The new British government sees the economy through a very particular prism. The recession is not such a thing, but a "statistical anomaly". Taxes on energy companies are not that, but a "cap on their income." It is not going to cut social subsidies but to "spend the money in a more reasonable way". And the markets are wrong to punish the British pound and Treasuries, because Putin, the war in Ukraine and the “enemies of growth” are to blame for everything. It's like when Franco spoke of a Judeo-Masonic conspiracy.
The Prime Minister, Liz Truss, insisted this Wednesday in the Commons that she is not going to back down on her financial plan, although she has already backed down on the annulment of the 45% tax rate on large fortunes, and on the refusal to a windfall tax on renewable energy companies (which will take the form of a cap on their profits, a Labor brainchild). The Tory leader ruled out that she will also restore the increase in Social Security rates and corporate taxes that Boris Johnson had announced.
But his statement was received with widespread skepticism at the political level, because he has to get the approximate 70,000 million euros he needs to balance public accounts from somewhere after his snip at taxes. And if subsidies to the poorest, sick and unemployed, and the Health and Education budgets are ruled out, then there is not much left to cut...
Nor did the markets react well to the Bank of England's announcement that it was no longer going to buy more Treasury bonds to prevent the collapse of pension funds, because it was a temporary emergency measure that cannot be perpetuated. The cost of gilts skyrocketed to the same levels that triggered the intervention when the chancellor of the Exchequer Kwasi Kwarteng (nicknamed Kami-kwasi-Kwarteng) announced the largest reduction in the tax burden in half a century, in the midst of inflation, and with the consequence predictable rise in the cost of mortgages for millions of Britons.
The UK economy unexpectedly shrank 0.3% in August due to a decline in manufacturing, oil and gas, fueling fears that it could enter a recession by the end of the year, with inflation running above ten percent. Truss, without an electoral mandate, remains determined to experiment with the welfare of the British the old neoliberal theory, never proven in practice, that lowering taxes generates growth. The markets don't see it.
