Liz Truss and Kwasi Kwarteng were right but got ‘communication’ wrong says Cardiff economics professor
Liz Truss and Kwasi Kwarteng were right but got their communications wrong according to a controversial Cardiff University economics professor.
Described as Liz Truss’ economics guru, Patrick Minford said that the “pro-growth agenda” of former PM Liz Truss and her Chancellor Kwasi Kwarteng had been what the UK economy needed and “we will all suffer from its demise”.
During the short-lived, 50-day Liz Truss administration he had defended Liz Truss against her critics and described those who thought the fall in the value of the pound was a problem as “idiots”.
He now said that it was her communications skills rather than the economic plan itself that was the underlying problem.
“The tragedy was that she and her chancellor Kwasi Kwarteng failed to produce the documentary evidence that would reassure the markets that their tax cuts would be covered by faster growth,” he wrote in the Telegraph.
“Poor presentation and communication proved their downfall.”
He added that “the main cause of the gilt rate surge that destabilised Truss’s administration was the shift in expectations of future Bank of England set interest rates”.
Gilt rates have however come down since Liz Truss was removed as Prime Minister while the Bank of England have continued to raise interest rates.
“The story being peddled by the current consensus of policymakers and UK market economists is that the recent mini-Budget drove the UK’s credit-worthiness to terrible levels, due to fears of budgetary profligacy,” he said.
“This reading of events badly exaggerates UK credit risk. The rates on UK gilt five-year credit default swaps (which prices the risk a country will not pay its debts) did not move in recent months beyond the range of France.”
Patrick Minford added that new Prime Minister Rishi Sunak and Chancellor Jeremy Hunt were now “on course to learn all the wrong lessons from the turmoil in the markets”.
“The track we are now on – fiscal tightening (tax rises and spending cuts) plus monetary tightening (high interest and mortgage payments) – has been tried before and invariably leads us further on to the scorched earth of more tax rises, more spending cuts and a slump in living standards,” he said.
“Politically, for the Conservatives, the outlook is grim. If Sunak and Hunt press ahead in the November 17 Autumn Statement with their triple whammy of tax rises, spending cuts and higher mortgage rates, the country is unlikely to forgive them.”
He added: “Policy can still avoid plunging the UK economy into recession and endlessly low growth. But it rapidly needs to change course to do so.”
On Friday Rishi Sunak has said inflation is the “number one enemy”, as he vowed to rebuild trust in the Government following Liz Truss’s calamitous tenure in No 10.
The Prime Minister said he was doing everything he can to “grip” the issue and limit rises in mortgage repayments, as the Bank of England is forced to put up interest rates to curb rising prices.
On Thursday, the Bank warned the country is facing the longest recession in a century as it hiked base rates by 0.75 percentage points to 3% – their highest level in 15 years.
With many families now facing crippling rises in their monthly mortgage bills, Mr Sunak told The Times that he understood their concerns as they worried how to make ends meet.
“I absolutely recognise the anxiety that people have about mortgages. It’s one of the biggest bills people have,” he said.
“So what I want to say to people is that I’m going to do absolutely everything I can to grip this problem, to limit the rise in those mortgage rates.
“I think inflation is the number one enemy, as Margaret Thatcher rightly said. Inflation has the biggest impact on those with the lowest incomes. I want to get a grip of inflation.”
With the UK facing an estimated £50 billion black hole in the public finances, Mr Sunak said it was important the Government was honest with voters about the “trade-offs” the country faced in Chancellor Jeremy Hunt’s forthcoming autumn statement.
“Everyone appreciates that the Government cannot do everything. How does government do everything? It just does it by borrowing money which ultimately leads to, as we saw, high inflation, a loss of credibility, spiking interest rates,” he said.
Among the measures Mr Sunak and Mr Hunt are considering to address the deficit are a further two-year freeze on the lifetime pension allowance and the imposition for the first time of VAT on electric vehicles, The Daily Telegraph reported.
Mr Sunak acknowledged that after the turmoil of Ms Truss’s premiership, the Conservatives urgently needed to rebuild the trust of the public.
He pointed to his own record as chancellor – when he introduced the Covid furlough scheme – as to why people should trust him when it comes to running the economy.
“I completely acknowledge that trust has been damaged over the past few weeks and months. I realise that trust is not given, trust is earned. My job is to regain people’s trust,” he said.
“The only thing that people will take away from the summer – hopefully from my track record as chancellor – I’m someone they can trust understands the economy.
“I’m someone they can have confidence in, who will manage us through what will be a difficult economic time. I’ve got a track record in doing it.”
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