[pyb]

In a few words, PM Truss's first economic measures indicate that she's ideologically-driven and has no idea what she's doing. Namely, cutting taxes for the rich in hope that maybe some economic boost will "trickle-down" to the middle class and the poor. This idea is utterly discredited in economic circles.

The UK central bank, the BoE, is forced to take measures to counteract what Truss and her government are doing !

The market is also strongly reacting against Truss by selling the pound.

[ksaxena]

The bigger problem is the energy-price guarantee that Truss has announced that will put a ceiling on fuel price for consumers, with the difference born by the UK treasury - estimated outflow is more than 100 Billion pounds. This outflow is planned to be funded by borrowing, which has resulted in a weaker pound.

[hcayless]

They really had no choice about that part. The spike (beyond their control) in energy prices was set to bankrupt hundreds or even thousands of small businesses and put many people in a situation of deciding between heat and food.

The tax breaks though, were totally an own goal.

[pwinnski]

> They really had no choice about that part.

Hello from Texas, where electricity providers are free to pass on absurdly-high energy prices to customers, regardless of whether those people can afford to eat or not.

[IshKebab]

They could have funded it by windfall taxes rather than borrowing.

[colinmhayes]

No they couldn't have. The electricity companies aren't really making more money than normal, they're paying insane rates to import fossil fuels.

[olddustytrail]

Yes, they really could. We're not talking about your energy supplier company, we're talking about electricity producers and fuel suppliers (oil and gas companies). Different set of companies and they are indeed raking it in.

[IshKebab]

Energy suppliers are just middlemen and are making huge losses due to the price caps, but energy generators are making loads of money. (At least in operating profit; some - but not all - have had huge losses from writing off their Russian operations.)

[janef0421]

It is not beyond their control. Britain has significant amounts of gas production capacity, and they could thus pass emergency legislation to reduce the price. For instance, they could insulate the domestic market from foreign buyers by implementing export controls.

[afavour]

I’m not sure that’s a bigger problem, it was announced some time ago without significant market movement. Seems the trigger is faith in new leadership or lack thereof.

[Someone]

Adding nuance: it’s not that they put a price cap on energy prices (many countries in Europe do that), but the amount of money allocated to it.

Reading https://www.bruegel.org/dataset/national-policies-shield-con..., the UK allocates about double of what France, Italy and Germany allocate to it.

[notahacker]

Further nuance: the UK government also ruled out trying to regain some of that expenditure on energy subsidies by increasing taxes on relevant energy company profits.

And whilst the fiscal impact of the top rate tax cut (or indeed not introducing energy company windfall taxes) may not have been that huge relative to the energy subsidy, the signal sent by the the triumphal announcements that borrowing to cut taxes would solve problems was that the government wasn't just making emergency funds available to resolve a crisis, but has ceased to care about balancing their budget or inflation and doesn't really know what it's doing.

[agent008t]

First of all, high income does not mean 'rich'. 45% tax bracket started at £150'000 income - that is not 'rich' in London.

Secondly, all else being equal, lower taxes certainly would attract talent and business to the UK and overall make people better off. As a simple example, let us consider an extreme case where the UK has a 20% flat tax while maintaining macro/political stability, and that rate is expected to persist. For starters, there will be a huge move in tech from SF and NY to the UK. It will become a very desirable destination for top talent; startups and unicorns will follow. With clever tax incentives, it would not be just London either, but cities all around the country. That influx of talent and capital would benefit the middle class and the poor too. The one bottleneck, as is usually the case, would be housing - if that is also resolved (say, making it really easy to build in/near currently depressing-looking cities), there could be a real boom to the UK economy.

As things are going now, this is unlikely to play out in the UK, unfortunately.

[donpott]

Making GBP 150,000 before tax in the year 2019-2020 would put a person in the 98th percentile of salaries in the UK. If that's not rich, I don't know what is, in London or anywhere.

Source: https://www.gov.uk/government/statistics/percentile-points-f...

[agent008t]

Rich refers to wealth, not income. Having a high income does not mean that one is rich, and it will take a very long time to get rich on 150'000 in London - assuming you live modestly and are able to sustain that level of income for a long time.

[donpott]

Thanks for the clarification, now I understand your point.

[bjornsing]

I think the old adage “correlation is not causation” applies somewhat. It’s probably true that the market got worried about the UKs ability to service its long term debt, but Truss’ announcement came in the middle of the worst bear market in bonds for well over a decade. Also, e.g. the Swedish crown (SEK) has lost about as much against the US dollar as the pound has, completely unrelated to Truss and her announcement.

[chimprich]

Sorry, but that's nonsense. The market dropped spectacularly during the new chancellor's not-a-budget-honestly speech. You can't get a better smoking gun than that.

> but Truss’ announcement came in the middle of the worst bear market in bonds for well over a decade

Yes, and she chose to do that. It was amazingly irresponsible. The market response was entirely predictable.

[bjornsing]

I still think you attribute too much causality to Truss’ announcement. E.g. 1 GBP cost 12.25 SEK 5 days ago (before Truss’ announcement) and now costs 12.22 SEK.

(But sure, Truss’ announcement did cause a temporary slump even in the GBP/SEK exchange rate.)

[rgblambda]

Is it not the case that while the Swedish Crown is not officially pegged to the Euro in the same way that the Danish Krone is, it's value is heavily influenced by the Euro? The Euro's decline in value is down to investors moving their money to safer shores in the anticipation of energy shortages in Europe in the coming months.

[bjornsing]

Not pegged no, but strongly correlated of course. SEK has depreciated significantly against the euro too over the last few weeks.

[piva00]

Matching a change of government that's unproven. Having SD in power has no historical precedence so there's a definite lack of confidence in what the new government can achieve.

[bjornsing]

I think it has more to do with the extreme trade deficit. But sure, political quasi-stability is not a positive.

[gadders]

I think the only person ideologically driven here is you.

[hgdfhgfdfds]

"This idea is utterly discredited in economic circles."

I'm an economist and this is wrong. I usually see this line on on Reddit and not from any journal.

[bluehatbrit]

If you're going to counter someone's point y claiming to be an expert, you really need to link to some credentials. If you're not going to do that then linking to some research disproving the parent comment would also be useful. Without any of that it's just an untrustworthy claim and doesn't add to the discussion in anyway.

[colinmhayes]

Here you go https://www.igmchicago.org/surveys/tax-reform-2/

[jbm]

I was looking at that and it seems to be more of an opinion survey of university professors of economics about a bill that had trickled-down as a part of it, rather than a formal journal entry.

> Tax policy appears to have little effect at the margin on GDP growth in OECD countries.

This idea did come up repeatedly though, so I assume it is a common-enough belief in economic circles.

[colinmhayes]

Some of the professors posted links to journals in their comments.

[tut-urut-utut]

Well, Truss was not elected because of her economic (or any other) competence, but because of her hardliner course against Russia.

Rishi Sunak was a better choice in every category, but had two problems:

1. he is not "white"

2. he is not anti-Russian enough

EDIT: By "elected" I meant "elected by her own party".

[defrost]

It'd be fairer to point out that neither Truss nor Sunak were "elected" (or not) in any normal democratic sense.

The former PM resigned due to scandal and Truss is a drop in replacement "elected" by a tiny tiny number of elites isolated from the public at large.

[Brakenshire]

Rishi Sunak was claiming to be resident in the US while Chancellor of the Exchequer, while his wife was claiming non dom status to avoid paying tax. He was also hated by the supporters of the previous PM because he wielded the knife.

Also, the most popular candidate with the Conservative membership was Kemi Badenoch, who is black, but far more radical than Rishi Sunak, who was forced to defend Treasury orthodoxy.

I’m not convinced it has much to do with race.

[marksbrown]

I won't deny the UK doesn't have issues with race but it is not the US. Here class politics matter far more. Electing a multimillionaire married to a billionaire was never going to end well electorally.

[caoilte]

You forget the voterbase for choosing the Conservative Party leader. Conservative Party members skew older, whiter and more racist than the general public. Although in this case being the man who defenestrated Johnson didn't help his chances.

[notahacker]

She was mainly elected because of her promises to cut tax, versus Rishi's promises to stabilise things and cut services where necessary

The latter course of action wouldn't have been wildly popular with voters (even those outside the 100k party members that made the selection who are a lot more impressed by Thatcherite postures than the average person), but it wouldn't have sparked the present response from forex and financial markets.

[pyb]

I think the reason Rishi didn't sway Conservative party members is mostly 1., But you're not supposed to say it out loud. Truss was very much a nonentity until last month

[Brakenshire]

The most popular candidate with the party members was Kemi Badenoch, a black woman, so it doesn’t seem credible that people voted against Rishi Sunak mostly because of race.

[tut-urut-utut]

Well, supposedly the most popular was a black woman, the most competent was an Asian man, and who gets the post in the end? The most incompetent of them all, whose only advantage is being white.

If that is not racism, I don't know what it is.

[Brakenshire]

The members weren’t allowed to choose Badenoch, she was eliminated at an early stage by the MP vote, probably because she was too radical and lacked ministerial experience.

Rishi Sunak was claiming to be resident in the US while Chancellor of the Exchequer, while his wife was claiming non dom status to avoid paying tax. He was also hated by the supporters of the previous PM because he wielded the knife.

It’s not a shock that elections are not won on competence.

[ceejayoz]

"Most popular" and "too radical" are kinda contradictory here. If she was "too radical", she wasn't popular, at least as a PM candidate.

[rcarr]

I reckon racism would have played a part with some of the Tory party members. However, I think Sunak’s bigger problem was that he came across as very, very swish, fake, metropolitan and brown nosey which the traditional Tory party membership (country folk) absolutely detest. The City job, the expensive suits and short trousers with loafers, the pretending to drive a car, the “my favourite tv program is Emily in Paris”, the “I’m a Coca Cola addict”, the “Thanks PM” meme. He was Team Brexit, but everything about his personality screamed Team Remain. Contrast this with Liz Truss who was Team Remain but who “welcomes any Britain to go join Ukraine and fight Putin”, bellows for tax cuts for the rich and generally presents herself as a very traditional almost rural conservative person. I think when you look at it through this lens it makes a lot more sense.