Last week, we wrote about Truss and Kwarteng’s Budget that “It is very clear that this Budget does not produce the change in direction the country needs; it is a dangerous doubling-down on the failed policies of the past, without even an attempt to safeguard most UK citizens.”
Just one week later, that summary seems to be a significant understatement of the damage this government plans to inflict on the UK.
Our government is set on a rapid destruction of both the UK economy and the social contract that has been in place since WWII:
- It is clear that the destructive potential of the Budget is greater than we said last week;
- It is also clear that despite all the evidence that the Budget is a disaster, the government has no intention of changing tack;
- If they do not U-turn quickly, the UK’s economy and social contract will be destroyed.
Fortunately, the government is now very vulnerable, and we can force a U-turn if we act now.
The Destructive Potential of the Budget is Enormous
Last week, we showed that the Budget would:
- Fail to deliver growth and indeed weaken the economy significantly;
- Succeed in impoverishing the poor and the middle-class; and
- Open the way to accelerated environmental and other destruction.
But we (and other commentators) failed to predict that its impact would be so dramatic that the Bank of England would be forced to reverse its anti-inflation policy in order to prevent a financial collapse in the defined benefit pensions market.
The Budget is far more rapidly destructive than we said and – by weakening UK Gilts (government bonds whose price falls as their yield rises) – risks financial contagion to other countries who have previously regarded Gilts as a safe investment. As the Financial Times put it:
“It would be too convenient just to blame the watchdogs. Let’s be clear: if the government puts a bomb under the gilts market, then someone somewhere is going to blow up. The sell-off since the “mini” Budget last Friday was 2.5 times that seen in the 2020 dash for cash, far exceeding what was considered an extreme stress test in 2018.”
If the Bank of England had not executed its rapid U-turn, many pension funds would have collapsed last week. And many pensioners would find the incomes on which they depend, and for which they had saved all their working lives, decimated. That risk is still present.
The Government has no Intention of Changing Tack
A rational Prime Minister and Chancellor would – seeing the damage the Budget was doing both to the country and to their own party – seek to reverse the most damaging elements.
Instead, this is what we see.
The plan is to stick to the Budget – but to abandon all the promises (such as more money for public services) they made just a few days ago.
The government plans, at all costs, to protect the tax cuts for the wealthy.
If They Do Not U-Turn Quickly, the UK’s Economy Will Be Destroyed
Being a civilised country with a strong economy is expensive: you need a good infrastructure, a strong education system, a healthy population, etc. And that requires taxes, which the wealthy contribute to.
If the wealthy did not want to contribute, they would have to destroy the social contract. And this is our government’s plan.
After WWII, the government of Clement Attlee implemented the recommendations of the Beveridge Report, which set the foundations of the post-war social contract by freeing (to some extent) the country from the Five Giants:
- Want [poverty],
- Squalor and
- Idleness [unemployment].
And since then (and since the 1920s New Deal in the US), market fundamentalists have been working hard to get back to a world where:
“The new Sovereign Individual will operate like the gods of myth in the same physical environment as the ordinary, subject citizen, but in a separate realm politically.”
But, of course, this is not easy: most people want to live in a civilised country where they are not treated as “ordinary, subject citizens” but have equal rights and opportunities; and we are still a democracy.
So how can they do it? So far, the approach has been effective, but slow and steady. Wealth has been gradually transferred upwards, public services have been gradually starved, and our democratic safeguards have been gradually removed.
But now that the Prime Minister, the Chancellor and virtually every member of the cabinet are market fundamentalist graduates of the Tufton Street network, they plan to accelerate things.
Truss made no secret of her intentions, as she campaigned for leader. Her energy plan protected the windfall profits of energy giants (some of whom are Tufton Street backers) at the expense of ordinary, subject citizens. And her Budget – delivered by Kwarteng – has plunged the country into chaos.
As we have seen, her strategy now is not to seek to tackle the chaos by reversing the most damaging elements of the Budget. Her strategy is to double down on the Budget and ride-out the storm.
The Budget is inflationary and increases the deficit. The Bank of England will raise rates, and mortgages will become unaffordable for many people. Bankruptcies will rise, and the government will enact savage cuts to public spending – Departments are already being asked to find “efficiencies.” Benefits will be cut in real terms – harming the most vulnerable in society to fund the tax cuts for the wealthy. Even the triple-lock to the state pension is under threat: pensioners, many of whom are already in poverty may be asked to accept a real-terms income cut.
We shall see an increase in personal and business bankruptcies and at the same time greatly reduced support from the state. Many businesses will struggle, and some will not survive. Many people will suffer great hardship, and some will die.
But bankruptcies mean falling asset prices, and for those with cash to spare, a very good time to buy up housing, businesses and land.
This is referred to in far-right circles as “creative destruction.”
Tufton Street and its graduates are happy to oversee the creative destruction of the UK, because, in the words of Andrew Mellon, if you:
“liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. Purge the rottenness out of the system. High costs of living and high living will come down. … enterprising people will pick up the wrecks from less competent people.”
In other words, those who are prepared (ie those with spare capital to deploy in times of crisis) will buy up the wealth of the UK at fire-sale prices. The rate of upwards and outwards (ie outside the UK) transfer of UK wealth will accelerate dramatically.
For those who feel that the post-war social contract has been hugely unfair (to the rich), that is extremely good news. Maybe with Truss’s plan, we can get back to the wealth distribution they enjoyed in 1900.
By no means all Conservatives want this, but as one said on the subject of ditching Truss:
“People aren’t stopping to think for a second about how ludicrous that would look, how we would be the laughing-stock of the world if we tried to get rid of her now.”
So there is a real risk that this creative destruction will take place quickly and on a large scale.
The Government is Very Vulnerable and We Can Force a U-turn
In the short term, the damage can only be halted if the Conservative Party halts it. And the party will only halt it if Conservative MPs are convinced that their electoral prospects depend on a rapid U-turn.
Two things will encourage them to act:
- Being far behind in the polls (they are)
- Receiving a huge volume of letters from constituents making it clear that they will never vote Conservative again unless the party acts now.
So please write today. These notes make it easy – all you need to know is your own post-code!
And if you would like to help more, take a look at the 99% Organisation and join us.