The UK’s economic crisis shows no sign of easing as Prime Minister Liz Truss doubles her nearly $50 billion tax cut package that has roiled markets.
Just weeks into her tenure as Prime Minister, Truss’ tax-cut frenzy has plunged the UK into an unprecedented economic crisis, forcing intervention from the Bank of England and an unprecedented rebuke from the IMF.
The pound has fallen to an all-time low, fearful investors have sold $500 billion worth of UK assets and the UK property market has been pushed to the brink.
While Truss’ fiscal overhaul was widely condemned and earned the UK comparisons to emerging markets from the likes of Ray Dalio, politics has always been at the heart of her leadership campaign, helping her garner enough votes from around 180,000 Conservative party members to secure the top job in parliament.
Sunak saw it coming
Her main rival for the post, Rishi Sunak, earned some justification last week after making it clear he was passionately opposed to tax cuts as the pair battled to succeed Boris Johnson, who resigned at half-time.
During the course of the leadership campaign, Sunak made some ominous predictions about Truss’s favored tax cut policy, warning that by approving it it would increase borrowing to “historic and dangerous levels” and add “fuel to the fire” for rising costs.
Both candidates served in Johnson’s cabinet, but their conflicting views on tax cuts – and Sunak’s dire warnings about what would happen if such policies were implemented – led to him being sacked by the press and, in some cases, ridiculed.
Referred to as “Doomster” and “desperate”.
Sunak, who denounced Truss’ plans as “fairy tale” economics for months before becoming prime minister, has been dismissed as a pessimist for expressing those views.
Nadhim Zahawi, who replaced Sunak as finance minister, dubbed Sunak a “doomster” in late July when he endorsed Truss as the next prime minister, a tenure that followed Sunak throughout his leadership campaign.
“Who is Sunak kidding with his sterling warnings?” The audience questioned in an August article and described as “distressed” for warning that the Sterling, Gilt and FTSE markets would go into free fall if Truss cut taxes significantly.
Despite the criticism, Sunak doubled down on his warnings about the fate of the UK economy if tax cuts are implemented as the cost-of-living crisis rages on.
Tax cuts for the rich are a mistake, Sunak warned in early August, insisting Truss’s “dangerous” plans risked “making things worse.”
“If we don’t do that, I can tell you that not only will millions of people suffer, but there will be absolute pressure on us in an election,” he predicted. “The British people will not forgive us for not doing this.”
Warnings against irresponsible borrowing
YouGov’s latest poll of voting intentions in the UK showed this week that Truss’ Conservative party has suffered “a major blow” following the unveiling of the government’s tax cut plans. The opposition Labor Party, YouGov said, now has its largest margin on record, winning 45% of the vote to 28% for the Conservatives.
Writing in a British newspaper The times Weeks later, Sunak argued that the fiscal policies proposed by Truss would do nothing to ease the UK’s cost of living crisis.
“Cost of living support or lower taxes?” he asked. “It can’t be both.”
In a later interview with the financial timesHe said Truss is making unfunded spending commitments by pledging to cut taxes immediately and said he’s “fought to see” how her promises to both cut taxes and help those struggling with the crisis pan out of the cost of living would add up.
“The most pressing economic priority for the new prime minister and government is to get inflation under control,” Sunak said during a leadership debate over the summer, where he and Truss argued over the best way to recover the economy.
“I don’t think it’s responsible right now to jump into bad debt and more debt, which will only make inflation worse, it’ll make the problem last longer.”
Speaking directly to Truss, he added: “Liz, we have to be honest. Borrowing from inflation is not a plan, it is a fairy tale.”
Sunak’s representatives did not reply wealtha request for an interview.
While Sunak has not commented publicly on the impact of Truss’ policies, his supporters have noted in recent days that the government has been “precisely warned of the consequences [of its tax cuts] would.”
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