British Prime Minister Liz Truss announces her resignation outside Number 10 Downing Street, London, Britain, October 20, 2022.
Henry Nicholls | reuters
LONDON – Britain’s former prime minister Liz Truss is blaming a “powerful economic establishment” for ending her chaotic 44-day term in office last year.
Truss resigned in October, becoming the shortest-serving prime minister in British history, after his radical tax-cut budget roiled financial markets. poundTook British pension schemes to the brink of collapse and caused a rebellion within its own Conservative Party.
In a 4,000-word essay published by the Sunday Telegraph, Truss argued he had never been given a “realistic chance” to implement a £45 billion ($54 billion) tax-cut agenda and Finance Minister Kwasi Kwarteng was put forward
In his first public remarks since leaving office, Truss stood by his economic policies, claiming they would increase growth and reduce public debt over time, and criticized both the country’s economic institutions and his own party for his blamed for the collapse.
She wrote, “I am not claiming to be blameless in what happened, but fundamentally I was not given a real chance to implement my policies by a very powerful economic establishment, along with a lack of political support.”
She said she had assumed that her “mandate would be respected and acknowledged” and had “underestimated” the resistance to her economic program.
Truss was elected leader of the Conservative Party in September, defeating his eventual successor Rishi Sunak after ousting Boris Johnson, receiving 81,326 votes from party members. The population of Britain is over 67 million.
“Large parts of the media and the wider public sector had become unfamiliar with important arguments about tax and economic policy and sentiment had turned left-wing over time,” she said.
Current business secretary Grant Shapps, Truss’ former home secretary, told the BBC on Sunday that Truss’s approach was “obviously not the right one,” but gave credit to his long-term vision.
“I think she makes a perfectly valid point that one has to agitate clearly and make good arguments for reasons why a low-tax economy can be a very successful economy in the long run, Shapps said.
The Ghost of ‘Trusonomics’
During his leadership campaign last summer, Truss took aim at the Bank of England, promising radical reform of a central bank he accused of failing in its mandate to control inflation, and its remittances. Threatening to review
He particularly criticized what he termed “Treasury orthodoxy” in the projections, against which he said that large unfunded tax cuts could increase inflation and reduce growth in the long run.
On taking office and with a growing cost of living, Truss promptly sacked the Treasury’s most senior civil servant, Tom Schaller.
As the Bank of England tried to combat rising inflation by raising interest rates and introducing quantitative tightening to slow the economy, the fiscal plans of the Truce and Quarantine cut taxes and increased spending for the wealthiest sections of society. Gave a boost to the development. The government and the central bank were essentially working against each other.
The truce also broke with tradition by cutting out the independent Office for Budget Responsibility, which usually publishes economic forecasts on the likely impact of government policy alongside budget statements, out of process.
Financial markets, particularly bond markets, reeled from massive unfunded tax cut announcements without a clear impact assessment, sending mortgage rates skyrocketing and prompting the Bank of England to prevent the collapse of many British pension funds. forced to intervene.
Michael Saunders, a former member of the Bank of England’s monetary policy committee, told CNBC on Monday that the truce was brought down because financial markets did not consider its policies credible, and that it was “almost entirely its own fault.”
“The idea that there is a left-wing establishment made up of everyone in Liz Truss’ universe – the markets, the central bank, the OBR, everyone else – is not an idea to be taken seriously,” he said.
“She went out of her way to undermine her own credibility, sacked Tom Schaller, made disparaging comments about the Bank of England, left the OBR out of the forecasting process. She was acting as if she was a Conservative. Winning a majority of the party’s membership has given him economic benefits. Credibility, and it most clearly does not.”
The government of current Prime Minister Rishi Sunak vowed to restore this credibility when it took office in October and promptly reversed the entire economic agenda of the truce.
In November, Finance Minister Jeremy Hunt announced a £55 billion program of tax increases and spending cuts as he sought to fill a huge hole in the country’s public finances.
However, the truce retains the support of many Conservative members of parliament, including high-profile backbenchers such as Jacob Rees-Mogg, a frequent outspoken critic of Sunak’s government, and Jake Berry, the party’s former chairman. His economic agenda also saw him win a sweeping victory over Sunak among party members only last summer.
Saunders, who is now a senior policy advisor at Oxford Economics, said the resumption of debate within the Conservative Party after markets rejected the truce agenda could erode potential investors’ confidence that the governing party is actually on the right track. Committed to economic stability.
“The fact that the Conservative Party still needs this debate will worry investors watching the UK, as it will prompt them to question how deep and solid the Conservatives’ commitment to sustainability-oriented policies is – suggestion and sense that this is what Conservative MPs and Members, in their hearts, really want to do,” he said.
“International investors will see this and question whether a government representing those interests can be trusted to stick to stability-oriented policies.”
collapse of pension funds
The pension fund collapse was just hours after the central bank said it decided to intervene in the UK long-term bond market in late September, just a week after the truce’s budget announcement.
The fall in bond prices caused panic, particularly for so-called liability-driven investment funds (LDIs) in the UK, which have a substantial amount of exposure. UK Gilts and are mainly owned by final salary pension plans.
In his essay, Truss claimed that he was not warned about the risks to financial stability inherent in the LDI market.
In an article in the New Statesman on Sunday, former Work and Pensions Secretary David Gauck alleged that the truce’s version of events suggested that weaknesses in the LDI market caused the market turmoil, when in fact, government bonds The increase in the yield of C has caused LDI problems.
“There can be a debate about the role and regulation of LDI (although we should not overlook the consequence of restricting LDI, it would mean much higher pension contributions from employers and/or employees) but the fundamental problem was that bonds Market driven gilt yields up I think the UK government has lost its senses,” Gauke wrote.
“Truss complains that she was not warned about LDI risks. For the sake of argument, we must accept this as true. But she certainly was warned about the risks of following an aggressive tax-cut budget. I warned, without telling how public finances were going to be put on a permanent footing.”