The UK is staring into an economic abyss for which it is wholly unprepared.

[Celerity]

Fresh-start Truss faces a ‘sudden stop’

https://socialeurope.eu/fresh-start-truss-faces-a-sudden-stop

PAUL MASON 19th September 2022


A photo distributed by Downing Street from Liz Truss’ first cabinet meeting as prime minister—the smile may not last

‘The scary thing about civil servants,’ a Labour Treasury minister once told me, ‘is the way they anticipate the levers you want to pull. They say: “Minister, if you are thinking of pulling this lever, please let me apprise you of the following likely effects …”’ That was in the depths of the Lehman Brothers crisis. Co-ordinating the UK Treasury’s response at the time was a civil servant called Tom Scholar.

The first act by Liz Truss as new British prime minister was to sack Scholar, who had risen meantime to become the Treasury’s most senior civil servant. He had led the institution through the pandemic and was fronting its response to the energy crisis, but his services were no longer required. It is hard not to conclude that Truss and her chancellor of the exchequer, Kwasi Kwarteng, intend to pull economic levers unimpeded by any appreciation of their complex effects, and indeed without any overall plan.

The first lever Truss pulled was an energy price cap—for households and businesses—which looks set to require £130 billion of extra borrowing over two years. Labelled the biggest fiscal event in British history, it is certainly the biggest state subsidy to the private sector since Lehman Brothers. The second—if Truss fulfils the pledges on which she won the Tory leadership after the demise of the former premier, Boris Johnson—is likely to be tax cuts for corporations and the middle class, amounting to £39 billion. Unfortunately, such dramatic yanks on the levers of economic power can have unforeseen consequences. Indeed, in the wrong hands they can come to look like the actions of a doomed driver on a runaway train.

Flashing red

To understand why, we need to look at six dials on the dashboard of the UK economy: inflation, investment, trade, debt, sterling and the current account. They are all flashing red. Inflation is currently 9.9 per cent—the highest for 50 years and set to peak at 13 per cent next year. As a result, real wages are falling more quickly than at any time since modern records began and consumer spending is contracting. There will, says the Bank of England, be a five-quarter recession, as it raises interest rates, ostensibly to choke off inflation and demand. Investment rose rapidly in the years before the ‘Brexit’ referendum. But it stagnated after 2016, fell sharply during the pandemic and has barely recovered—despite huge tax breaks for capital expenditure.

snip

[TheRealNorth]

1. I don't get her energy subsidy....

It does the opposite of encouraging conserving energy use. I'd you know there is a cap to what you can be charged, there is no incentive to conserve if you are likely to go over the cap.

[muriel_volestrangler]

8. The cap is on the charge per unit of electricity or gas

The media coverage of it is not very good; they talk almost exclusively about the total bill an "average" household will get. But the actual rules of the consumer 'cap' concern first, the standing charge you pay per day, and secondly, the cost per kWh (to complicate it, there are small regional variations in this, so one region may be capped at 10.4p/kWh of gas, another at 10.5p).

The cap came in a few years ago to stop utilities overcharging, because they knew that many people never got round to looking for better deals from other companies, and some increased their 'standard' rates a lot. You could normally still find a better deal (including ones that fixed the prices for a year or two) if you shopped around. But when the wholesale price of gas rocketed, they all had to put their prices up to the cap, and couldn't offer any meaningful fixed price deals, so the cap has become the rate everyone pays, unless they're still on a long fixed price deal that hasn't run out yet.

Indeed, some utility companies that hadn't hedged the wholesale price they pay (which probably allowed them to offer a slightly better short-term deal to customers) went out of business when the wholesale price went up above the cap (which is calculated every 6 months based on past wholesale prices). Their customers were then parcelled out among the remaining companies, who were given money from a levy in the standing charge to pay for having to buy more gas/electricity than they had planned. So the consumer standing charge increased about 50% too.

[Mme. Defarge]

2. Liz Truss is VERY BAD NEWS.

Excerpts from this article in the 9/22/22 issue of the New York Review of Books.

The Party’s Over
Fintan O’Toole

Truss will take the Tories further down the only path that is open to them, that of anarcho-authoritarianism. Like Johnson, she projects herself as a rebel against authority: “I hated being told what to do and that has driven my political philosophy.” She put forward the legislation that allows British government ministers to break international law by tearing up the Northern Ireland protocol. She has indicated her willingness to withdraw the UK from the European Convention on Human Rights.
This outlawry is underpinned by the language of piracy. A chapter in Britannia Unchained, a 2012 book cowritten by Truss and other rising Conservative politicians, is titled “Buccaneers” and quotes Steve Jobs approvingly: “It’s more fun to be a pirate than to join the navy.” It concedes, with evident reluctance, that “law and order” are “on the whole beneficial.” But it hankers after an ideal of “capitalism as chaos,” the magic that happens “when nearly all society’s strictures are relaxed.” Hence the claim by Truss’s supporter David Frost, who led negotiations of the Brexit deal with the EU and is widely expected to have an important role in a Truss administration, that “what needs to be done [by the new prime minister] will be turbulent and disruptive.”
This promise of disruption is all that remains of Brexit. It can function now only as a fantasy of liberation, not from Brussels but from all restraint on the making of money. Truss’s language evokes a Britain whose only real problem is that its natural exuberance has been constrained by regulation. Hence the recurrence in her rhetoric of “unchain,” “unleash,” “unshackle.” But, as in current US conservatism, these images of freedom must go hand in hand with their opposite. When she is not talking of unshackling everything, Truss is promising to “crack down” on everything. The chains that are to be taken off the moneymakers will be clamped on much of civil society.
In her speeches, and in the way they are reported by her fans in the Tory press, she has promised, so far, to “crack down” on “militant” trade unions, on civil servants who are working from home, on Chinese companies like TikTok, on onshore renewable energy projects, on “unfair protests” by climate activists, on “antisocial” behavior, on illegal migration, and on the “excessive caution” of financial regulators. She is even promising to repress criticism of the dire condition of post-Brexit Britain, warning the democratically elected first minister of the devolved administration in Wales that “I will crack down on his negativity about Wales and about the United Kingdom.” In the pantomimes, it is customary for the audience to cry out against certain assertions made by the characters: “Oh, no, it isn’t.” In this next version of the show, those who dare to make that call will be ejected from the theater.

[Celerity]

3. that would make a great OP

[vanlassie]

4. Cluster fuck. She's unfit.

[Hermit-The-Prog]

5. Perhaps, after Johnson and Brexit, the UK needs a different sort of truss

[slightlv]

6. OMG!

And we thought Thatcher was bad. They've gone from bad to worse! Has Truss met Trump? Sounds like these two are a match made in Nazi heaven. Perhaps they should arrange a coffin made for two?! I empathize for our British brothers and sisters, and we're not even past our own danger zone yet. Good Lord in heaven, when will the world straighten out? (sigh)

[Xolodno]

7. Looks a good chance for Scotland to make a go of it.

They may unchain themselves from a government intent on destroying itself.

[muriel_volestrangler]

9. Move on, nothing to see here: Treasury refuses to publish UK economic forecast

Independent forecaster the Office for the Budget Responsibility (OBR) has already provided a draft to Chancellor Kwasi Kwarteng, the BBC understands.

The Treasury Select Committee says a forecast is "vital" given recent government moves to curb living costs.
...
The draft forecast the OBR has provided does not include the impact of the energy bill help. It has offered to provide a forecast including this impact, but that has been rejected.

The fact the offer has not been taken up is raising some concerns about whether the government's tax and spending policy is "flying blind", given predictions that the UK is facing a lengthy recession.

https://www.bbc.co.uk/news/business-62970803

I don't worry they're "flying blind", so much as strapping on their parachutes, after giving a reassuring message to the passengers and switching off the intercom.