By Isabella Troia
The new government under Truss is facing extreme criticism and continued doubt from not only citizens but by the International Monetary Fund, the Bank of England, and the media.
Following the resignation of Boris Johnson, The Conservative Party elected Truss to be the new parliamentary leader. This transition of power came at a time of uncertainty, with the Queen’s death, inflation rising to 10%, and energy bills soaring due to the crisis resulting from the Ukraine-Russia war. Truss’ victory will carry on the 12-year reign of power for the Conservative Party despite long-standing negative public perception.
On Sept. 6, following her oath to the Crown, Truss made a speech outside her new office at 10 Downing Street.
“I will deal with the energy crisis caused by Putin’s war…I will take action this week to deal with energy bills and to secure our future energy supply,” said Truss.
She also noted plans for a tax reform bill and insisted on returning Britain to a period of growth and investment.
According to Reuters, Truss capped energy bills at 2,500 pounds a year for two years; absence of this could have seen inflation reaching 20% by winter. The Bank of England advised it would continue to keep interest rates high, from 1.75% in August to 2.25% in September.
This cap could cost the UK government a maximum of 200 billion pounds ($230 billion) in subsidies, possibly provided by the sale of bonds. However, the prices of those bonds are increasingly falling due to a lack of investor confidence and continued currency depreciation.
Truss’ new cabinet, deemed “the most divisive cabinet in UK history” by NPR, features Kwasi Kwarteng as Finance Minister.
On Sept. 23, Kwarteng announced the emergency “mini-budget” plan. The plan featured the biggest set of tax cuts since 1972; 45% to 40% for the highest earners and other taxpayers received a 1% cut in income tax. Reaction to this unfunded “growth plan” was immediate as the pound hit a 37-year low against the dollar within a few hours and an all-time low of 1 GBP/1.0967 USD on Sept. 26, according to SkyNews.
The following day the International Monetary Fund urged Kwarteng to re-evaluate plans, warning that policies would only increase inflation and inequality. The organization’s concerns were backed by the Bank of England which has been actively engaging in monetary policy to control inflation and fight currency appreciation.
“The disconnect between fiscal and monetary policy is likely to add to already heightened levels of economic uncertainty…the UK economy would be better served if the Liz Truss-led government undertook structural reforms that were aimed at boosting productivity and enhancing the potential growth rate of the British economy,” said UT economics professor, Dr. Vivekanand Jayakumar, in an article for The Hill.
The previously mentioned bonds continued to fall, their value halfing in a matter of days, leading to panic over pension funds becoming insolvent as they are made up of these long-dated bonds.
On Sept. 28, The Bank of England launched a 65 billion pound intervention, halting bond sales and stabilizing the markets. This move not only ensured an increase in interest rates but worsened the ongoing mortgage and housing crisis.
Finally, on Oct. 3, Truss reversed the cut to the highest rate of income tax, she and Kwarteng admitting to its “disruption.” This move was likely motivated by the in-party revolt from lawmakers who were displeased by suggestions of cutting public welfare spending to fund the tax cuts for the rich.
Jayakumar believes the UK’s issues are structural, and not resolvable through monetary or fiscal intervention. He writes that the government needs to focus on developing sufficient infrastructure to decrease the country’s high geographic inequality and reform the education system.
The reversal of this policy only accounts for two billion of the 45 billion pound deficit to occur from the mini-budget policies. In interviews with BBC, SkyNews, and ITV, interviewers were firm with Truss, attempting to get the PM to admit to having “the worst start of any prime minister.”
In response, Truss said, “We have acted decisively in the face of very very difficult international circumstances.”
On Oct. 5, Truss spoke at the Conservative Party Conference. Her speech focused on growing the UK economy, introducing the “Getting Britain Movement” campaign. Her speech was interrupted by protesters with a banner reading “Who voted for this?”
The protesters were escorted out by security at the request of Truss. Greenpeace claimed responsibility tweeting that the protesters were there “to denounce the prime minister ‘shredding’ her party’s 2019 manifesto promises.”
“They prefer protesting to doing,” said Truss. “They prefer talking on Twitter…they peddle the same old answers. It’s always more taxes, more regulation, and more meddling. Wrong, wrong, wrong.”
Kwarteng will be revealing his full budget plan on Nov. 23 but the following month is set to be filled with continued uncertainty. The Bank of England’s plan buyout plan will expire on Oct. 14 and resume selling bonds on Oct. 31. Truss’s speech was met with indifference and Conservative party doubt of winning the next general election.
Reuters reports the Labour Party up in the polls for the last few weeks and this could be the momentum needed to have a long-awaited shift in power.