The inside story of Kwasi Kwarteng's UK mini-budget disaster in 2022

Controversial: Politics & Govt Politics & Govt: Chat / Discussions
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By Faisal Islam

In Washington for a key IMF meeting, then-Chancellor Mr Kwarteng was privately having to reassure US bankers, politicians, and diplomats at the British embassy that the UK “was committed to fiscal responsibility” and that the Bank of England was one of the UK’s “finest institutions”. The chancellor went on to draw parallels between himself and Sir Isaac Newton, who held the high-ranking title of Warden of the Royal Mint for roughly 30 years.

On 14 October 2022, Mr Kwarteng was summoned back to Downing Street mid-meeting because the Bank of England was about to cease its emergency purchases of government bonds - these are a form of debt that the government sells to raise money it needs for public spending. The Bank’s Governor Andrew Bailey argues that this was not designed to pressure the government - but to ensure financial stability.

Then-PM Ms Truss says there were questions about the bank’s governance - they were in a very powerful position over her and did effectively put “pressure on me and the government to reverse our decisions on taxes”, she says.

Ms Truss says the same of another institution, the Office for Budget Responsibility, which is the country’s official independent economic forecaster. It was created to help market confidence by ensuring a government’s numbers are regularly checked.

The plan by Ms Truss and Mr Kwarteng was to bypass the OBR. If the OBR had provided a forecast alongside the mini-budget, Mr Kwarteng would have been forced to show how his £45bn in tax cuts would balanced with spending cuts or increased borrowing.

Instead, the mini-budget had a solitary table asserting how, theoretically, the gap could be filled if the economy grew faster. It was the equivalent of trying to pay a restaurant bill with an Instagram photo of some gold bars.

Such was Truss’ and Kwarteng’s grasp of economics and governmental finance … :roll_eyes:

Arguably the biggest impact of the mini-budget has been on the UK’s big institutions.

This time a year ago the OBR, the Bank of England, and top Treasury civil servant Sir Tom Scholar were variously side-lined, briefed against, and fired.

They were the “bean counters” pursuing “abacus economics”, standing in the way of newly appointed Prime Minister Liz Truss’ agenda. Her “experiment” - that push-back against the “economic orthodoxy” - went to its breaking point. The radical economic “experiment” is over.

The experts are back. Policy, from the jobs market, to visas, to investment, is now prioritised based on whether it will “score” on the OBR’s forecast and help the numbers add up.

There’s more in the article.

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I just love how Truss explicitly side stepped the OBR because she knew they’d point out the flaws in her budget logic - then blames them when the budget was proved to be full of flaws. Don’t trust the bean counters she says, even though the bean counters fully understood the issues. At least Kwarteng has, thus far, the decency to keep quiet and hide himself in shame. Truss has no such decency. She is too stupid to recognise the need for her to retire in shame.

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The UK’s financial situation is far beyond my area of expertise…As I suspect it is with everyone on the forum. However, this BBC news report are the findings of Faisal Islam…A journalist. Who I’m sure has an opinion the same as any other journalist, but at the end of the day…Still a journalist…
About
Faisal Islam is a British political and economics journalist who is the economics editor of BBC News and the occasional presenter of Newsnight. He was the political editor of Sky News from 2014 to 2019, and from May 2004 was business correspondent and later economics editor of Channel 4 News until June 2014. Wikipedia

Born: 29 May 1977 (age 46 years),
Education: [Trinity College](Google?
Nationality: British
Notable credit(s): [The Observer, Channel 4 News, Sky News]

How many times have I read and listened to other economics journalists who actually sing the praises of Liz Truss and Kwasi Kwarteng…They were stopped in their tracks before their ‘experiment’ could have any real benefit to the UK, so I don’t see how anyone could blame Truss or Kwarteng for the economic mess we now find ourselves in.

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Expertise is not required to understand the dire financial consequences of cutting off a supply of income without restraining current expenditure - it’s known as living beyond one’s means … :man_shrugging:

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Such a well-known and respected journalist that you’ll have noted that I gave him a byline … :wink:

Can you link to any known and reputable economics journalists who actually sing the praises of Liz Truss and Kwasi Kwarteng … :question:

In the meantime, here’s a view from America … while Truss was still PM:

Oct 16, 2022

Now Truss faces a mutiny inside the governing Conservative Party that leaves her leadership hanging by a thread.

Conservative lawmaker Robert Halfon fumed on Sunday that the last few weeks had brought “one horror story after another.”

“The government has looked like libertarian jihadists and treated the whole country as kind of laboratory mice on which to carry out ultra, ultra free-market experiments,” he told Sky News.

It’s not as if the party wasn’t warned. During the summertime contest to lead the Conservatives, Truss called herself a disruptor who would challenge economic “orthodoxy.” She promised she would cut taxes and slash red tape, and would spur Britain’s sluggish economy to grow.

Truss was doing what she and allies said she would. Libertarian think-tank chief Mark Littlewood predicted during the summer there would be “fireworks” as the new prime minister pushed for economic reform at “absolutely breakneck speed.”

Still, the scale of the announcement took financial markets, and political experts, by surprise.

The pound plunged to a record low against the U.S. dollar and the cost of government borrowing soared. The Bank of England was forced to step in to buy government bonds and prevent the financial crisis from spreading to the wider economy. The central bank also warned that interest rates will have to rise even faster than expected to curb inflation that is running at around 10 percent, leaving millions of homeowners facing big increases in mortgage payments.

Jill Rutter, a senior fellow at the Institute for Government think tank, said Truss and Kwarteng made a series of “unforced errors” with their economic package.

“They shouldn’t have made their contempt for economic institutions quite so clear,” she said. “I think they could have listened to advice. And I think one of the things that they got very wrong was to announce one part of the package, the tax cuts … without the spending side of the equation.”

Junior Treasury minister Andrew Griffith argued Sunday that Truss should be given a chance to try to restore order.

“This is a time when we need stability,” he told Sky News. “People at home are just tearing their hair out at the level of uncertainty. What they want to see is a competent government getting on with (the) job.”

Quite, Andrew … so Truss has (had) to go … :neutral_face:

However, finding the door is not easy for Liz:

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I assume the economic mess you refer to is the mix of high national debt, poor balance of trade and lastly woeful lack of funding for key public services. That sounds like a mess. And you are right that Truss & Kwarteng should not take responsibility for this mess. However what they did and how they did it certainly has not helped. In fact it made it worse. So they should be putting their hands up and admitting that.

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Thanks Omah and Lincs.
I did mention that big finance in the UK was outside my area of expertise, but I’ve done alright for myself over the years and made a bob or two…So I reckon it’s the same, just a bit bigger, although apart from my mortgage, I’ve never borrowed anything.

Certainly Omah, there’s a bloke on GB News, Liam Halligan, who talks a lot of sense (to me anyway) and he reckons that in principle Liz and Kwasi’s plan was a good one but was nipped in the bud too early by the people who really run this country. (IMF - WEF - NATO - WHO etc) The majority of tory MP’s must have thought it was okay when they voted for Truss to lead the party.
I just liked Liz because she had the balls to kick some arses and come in with a different approach. I mean lets face it…Boris had screwed up big time but nobody is blaming him despite him having the governments’s check book for a helluva lot longer than Liz.

I didn’t like the way Sunak and Hunt forced their way in, especially when nobody voted for them, puppets of something bigger I thought, but you know what, I’m warming to Sunak, opening up North Sea Oil and Gas, kicking Net Zero into the long grass. The blokes got promise…But what do I know…

PS:-

Come on Lincs, that’s been going on for years as members of the EU…Time to fend for ourselves now. After paying off the national debt that is, otherwise we have dumped one set of power hungry tossers for another.

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Liam Halligan, Presenter, Economics & Business Editor at GB News

Highly-experienced, multi-award-winning writer and broadcaster who has held leading media roles in both a UK and international context - covering economics, politics and foreign affairs.

Skilled in news, comment and feature journalism across both print and broadcast, including hours of live studio experience, with writing and presenting credits on numerous long-form documentaries, for prime-time television and radio audiences.

Recognised expertise in policy analysis and public speaking - including multiple professional speaking engagements. High-level contacts among British and global politicians and policymakers.

A strong finance professional with a stellar training in economics and econometrics/statistics, gained at the Universities of Warwick, Oxford and the London School of Economics, with commercial client-facing and boardroom experience across sectors including media, education and asset-management.

Strongly committed to the not-for-profit sector, holding two school governorships and an advisory post at a leading university, while volunteering/fund-raising for a health-sector charity.

Blimey … a legend in his own lunch-time … :exclamation:

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I told you he was good…
:+1:
:sunglasses:

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If it was so good then why did they make two school kid mistakes: not to get it reviewed and approved by the OBR (thus making many think it might not actually make fiscal sense) and sneak it out via a “not a budget” statement (when the changes were the most significant tax cuts for 50 years). These two factors did present the changes as very high risk, not costed and reliant on a massive increase in borrowing, which had not been planned for or agreed with the money markets. And you mention paying off the national debt - how do you square that with Truss’ plans to greatly increase national debt?
There is no “people who really run the country”. There are those who assess and react to the way the country is being run. Whether that’s Buffet working out that the ERM could be broken at great profit to him or the financial markets seeing an uncosted and apparently unplanned major budget statement being badly rolled out - and determining that this would destablise sterling. They reacted accordingly. Government and BoE panic followed. Dismal.
A bad plan that was badly executed. No matter what Mr Halligan says. Truss had balls for brains, not balls of steel, and that is being kind.

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In an interview with GB News’ Economics & Business Editor Liam Halligan, she denied that she crashed the economy.

Ms Truss said: “That’s simply not true. The fact is that mortgage rates have been higher than they were when I was in office, since I left office, and also the gilt rates, the government bond rates, have been higher as well.

“So the problems that we have were not created by me. I was trying to fix them. And they are still there in our economy.

“And this is why we need to change the fact that the Government is too big and is now spending 46% of GDP. That’s nearly half of every pound spent in Britain is spent by the Government.

“And I want to see a free enterprise economy where businesses succeed where we have less regulation, and we need to work hard to get that.”

She added: “Somebody’s got to advocate these policies. And the fact is all my critics, they might point fingers at me, but they don’t have an alternative. What’s their alternative for getting higher growth?

“How are they going to help people across Britain? How are they going to get more houses? I don’t hear that from them.

“I’m not interested in finger pointing. I’m interested in which policies are going to deliver for our country.”

“The fact is the country isn’t growing fast enough. People are struggling with the cost of living and we need to get on with delivering lower taxes but also reforms to things like energy and housing, to make life cheaper for people and give people more opportunities.”

She talks the talk but she can’t walk the walk … she should step down from cloud cuckoo land … :cloud:

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You have me at a loss Lincs… :thinking:
you obviously follow these things more than I do but it doesn’t make my opinions invalid. In fact the so called well educated people have led us to the mess that we find ourselves in by overthinking the situation. Everyone knows that if your outgoings are more than your incommings you will end up in dire straights and mountains of debt.
So you don’t think that anyone else has a say in how this country is run Lincs…
What about the people who we owe money to? Surely they can dictate certain do’s and dont’s or else the loans will cease and bankruptcy ensues. The very reason why Kwasi was summoned to a meeting with the IMF in New York and then subsequently sacked . Very embarrassing for any government…By the way…Aren’t the Americans close to bankcruptcy?

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I’m not sure that macro-economics works that way. Certainly for a person or household you can’t plan for endless debt. However governments and countries have other levers to apply and work with other rules. The US has embarked on a phase of inward investment - paid for by debt. The result last month was 500,000 new jobs recorded - not just significant but by almost twice what was predicted. Investment in green tech, in infrastructure, in technology seems to work to stimulate the economy and to push enterprises to innovation.
Cutting taxes is a sure fire way to make the already rich even richer. Is there any evidence that it makes ordinary people better off? No. Is there any evidence that tax cuts alone will stimulate growth? Not much as other variables come into play - can more profit be made doing things other than invest in businesses; what are other countries doing; if I keep more money without investing in new stuff then why do the risk of investing???
The comparison to personal outgoings and incomings is misleading and too simple.

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I think you need to check the record of what happened back then. The IMF did issue a statement that was critical of the mini-budget and recommended the plans was re-examined and costed. Hardly a bad idea given Truss’ decision to not do this before issuing the budget. But Kwarteng was in Washington for a meeting of finance ministers - not because the IMF had summoned him. Its quite an important detail to get right, no? Then Truss did the summoning and told him to cut that meeting short and come back to Westminster.

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In a way, yes and, in a way, no:

The plan by Ms Truss and Mr Kwarteng was to bypass the OBR.

Its boss had worked through summer to prepare for an early set of tax changes and Mr Kwarteng had a draft forecast on his desk when he arrived in the job. The numbers, marked as “market sensitive”, forecast the Truss administration borrowing an extra £110bn over five years as gas prices, inflation and interest rates surged.

If the OBR had provided a forecast alongside the mini-budget, Mr Kwarteng would have been forced to show how his £45bn in tax cuts would balanced with spending cuts or increased borrowing.

Instead, the mini-budget had a solitary table asserting how, theoretically, the gap could be filled if the economy grew faster.

Simple is how the deluded Truss sees economics and government finance … :woman_shrugging:

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