Budgets often reflect nothing more than the dreams and aspirations of a finance minister. Today Britain’s finance minister presented a budget which revealed something more sinister. The overthrow of the Johnson government was indeed a secretly plotted and suddenly executed attempt to dislodge the electoral mandate (for “levelling up”) of a government and replace it with an undemocratic mandate to serve the interests of the very rich, while bearing (or “levelling”) down on the poor.
This IS the right wing Revolt of the Rich.
Johnson’s elected government’s 2019 manifesto promised: "Millions more invested every week in science, schools, apprenticeships and infrastructure while controlling debt." Today, the Debt Management Office reported effectively that debt was no longer being controlled - but would expand by £72 billion by the end of this year -£45bn of which is attributed to the debt-financed tax-cutting package “that sparked a historic increase in borrowing costs.”
Britain now has an extreme right-wing government with no electoral mandate, and one supported by a minority of Tory MPs in a deeply divided governing party.
An unelected government that has chosen this moment to use the power of the state to capture public wealth and divert it to the top ranks of the private sector - bankers, investors, developers and speculators. At the same time the poor are threatened with the loss of livelihoods if they do not single-handedly increase their own meagre earnings. They are expected to do this as the economy is deliberately plunged into recession by a combination of inflationary rises in globalised energy and food prices; by a corresponding fall in real (inflation-adjusted) wages; and by the ratcheting up of interest rates by the Bank of England.
Speaking of the Bank of England: that institution is now engaged in open conflict with the Liz Truss regime and Kwasi Kwarteng, the new finance minister - a conflict that can only end in economic upheaval.
Yesterday the Bank published a statement on the decision of the members of its Monetary Policy Committee (MPC) to raise the Bank rate of interest to 2.25% and admitted that consumer price inflation is not worsening, but is already falling - “from 10.1% in July to 9.9% in August. It also asserted dishonestly that “nominal wages have continued to rise.” Nominal wages are not real wages and economists at the Bank of England know that. Real Wages are falling. Bank of England economists know that too.
An economy in which public wealth is deliberately siphoned upwards to the few and away from both the majority, but also from investment in productive, income and tax revenue-generating activity; one in which public borrowing is aimed at tax breaks for the 1% that do not spend their new wealth, while both private and public borrowing is deliberately made more costly - is an economy driven “with both accelerator and hand brake hard down.”
It is one in which globalised markets, and the wider British public will quickly lose confidence. Indeed markets on the day of the Budget began by shorting the Pound - causing sterling to fall close to parity with the dollar. As more than half of all energy and food consumed in Britain is imported - a weakened sterling will fuel inflation, and drive wages down further.
Kwasi Kwarteng - now dubbed Kami-Kwasi - is described by some commentators as a “Keynesian”. Indeed the BBC’s Newsnight placed a journalist reporting on Kwarteng in front of King’s College - Cambridge’s wealthiest college, saved by Keynes’s investment strategy after he failed to predict the 1929 Crash.
But to align Kwarteng with Keynes is profoundly wrong. Keynes did not advocate policies that would cause the public debt to rise. He rightly argued that a rise in public debt was the consequence of private market failure and public sector cuts - a fact proved by the Osborne term as finance minister. The more austerity worsened the post-Global Financial Crisis recession, the higher rose the UK’s public debt, as we explained in 2016 in The Economic Consequences of Mr Osborne:
Some six years later, vast damage has been inflicted on public services and the public sector workforce. Five years of consolidation became ten years, with total spending cuts virtually doubling in size. The economy has barely expanded in per capita terms relative to the pre-crisis peak, and public sector debt as a share of GDP is still rising in spite of a vast fire sale of public assets.
In periods of full employment and prosperity, public debt falls, as the 1945 -51 Labour government so comprehensively proved. And as Geoff Tily has argued in Keynes Betrayed
Keynes was primarily concerned with the prevention of crisis through monetary reform; the use of fiscal policy in the event of crisis was a secondary consideration. Likewise, some international context is unavoidable, given monetary policies are inherently global in institutional terms and practical effect.
The government’s Debt Management Office followed the Budget with the announcement that its Net Financing Requirement (NFR) for 2022-23 is rising by £72.4 billion to £234.1 billion following the publication today of the Government’s Growth Plan. The increase will be financed by:
additional gilt sales of £62.4 billion, taking the planned total in 2022-23 to £193.9 billion; and
additional net sales of Treasury bills for debt management purposes of £10.0 billion, taking the planned increase in 2022-23 to £40.2 billion and the planned stock at end-March 2023 to £77.0 billion.
This comes the day after the Bank of England announced that it was going to commence with ‘Quantitative Tightening” - by selling £80bn of gilts (bonds) over the next 12 months.
For both government and central bank to be dumping billions of gilts into a global “bear market” for bonds, is courageous - to say the least.
(PS the American “doozy” means “something outstanding or unique of its kind.”)
This insurrection by a political elite on behalf of the very rich may be put down quickly - by Tory MPs. It may also be sustained until the next General Election - not due until 2024. But history has a knack of repeating itself:
It took three years for Lawson’s boom to bust. Does that mean Kwarteng’s boom may not bust before a General Election?
To pose a different question: will this putsch lead to a wider public revolt - against this government of the rich, sooner rather than later? And if so, what form will that revolt take? The institutions to watch are the British trades unions. Will the numerous strikes now taking place - and the Truss government’s determination to further shackle trade union organisations - lead to more strikes and greater working class cohesion?
Watch this space - and this working class woman - general secretary of Britain’s biggest and wealthiest union: Sharon Graham.
Excellent piece- so clear- thank you.
Makes me think that ‘right wing’ isn’t a useful term any more. Truss has managed to appall both the neoliberals and the traditionalists at once. A particularly destructive ideological populism with added incompetence.