to the streets.
To protect profits some firms will slash jobs. Other “zombie companies” that have survived the financial crisis and the pandemic because of cheap loans will now go under, again massacring jobs.
In her interviews on Thursday, Truss was unable to say when the “growth” she has promised will actually happen.
Truss was also asked on BBC Radio Nottingham whether she was pursuing a “reverse Robin Hood” after cutting the top 45p rate of tax for higher earners. “That simply isn’t true,” she said.
But her actions would make the Sherriff of Nottingham blush. Someone grabbing £1 million a year is £55,000 a year better off as a result of the mini-budget. Nearly everyone else is worse off.
Truss also lied that “nobody is paying fuel bills of more than £2,500” this winter. Bills are not capped —people who use more energy than the average pay more. That includes large families and those disabled people who may need more heat and extra power to run medical equipment.
Hours before Truss’s media round, her Chief Secretary to the Treasury Chris Philp refused to promise a scheduled rise in benefits of about 10 percent will still happen next April.
Benefits and pensions were both due to rise by this September’s CPI inflation figure—after going up by only 3 percent this year, a big real-terms cut. But Philp said, “I am not going to make policy commitments on live TV, it is going to be considered in the normal way.”
On 23 November Kwarteng is supposed to lay out a “medium-term fiscal plan”, although the date may have to be brought forward. To satisfy the markets and save the pound, he is near-certain to say he is balancing the books by funding the tax cuts for the rich and the corporations through massive spending cuts. He will also continue with savage assaults on wages.
And part of that strategy is new anti-union laws, designed to weaken workers’ resistance and provide a rallying point for the Tories.
Workers must not be spectators of capitalist chaos that ends up with ordinary people paying the bills—again.
The strikes and protests on Saturday have to be the beginning of far greater resistance.
A staffing crisis in the NHS
Health workers set to strike across four Manchester hospitals
Bus workers rejected an offer and came back out
