Rational behind Kwasi Kwateng’s budget

[UserOneSquillion]

Genuine question, what is the rationale? On paper he is a extremely intelligent man with a background in economics. Was he following Truss’s orders? Is he trying to keep big business in the UK? If so wouldn’t it be better to lower business tax rather than income tax? Absolutely no one seems happy with this.

[Zilla1]

Could be rewarding the base and interests and/or a deliberate policy echoing US Republicans to 'starve the beast' and force a small government agenda. Exciting times.

[PersonaNonGarter]

This is inaccurate analysis, even if it may resemble the outcome.

He has valid economic thinking and all chancellors have to make decisions (pick a horse). What’s happened here is that the other bookies don’t like the odds. The race hasn’t actually been run yet.

[Cornettoninja]

@Bootsandcat

Good question. If only politicians are required to provide rationale to their policies….

They’re meant to www.parliament.uk/about/how/role/check-and-approve-government-spending-and-taxation/the-budget-and-parliament/ we have an office for budget responsibility that should make forecasts on any new budget. They’ve called it a ‘fiscal statement’ to avoid this.

[SafferUpNorth]

It's state capture - see my thread:
www.mumsnet.com/talk/am_i_being_unreasonable/4643665-to-call-the-current-situation-state-capture

The welfare of ordinary folk doesn't feature in this government's calculations. Not one iota. It serves purely to enrich its cronies. Hard to see it any other way, really.

[Cornettoninja]

@PersonaNonGarter

This is inaccurate analysis, even if it may resemble the outcome.

He has valid economic thinking and all chancellors have to make decisions (pick a horse). What’s happened here is that the other bookies don’t like the odds. The race hasn’t actually been run yet.

Does he though? There’s not much information accompanying his decisions and why he thinks they’re right.

Its more like del-boy promising you that the horse you’ve just bet on it an absolute winner but you haven’t seen behind the stable door. Could be a donkey in a bow tie.

[balalake]

All very well wanting supply side reforms to boost growth, but one part of the equation has been taken away. Most businesses need more staff if they are to grow, and Brexit has taken away many of those extra people able to be employed.

[DillonPanthersTexas]

Basically a smash and grab for the rich before they are slung out of office while ensuring Labour inherit an absolute shitshow which will never get sorted out with a single term in office but the electorate morons fueled by the press will blame Labour anyway for the last decade of incompetence.

[SafferUpNorth]

@balalake

All very well wanting supply side reforms to boost growth, but one part of the equation has been taken away. Most businesses need more staff if they are to grow, and Brexit has taken away many of those extra people able to be employed.

Exactly. The whole "supply side reforms" is just a bllsht explanation and doesn't hold water. Plus, even if this massive gamble to boost growth pays off, it won't do so for another few years at least. And it does absolutely zilch to get struggling families through the next few months. Trickle-down economics was long ago proven to be a myth.

They know it, though, because the real intention behind this "fiscal event" is to effectively asset-strip the country before the next GE, because they know they;re out on their arses.

[BambinaJAS]

@potniatheron

Literally just discussing this at work (I work in the City). So far suggestions from my colleagues on the rationale have been...

1. He's trying to do supply-side reforms, but totally fogot that you can't have an expansionary monetary policy with such a large deficit;
2. The income tax cut was a deal Liz Truss made with Tory backbenchers in exchnage for their votes and that's why she suddenly was catapulted to frontrunner out of nowhere;
3. Kwasi got really, really stoned, but as a joke someone slipped some shrooms into his joint and about half an hour later he signed off on the budget.

personally my moneys on some mix of 2 and 3.

If you follow the US, what he is trying to do is a classic Libertarian move.

1. Tax cuts
2. Large budget deficit created
3. Spending cuts
4. Size of State shrinks

The problem with Kwarteng, is that while he is no doubt intelligent, he is also an ideologue and inexperienced in finance.

Talking theory at the Harvard Club is not the same as working in the market and really understanding its idiosynchracies. He made a rookie error due to lack of real world experience essentially.

Its 50/50 on whether he gets the boot at this point.

[UserOneSquillion]

Am learning a lot from this thread, thank you. Good to have a rational conversation about what is going on and try to understand the very complex economics which admittedly is not my strong point.

• Disclaimer - I am not Liz Truss

[paintitallover]

According to Adam Tooze in the Guardian yesterday, it's a classic trick from US to shrink the public sector. Someone linked it here yesterday.

[IrisVersicolor]

I’ve said this on another thread. The long term ERG plan for the U.K. is a US style low tax low reg economy - Leave EU, then light a bonfire of taxes, regulations, state services.

That was all conceived pre-Covid, pre-inflation, pre-Ukraine, pre-energy price crisis.

They’re too impatient or too inflexible (or too stupid) to slow down and nourish the economy first as a means of funding the tax cuts. So they just went blundering ahead regardless of the fact our economic circumstances.

This is the group who were advocating No Deal and WTO rules trading, so disaster capitalism is their friend. (They think).

[IrisVersicolor]

@BambinaJAS

If you follow the US, what he is trying to do is a classic Libertarian move.

1. Tax cuts
2. Large budget deficit created
3. Spending cuts
4. Size of State shrinks

The problem with Kwarteng, is that while he is no doubt intelligent, he is also an ideologue and inexperienced in finance.

Talking theory at the Harvard Club is not the same as working in the market and really understanding its idiosynchracies. He made a rookie error due to lack of real world experience essentially.

Its 50/50 on whether he gets the boot at this point.

I don’t think it’s just inexperience, although JP Morgan + hedge fund is not sufficient, it’s also the ideological madness that has gripped the hard right since Brexit. In the grip of ideology black can seem white.

None of the Brexit sums have ever added up, people didn’t notice as just as we Brexited we plunged into Covid.

[BambinaJAS]

@IrisVersicolor

I’ve said this on another thread. The long term ERG plan for the U.K. is a US style low tax low reg economy - Leave EU, then light a bonfire of taxes, regulations, state services.

That was all conceived pre-Covid, pre-inflation, pre-Ukraine, pre-energy price crisis.

They’re too impatient or too inflexible (or too stupid) to slow down and nourish the economy first as a means of funding the tax cuts. So they just went blundering ahead regardless of the fact our economic circumstances.

This is the group who were advocating No Deal and WTO rules trading, so disaster capitalism is their friend. (They think).

Its inexperience and political desperation.

They have two years to show economic benefits (next election 2024).

Doing it the slow (and proper way) would not work for them given the timescales. Hence the "Big Bang" approach.

The inexperience is Kwarteng thinking the markets would not react.

Ideology is no substitute for real world financial experience.

He basically has none.

Talking shop at the Harvard Club or theory with the ERG types here is not the same thing.

[Quveas]

Astonishing range of replies. It's easy. Tories are always on the side of rich bastards. They exist for no other reason. They never have. Anyone who thought otherwise was conned. You see their true colors now. And half of you will vote for them again next time in the vain hope that if you behave and work hard, you'll end up rich(er). Good luck with that.

[IrisVersicolor]

@BambinaJAS

Its inexperience and political desperation.

They have two years to show economic benefits (next election 2024).

Doing it the slow (and proper way) would not work for them given the timescales. Hence the "Big Bang" approach.

The inexperience is Kwarteng thinking the markets would not react.

Ideology is no substitute for real world financial experience.

He basically has none.

Talking shop at the Harvard Club or theory with the ERG types here is not the same thing.

Agreed.

Ideology + inexperience is generally lethal.

[TooBigForMyBoots]

@balalake

All very well wanting supply side reforms to boost growth, but one part of the equation has been taken away. Most businesses need more staff if they are to grow, and Brexit has taken away many of those extra people able to be employed.

PM Truss plans to bring in loads of immigrants to break the strikes that are coming to do low paid and manual work. As well as "hoping"😆 to attract immigrants with skills.

[IrisVersicolor]

@TooBigForMyBoots

PM Truss plans to bring in loads of immigrants to break the strikes that are coming to do low paid and manual work. As well as "hoping"😆 to attract immigrants with skills.

Brilliant isn’t it.

[Everylittlethingsgonnabealright]

@Primprom

@Wheretheskyisblue thank you. Wow... Why isn't this in the newspapers? Such an illusion we live in, isn't it..

It is in the news…

www.theguardian.com/business/2022/sep/26/fca-urged-investigate-tory-allies-short-pound-insider-info-budget

[ChillyFloss]

@potniatheron

Literally just discussing this at work (I work in the City). So far suggestions from my colleagues on the rationale have been...

1. He's trying to do supply-side reforms, but totally fogot that you can't have an expansionary monetary policy with such a large deficit;
2. The income tax cut was a deal Liz Truss made with Tory backbenchers in exchnage for their votes and that's why she suddenly was catapulted to frontrunner out of nowhere;
3. Kwasi got really, really stoned, but as a joke someone slipped some shrooms into his joint and about half an hour later he signed off on the budget.

personally my moneys on some mix of 2 and 3.

Doesn't expansionary monetary policy usually involve an interest rate cut? I thought it was correctional monetary policy when interest rates went up? Genuine question.

[IrisVersicolor]

My question is will Liz Truss risk looking weak and inexperienced by firing him asap or by letting him stay. She’s either way.

[IrisVersicolor]

^ fucked is the missing word.

[Primprom]

@Everylittlethingsgonnabealright thank you for the link. Hope they do investigate it. The article does not really mention Kwasi's own links; hope it all comes out. It is all utterly disgusting.

Hope your name has prophetic value in this mess we are in :)

[BambinaJAS]

@ChillyFloss

Doesn't expansionary monetary policy usually involve an interest rate cut? I thought it was correctional monetary policy when interest rates went up? Genuine question.

The UK has to finance an existing strucural budgetary deficit.

They do this by selling Gilts (debt instruments)

The market assigns a risk premium to those Gilts based on the lenders (UK Gov) ability to repay

Because of the sizeable tax cut, investors see thr UK as a greater risk.

That drives a larger risk premium for those Gilts, leading to higher interest rates.

There is no monetary response here.

Its the market reacting to a perceived fiscal imbalance in the UK, which in their view makes the UK a riskier country to lend to.

[Felixfeather223]

@UserOneSquillion I think KQ is an economic historian with an arrogant predisposition, historians tend to have a pretty broad view on the grand sweep of history, so he probably thought he could go big and then just brazen through it, after a few months people would be patting them on the back for their bold, but ultimately correct moves.

They both really believe in radical free market libertarianism, as far as they are concerned the reason why it hasn’t really worked before is because no government has gone all the way with it.
see Britannia unchained- from the summary-

“The text sets out their vision for the United Kingdom's future as a leading player in the global economy, arguing that Britain needs to adopt a far-reaching form of free market economics, with fewer employment laws and suggesting the United Kingdom should learn lessons from the business and economic practices of other countries…”

also this gem is a direct quote from the book:
the UK has a "bloated state, high taxes and excessive regulation". It then says:

“The British are among the worst idlers in the world. We work among the lowest hours, we retire early and our productivity is poor. Whereas Indian children aspire to be doctors or businessmen, the British are more interested in football and pop music.”