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.
The tax breaks though, were totally an own goal.
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.
Reading https://www.bruegel.org/dataset/national-policies-shield-con..., the UK allocates about double of what France, Italy and Germany allocate to it.
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.
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.
Source: https://www.gov.uk/government/statistics/percentile-points-f...
> 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.
(But sure, Truss’ announcement did cause a temporary slump even in the GBP/SEK exchange rate.)
I'm an economist and this is wrong. I usually see this line on on Reddit and not from any journal.
> 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.
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".
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.
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.
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.
If that is not racism, I don't know what it is.
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.
(tbh I didn't see much indication she was the 'most popular', but there were definitely plenty of members of the party receptive to her message, doubtless including many of those most likely to espouse racist sentiments)