Just-elected Tory Prime Minister Liz Truss and Chancellor Kwasi Kwarteng will probably never live down their 23 September “mini-budget” which crashed the pound to near parity with the dollar at $1.03. This forced the Bank of England to launch an emergency purchase of gilts to save pension funds and calm markets. The BOE also brought forward its planned interest rate rise, which has already effectively forced mortgage rates up to 6% and upset the housing market, with no end to this in sight.
Truss however denies all responsibility. The financial chaos she caused is down to the “world crisis” and anyway, “everyone’s increasing interest rates!”. True, the world economy is suffering from a serious bout of “stagflation”: absence of growth, while prices shoot up. It’s back into crisis. But Truss declares that she’ll buck this global trend by cutting taxes – and magically, there’ll be “growth, growth, growth”!
Not even her own Tory MPs believe this. The British economy has been more stagnant than most, but on top of that, it’s also suffering a 4% contraction due to Brexit. All indicators point downward: bad news for capital, of course, but also the working class, unless it turns it around.
Spooking the markets
Truss and Kwarteng’s idea was to cut 5% off the tax of those earning £150,000, cut income tax by 1% for all, cancel the increase in corporation tax and cancel the increase in National Insurance. It meant a loss to the state of £45bn in tax income. It was these “unfunded tax cuts” which apparently spooked the markets and sent the pound into a tailspin. And what’s more, the budget was presented without the usual supervision by the Office for Budget Responsibility either.
So in this short space of time - just one month – Truss and Kwarteng have managed to turn the Tories’ world upside down and set off global economic shock waves, which caused the International Monetary Fund to warn Kwarteng that it does not “recommend large and untargeted fiscal packages at this juncture” and urged him to “consider ways to provide support that is more targeted and re-evaluate the tax measures, especially those that benefit high income earners”.
Kwarteng responded. He promptly reversed the 5% top income tax cut (it only saves £2bn) which was apparently enough to help the pound recover its prebudget rate. Today it hovers around $1.10.
But he has so damaged his reputation that he can’t seem to do anything right. Bowing to pressure, he announced on 10 October that he would bring forward his plan for funding tax cuts to 31 October – and promised to give it to the OBR first!
However, instead of calming fears among the financial bourgeoisie, it’s done the opposite. The yields (or effective interest rates) on UK government bonds on the 10th were almost at the same levels seen at the height of the market turmoil. And further efforts by the Bank of England to calm markets, along with the appointment by Kwarteng of an experienced civil servant as Permanent Secretary to the Treasury, also seemed to fall short. Grandees like former Treasury chief “Lord” Macpherson said that “Unless the government can restore economic credibility, the market response in the weeks ahead could be a whole lot worse than we’ve seen so far”.
Making workers pay
What is certain - and this does not rely on the psychology of financial speculators - is that this funding of tax giveaways will mean huge cuts in public spending and in every government department. Already 100,000 civil service jobs have been earmarked for cuts.
Truss’s promised “supply side reforms” would also repeal the EU laws which provided British workers with some of their few rights, like limits on the working week, compulsory rest periods, or equal pay for agency workers after 12 weeks.
She has also announced attacks on trade union rights - removing facility time from shop stewards (time off for union duties), increasing all the notice periods for strikes, making a 50% majority mandatory for strike ballots, and mandatory referenda before and during strikes, all to try to shackle further, the already tightly-shackled unions.
And while a section of Tories might favour increasing Universal Credit in line with inflation, Truss has intimated that the increase will be given to a targeted few. The far-right caricature, Home Secretary Suella Braverman, has called for cuts to UC for all those “who can go out and get another job”! She’d like to twist the knife further in the wound of the 41% of UC claimants who already work as many hours as they can, juggling kids and/or caring, and resort to food banks because their incomes are so low!
Then there is Johnson’s 1.25% National Insurance increase, which Truss reversed, and which was meant to provide the desperately underfunded NHS and even more underfunded social care sector with an extra £12bn/year: the NHS winter crisis now threatens to be the worst ever.
Many Tories regret they chose Liz Truss. She had put herself forward as the “Continuity Johnson” candidate in order to get the vote of ordinary party members, who had the “privilege” of choosing the next PM and has ended up prime minister after just 81,326 members of the Tory party, representing 0.0017 of the electorate, voted for her. Such is British democracy… In fact she won by the lowest margin of any Tory leadership candidate so far.
So now the right-wing libertarian Brexit government of Johnson, which had been forced to resort to heavy state intervention during the pandemic, despite itself, is replaced by the even more right-wing explicitly antistate, “Tufton Street Gang” under Truss. [Tufton Street, near Westminster is home to a host of right-wing, Thatcherite think-tanks like the Institute of Economic Affairs, the Centre for Policy Studies, the Adam Smith Institute, the Taxpayers Alliance and “Leave means Leave” (Brexit Central).]
Truss has assembled a Cabinet of low tax, small state, free market, Thatcher-worshippers, harking back to the dizzy days of the 1840s! Jacob Rees Mogg, who harks back even further, to the 1700s, is now Secretary of State for Energy (and Fracking!). Chris Philp is chief secretary to the Treasury, and advocate of forcing the unemployed to work for benefits and banning strikes. Home Secretary Suella Braverman has vowed to stop all small boats carrying refugees across the Channel and ensure that planes carrying deportees take off for Rwanda ASAP.
She has re-opened the bitter warfare between Tory factions which had been temporarily carpeted over by Johnson. Even some of her own Cabinet is rebelling: Penny Mordaunt, Robert Buckland and Chloe Smith have publicly expressed their disagreement over cuts in welfare benefits. To cap it all, Johnson’s former very right-wing culture secretary, Nadine Dorries, known for her anti-abortion views and opposition to same-sex marriage, accused Truss of “lurching to the right”! Talk about tragedy turning into farce! All that said, those Tories who dislike what Truss is doing are reluctant to put up a new candidate - she is already the fourth Tory leader in just 6 years when they are supposed to try to last at least 5!
Waiting in the wings
There is due to be a general election in just 24 months (December 2024). His Majesty’s Loyal Opposition, which for the first time in its history sang “God Save the King” at its annual conference, now has a lead in the opinion polls, which seems to be steadying at between 28-33 points. In fact Labour is likely to be seen by the British bourgeoisie as a much more responsible pair of hands to manage their affairs than the Tories under Truss.
True, in the course of 24 months a lot could happen, given the tumultuous state of the world economy, not to mention the current significant political upheavals, not just due to war in Ukraine but also the protests - and now strikes - in Iran. But for the time being Labour looks certain to be the next government. And indeed it could be in power even sooner than December 2024.
Trade union leaders have already given their conditional support to Starmer - although they say they would like him to support strikes even if he doesn’t attend the picket lines in person. In fact the default position of the official working class organisations and even the far-left has always been support for the lesser of two evils in elections. This is precisely what makes Starmer and any other “lesser evil” politician a much greater “evil”. Because Labour in government will do exactly the same job for the bosses as the Tories did - they will just use different words to describe it. So it is deceit against the working class to encourage a vote for Labour when its urgent task is to construct its own party - a revolutionary party - from the ranks of its best fighters. In the meantime, however, if the working class uses the full collective force of the current wave of strikes, to push back and win, the Truss government (or its replacement if there is one!) could certainly be stopped in its tracks.
10 October 2022