Breaking news: Liz Truss is the next PM

[ErmagerdtheQuern]

God help us all.

I think it depends how you view what the Tories have done and are doing. If you think it is great/OK/barely acceptable then of course you wouldn't cut off your child. If you see what they have done as leaving children/the elderly/the disabled in poverty, the NHS is falling apart, we don't have enough police officers, they support sex offenders, break the law etc you might look at your child and think how the hell do they think that is OK. I don't think I'd cut mine off but I would be disappointed and I wouldn't be able to understand.

As expected, sounds like Truss will freeze energy prices at £2,500. A libertarian in a leadership contest, a big state proponent when actually in power.

Exactly.

@JaniieJones, you might consider it unreasonable or bizarrely judgemental but I'm not clear as to whether that's because you are blissfully unaware of the terrible impact of Tory policies on vulnerable people, or whether you just don't care about it.

I think inevitably she was going to do something like this.

How does that relate to the current and to the October cap? Somewhere in the middle?

I have googled and answered my own question.

it is indeed somewhere in the middle, but closer to April’s rates rather than October’s.

that’s a relief!

And to add, it hasn’t actually been formally announced yet. So could still change.

Sky have been saying she will fix it on the Oct price cap so still 80% more.

Harry Cole
@MrHarryCole
JUST IN: Despite speculation/mischief-making to contrary, Truss bailout is not a loan scheme that will see higher bills in future to pay it back.

Multiple sources from govt and industry saying it will come from taxation/borrowing.

That whole 'no more taxes' schtick didn't even last 24 hours after getting the job, then. I'm glad she u-turned, it was inevitable, but lol.

www.spectator.co.uk/article/liz-truss-s-energy-price-freeze-would-be-a-mistake

Gosh and think there was no magic money tree - Speccie in house magazine of the Tories right on this one.

It will take the wind out of Labour’s sails, yet the scheme would involve a massive build-up of government debt. Moreover, it would mean even greater subsidies for the wealthy than would Rishi Sunak’s £400 handouts. Under Sunak’s scheme, the maximum benefit any household could derive was £400. Under Truss’ scheme, the bigger your home, the more energy you use to heat it, the more the taxpayer will be helping you. It is widely accepted that there will have to be some help for poor households, but fat subsidies for owners of draughty country houses?

There is another objection, too: a price freeze will undermine market forces, helping to prolong the crisis. Soaring energy prices are not popular, but they do at least have the advantage of encouraging people to save energy, either by turning their thermostat down, insulating their homes or by switching to more energy-efficient appliances. That helps to right the imbalance between supply and demand which has caused the hyper-inflation in wholesale energy prices. But if energy prices are frozen, where is the incentive to save energy? Demand will continue at a higher trajectory than it would have done without the price freeze, prolonging the crisis.
^^
Truss has yet to announce a price freeze, and so at the moment this is conjecture. But if she really is planning to spend £130 billion of our own money paying our energy bills for us, many are going to start asking: what happened to that promise to end ‘Gordon Brown economics’? This would be Gordon Brown economics on speed.

And thief of the opposition’s policies, without the fiscal competence to cost and pay for them.

If I were Labour I'd go all in on the windfall tax now. People will be happy with price freezes but they'd rather energy companies weren't benefitting from it.

Hmm, two vastly different sums being reported then. I hope it is formally announced soon.

but Isn’t that good? That she is freezing it? What would a preferable alternative look like?

I don’t think she could get the energy companies to give up their profits without being accused of being anti business and that would lose her the support of big business. If she did noting, small business ( helped out on furlough) would close/ go under as their bills would be too high plus customers are not going out with big bills at home to pay.

I think (if it happens), it is a solution that is tolerable to most, no? The Spectator ref to big houses benefitting and lack of incentive to reduce usage is accurate and I would like to see a limit there

but Isn’t that good? That she is freezing it? What would a preferable alternative look like?

It is good. It was also political inescapable and it was silly of her to be coy about it before now. If it's paid for by taxes and borrowing she's begun her first day on the job with a u-turn and it no doubt sets a precedent for the rest of her tenure.

If she does as the Spectator suggests then this is worse than bad - at least Sunak with his brain and background understood basic economics. If there is not a gilt and bond crisis soon then I would be most surprised. Then we are into soaring inflation, massive increases in debt repayment and a rapidly falling currency that will feed into the rising cost of imports that feedback back into that spiral.

www.ft.com/content/6facf534-015b-4d5d-bf52-07d6277ab831

@vera99

i don’t understand this, Vera - why would it cause a gilt and bond crisis?

@vera99
I take the points you have quoted but I think that people will be trying to save energy costs even IF they are frozen @ todays prices because the cost of living is going up in all other areas as well, especially food (& fuel, compared to 12m ago). So, people will still be economical with the heating this winter anyway.

Because foreign investors funding our government debt decide they can get better returns elsewhere - the only way to counter that is by increasing interest rates and quickly which is what the Fed is doing and with the dollar as global reserve currently sending it higher. Failing that we could do more QE and print more money but that would be inflationary. So there are no good options left now except to tax capital - windfall taxes - that is 'free' money - but Truss seems to be signalling that is sacrosanct. I'm no economist so I may have got that wrong.

In short we are on the brink of a major economic shock.

www.ft.com/content/6facf534-015b-4d5d-bf52-07d6277ab831

“The UK is in a particularly fragile position,” said one hedge fund manager shorting gilts. The country is “asking foreigners to basically fund” plans for unfunded tax cuts and spending increases “at super low interest rates”, the person added.

Odey Asset Management, BlueBay Asset Management and Transtrend are among the hedge funds betting that yields on gilts will continue rising as investors shun UK government debt.

Foreign investors ditched £16.6bn worth of gilts in July, the biggest sell-off in the market in four years, according to BoE data released on Tuesday.

“This is only the start,” said Crispin Odey, the founder of the eponymous group. “You’ve got to remember that the [market] consensus is that we’re going to be at less than 3 per cent inflation by the last quarter of next year,” he said, adding that such a forecast was “rubbish”.

Thank you @vera99

Because foreign investors funding our government debt

who would these be? Billionaires, etc? Saudi investment funds?

Apparently its a secret!

www.thelondoneconomic.com/business-economics/who-owns-our-national-debt-its-a-secret-287907/

Surely Brexit also influenced foreign investment willingness?!

“Foreign investment into the UK is now predicted to fall by 37% post-Brexit, a 50% increase over previous estimates, as a result of leaving the EU single market and customs union, finds a new study by UCL and LSE economists.” - www.ucl.ac.uk/news/2020/oct/foreign-investment-expected-fall-37-post-brexit

I don't think that the Tories are more woman-friendly in general -with regard either to overall policies, or selection of MPs- but they do seem more willing to choose women leaders. Which - it has occurred to me- may be because of their first one; many of them idolize Thatcher, and want someone who looks as much like her as possible!

She wasn’t brown. That’s what the Tory members voted for. Someone who wasn’t brown.

She and we are facing a 'perfect' and frankly horrendous storm. Covid , Brexit and Johnson's bills have finally been presented.

www.ft.com/content/72e286b4-deff-4805-8265-78c1eb17584b

That poor productivity trend reflects the rise of zombie companies and the over-financialisation of the British economy, as well as the lack of capital investment. In effect, though, it means that much of the economic growth in the past 12 years has been somewhat illusory. That is, either built on more debt, less savings and/or a wealth effect from rising asset prices.

Further adding to its challenges, the country also has a central bank that seems reluctant to embrace the need for higher UK rates (and thereby defend the currency level). And if Liz Truss implements promised tax cuts as prime minister, then imbalances will surely grow.

As such, and given that impending US and therefore global recession in 2023, the dollar’s rapid rise against sterling looks set to continue, with the pound heading for parity against the dollar (and perhaps beyond) over the next six to 12 months. If that is correct, then one hedge (in a world lacking in obvious means of hedging) is to buy insurance against the risk of loss on UK government debt, ie five- and 10-year credit default swap instruments.

At a time of large current imbalances and tight liquidity it becomes essential to “live within your means”. Market worries over the UK will rise as its imbalances increase. The kindness of strangers can only be stretched so far.