What would happen if the gov just reversed its budget?

[Kendodd]

How would the markets react? Would it be even worse?

Better still if the reversed the budget and raised money with a windfall tax on oil and gas companies.

I don’t think even if you took every penny of profit you’d make enough to get us out of this hole

I know the public don't like Uturns, frankly, I'll never understand why not, sometimes a uturn is the obvious and only sensible thing to do and politicians shouldn't be punished for doing them.

Anyway, any economists, know what might happen? Would things just go back to how they were? I'm guessing not? But maybe?

It would signal that the Gov is very very weak, doesn't have the courage of its convictions and therefore whatever future decisions it makes no one will believe them so the markets would react to that uncertainty. And one thing markers don't like is uncertainty.

I think it would be even more disaterous!
Unfortunately I think she has to sell it as does he.

Now the markets are freaked I'm not sure a simple U turn can fix things. British debt has become unfinancable and the UK is in a grave economic crisis. They will have to dismantle the welfare state to pay for it. I fear this was the game plan all along.

Hopefully a general election

British debt has become unfinancable and the UK is in a grave economic crisis. They will have to dismantle the welfare state to pay for it. I fear this was the game plan all along

Yikes - I really hope you're wrong. But I suspect you're right.

They have been sneaking in private healthcare all along, and this does not get reported much in the general news.

I think the damage is done and no way back, unless we have a General Election and a totally new Conservative leadership party.

Markets don't like anything that seems like a government is out of control. They love certainty. U-turns can often reduce any sense of certainty about what is coming next, so the markets will respond by abandoning the pound (even more) until they are clear what it's going to do. I think a straight u-turn at this stage is just going to make an embrassing mess into a total disaster.

The public don't like u-turns for similar, reasons, I think. Thy will hate seeing the markets crash because they get worried about the repurcussions for them - so anything that impacts the market impacts the public's perception of the government and how well they are doing.

The public will hate u-turns on tax specifically because you cannot plan your personal budget when you don't know how much tax you are going to pay in the near future.

And yes, I agree that this all seems suspiciously convenient as a way to severely reduce social welfare spending.

Forgot to add, on the point of the welfare state, it is concerning that in the past Liz Trust has suggested universal benefits such as state pension should be scrapped.

They are desperate to get rid of the welfare state. They used austerity to run things into the ground. The pound is up a bit today because the BOE put in 65 billion of our money. Being skint as a country, whilst protecting some individuals who can remain very wealthy, is the perfect excuse to stop benefits for the poor, disabled,old and less advantaged members of society. To sell off the NHS. Libertarianism at work.

But if they did u turn, would that cause interest rates to fall? The public would like that surely?

Maybe, maybe not.

Interest rates don't rise or fall automatically: the BoE looks at the state of the country and the world and decides how to adjust interest rates to best achieve a healthy financial state (e.g. 2% inflation, no more, no less).

e.g. if you raise interest rates, people tend to have less spending money so buy less, so inflation goes down. If you drop interest rates, the opposite happens.

However, this week is different.

The pound dropped in value because the markets (that buy and sell currency) lost faith in its long term value so everyone started to sell pounds off.

As the pound dropped, the value of government bonds dropped which led to institutions selling them off. This is because bonds are valued in pounds. So a £100 bond might be worth $150 one day but only $100 the next, if the pound loses value to the dollar.

A glut of bonds for sale, dropped the value even futher. The BoE was worried about them spiralling down in value which would wipe out people's pensions (because one of the key buyers of bonds is pension schemes).

So they are likely to put interest UP. That makes the bonds more valuable because they pay dividends at a higher interest rate. Which stops people selling them. The BoE also started to buy those bonds themselves, to take them off the market and try and bolster the value that way (e.g. less available to buy = higher price).

If the government reverse their decision, that does not automatically mean the market will start buying pounds again. It make look at the shit show and think: I'm better off not bothering with pounds until I can be sure the value will remain stable again.

If the pound doesn't rise in value, bonds don't rise in value, people stop buying them (and start selling them) and interest rates have to stay high to make bond investment look tempting.

At least that's how I understand it. But I have no qualifications other than an interest....

Presumably you mean reverse the measures announced last Friday and not the tens of billions being spent on the buffer for the heating bills?

Yes, just the tax cuts. All analysis I've seen say it was this that was the problem. With regard the power bills, I would much rather a windfall tax than the government paying bills and contributing to massive profits.

a U turn wouldn't fix everything, but that doesn't mean it'd be a bad idea. Think of it like oversteering on a driving test. You need to make a turn, you veer wildly in the wrong direction. The pen hits the clipboard- you steer wildly back to the direction you were driving, you still haven't successfully made the right course adjustments, your driving instructor and examiner both think you're totally incompetent but you're no longer driving towards the wall.