Four chancellors in four months. And now three prime ministers. As of this writing, we don’t know who will replace Liz Truss. But with her resignation, her short-lived economic theory, Trussonomics, disappeared.
The adults went home and brought with them what Truss used to deride as an “economic abacus” – in other words, to make sure that every penny we spend is funded by a penny we earn.
Truss thought it was so old-fashioned when it could – as the last chancellor, Rishi Sunak put it – “stick it on the country’s credit card.”
The problem with lending money is that someone has to lend it to you. And credit cards issued by international investors and pension funds required much higher annual percentage rates to meet Trussonomics’ ambitions – £ 46 billion in unfunded tax giveaways announced in just 26 minutes. Not the handouts, which in Trussonomics were wrong, but only – he mentions – that allow people and companies to keep more of their money – without quotes.
The militant wing of the party had marched and devastated every balanced book in the library
In fact, the total was well over £ 46 billion. That was the year. And, a few days earlier, former Chancellor Kwasi Kwarteng’s “mini-budget” – who, like the Dodo in Alice’s Adventures in Wonderland, promised tax rewards for all – Trussonomics had pledged to subsidize every electricity and gas bill. in the UK – home and business – at a cost of £ 60bn in the first six months alone.
For families, the pledge was extended in October 2024, with a total cost potentially in excess of £ 100 billion.
Trussonomics had its fans. The Daily Mail headlined: “Finally, a real Tory budget”, while Sunday Telegraph editor Allister Heath wrote: “The best budget I’ve ever heard from a British chancellor … socialists armed with blasted spreadsheets in the air by the extraordinary neo-Reaganite of Kwarteng pleading. “
The militant wing of the party had marched and ravaged every balanced book in the library.
Fear spread through the ranks of the Tories. Not so much on the unsustainability of promises as on their own ineligibility
It lasted three weeks. The pound plummeted. Pension funds asked for help because they lost their bets, placed with borrowed money, which way the yields on gilts would go. The Bank of England has obligated with £ 20bn raised from its quantitative easing tree. And the arcane world of international finance hit home when mortgage interest rates skyrocketed that people could no longer afford.
Millions of people are expected to face monthly repayments rising by hundreds of pounds. And with each passing month, there would be tens of thousands of more middle-class families plunging into trouble when rates of less than 2% ran out.
Fear spread through the ranks of the Tories. Not so much on the unsustainability of promises as on their own ineligibility. The party called its political wing, which pulled out its socialist spreadsheets and, in three days of rout, made more U-turns than a room full of line dancers.
If you see tears in Jeremy Hunt’s eyes, it’s the decisions that cause them, not the anguish
Aside from rising house prices, the stamp duty cut, and the third change in a year to National Insurance Contributions (NICs), the only policy to survive this bonfire of nonsense has been the abolition of the cap. to bankers’ bonuses because, as the last chancellor Jeremy Hunt explained, “we will get more taxes from the rich bankers”.
Overall, £ 32 billion in tax giveaways have been dropped. But paying the remaining £ 20 billion and £ 60 billion for energy bill handouts – now reduced to six months for both businesses and households – will require what Hunt has called “decisions of astounding difficulty.” So, if you see the tears in his eyes, it’s the decisions that cause them, not the anguish.
A sneaky tax reversal that will save £ 1 billion annually involved income tax on dividends. The three rates were all raised by 1.25 percentage points last April. He was a peacemaker to people who asked why those who lived on dividends should be exempt from paying more taxes to the NHS and care services when the people who worked paid 1.25% more of their earnings.
Each month there would be tens of thousands of more middle-class households plunging into trouble when rates below 2% end
The top NICs will end on November 6th. But Kwarteng’s promise of a corresponding cut in dividend tax rates next April was reversed.
Meanwhile, advisors can just sit back and wait as the FTSE100 is pretty much where it was at the turn of the century, the pound is hovering around $ 1.12, and the best safe return is a savings account that pays, like I write, 4.6% in one year and 5.05% per annum for the next five, without risk to capital.
Paul Lewis is a financial journalist and Radio 4 Money Box host