Be careful what you wish for…

Have we eaten on the insane root That takes the reason prisoner?’

The law of unintended consequences is that actions of people—and especially of government—always have effects that are unanticipated or unintended.

The Parliamentary Conservative Party turfed out its leader, former PM Boris Johnson for the very good reason that, great campaigner and tub-thumper he may have been, fine practitioner of the day-to-day drudgery of running the country he was not.

The members of the Conservative Party were then faced with a choice between a candidate who could clearly add-up but who warned of some painful times ahead, and a candidate who promised the complete opposite. So, what did they do? They voted, by a pretty small margin, for the Jam-Today offered by Liz Truss.

I’m a gal who likes the odd flutter, but the mini-Budget-but-don’t-call-it-a-Budget announced by the new Chancellor Kwasi Kwarteng last week is more akin to throwing everything including the kitchen sink on red and hoping for the best.  Not only does Kwarteng seem to have found the magic money tree in the Downing Street gardens, but he and Truss seem determined to strip it bare.

The throwing of money at households to help with spiraling energy costs is one thing, the freezing of the energy price cap is another, and these will definitely help households and businesses, some of whom are already struggling. Bringing forward cuts to the income tax rate by a year from the 2024 start-date announced by the former Chancellor is going to help households across the country, but the scrapping of the 45% tax rate and the cap on bankers’ bonuses seem a little tone-deaf in the current economics. Earn £50,272 and you will pay exactly the same rate of tax as someone who earns £502,720. Yes, it’s a percentage-based tax system, which means that the second person is paying more actual moolah into the country’s coffers, but when we are seeing food banks busier than ever, it just feels a bit…wrong. The energy price rises have held the headlines for the last few months, but even more worrying for a great many people will be the effect of the Budget on interest rates. Already Nationwide’s lowest mortgage rate is 5.59%, up from something like 2.19%. A quick fag-packet calculation shows that annual interest payable on a mortgage of £200,000 goes from £4380 to £11,180. This is what will kybosh growth in the short-term.

Truss and Kwarteng may be wedded to the idea of trickle-down economics, and perhaps they are right. Maybe this is what will bring investors rushing back to our shores in their thousands. After all, you can buy a lot more British goods for your dollar than you could at the beginning of the week.

Or, perhaps the largesse, the tanking of the pound, the inevitable rise in interest rates and the effect that will have on mortgages and the housing markets is all part of a plan to stick in a new Prime Minister who has no chance of winning the next General Election, allowing the Tories to re-group under a new leader and take back control in seven years’ time.

If the reception on social media in the last couple of days to speeches by Ed Miliband and Sir Kier Starmer at the Labour Party Conference are anything to go by, this plan looks like it might be worth a bet.

 

cat fall fall over
A cat called £Sterling…

 

About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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