On September 6, almost a month ago, Elizabeth II, bent and very short, made the last public appearance of her 70 years of reign. Two days before he died received in his Balmoral residence Liz Truss, the conservative leader elected by his party to replace deposed Boris Johnson, ask him to form a government. The British, with their phlegmatic black humor, now claim that the monarch preferred to leave this world in order not to witness the disaster the prime minister would have caused.
(Read also: The uproar caused in the UK by the Executive’s tax plan)
A few hours after his meeting with the queen, Truss won some applause by making £ 100 billion ($ 113 billion) available to subsidize the price of energy for households and businesses. As for families, of the 3,500 pounds a year they have had to pay for price increases, they will only pay 2,500. The measure has worried the markets because it aggravates the debt and the deficit, but the two weeks of mourning and homage to the deceased monarch provided a respite for the new government.
After Isabella II’s funeral, the truce ended. At the urging of his finance minister, Chancellor of the Exchequer, Kwasi Kwarteng – son of Ghanaian immigrants, famous for his colloquial speech and use of big words – on Friday, September 23, Truss launched a bold tax reduction program.
To cover the tax gap caused by the wave of subsidies the government took in during the covid-19 emergency, his predecessor Boris Johnson – for whom Truss was foreign minister – raised tax rates on companies and alcoholic beverages. as well as the income tax, especially for the richest. Kwarteng convinced Truss to suspend those hikes and even stop raising the top income tax, which was supposed to rise from 40% to 45%.
(You may be interested in: The Challenges of Modern Margaret Thatcher)
Liz Truss, Prime Minister of the United Kingdom, whose government has not started in the best way.
“He is irresponsible and complacent”, former Economy Minister Rishi Sunak, defeated by her in the race to succeed Johnson, spoke out on Truss’s plan. Within hours, the markets proved Sunak right: the downgrade program increased the public debt by £ 72 billion in the short term and, as a result, the pound fell against the dollar to levels not seen by the public. 80s. devalued at great speed. Forced to step in, the Bank of England invested in its reserves and bought four-handed bonds.
The markets have just calmed down and the International Monetary Fund (IMF) issued a statement in the tone it often uses to berate Third World countries. In a situation like the current one – high inflation and high fiscal deficit – the IMF “does not recommend” a reduction program like the one proposed by Truss and Kwarteng, the entity said in a statement. The storm had just begun.
Inversion
The last hours of September were marked by new shocks, but not only on the stock markets, but also within the Prime Minister’s party. Called for a congress this Monday, in Birmingham, the conservatives over the weekend gave free rein to their criticisms of Truss and Kwarteng, terrified by the worst number of polls in decades.
According to opinion firm YouGov, if the elections were held now, the (conservative) Tories would barely get 21% of the vote, compared to 54% of their Labor opponents. When some delegates at the party congress began scrambling the names of candidates to succeed her, the prime minister realized that if she had not backed down at least in part, she would not have survived the Birmingham summit.
(Also: Liz Truss vows to “weather” the economic storm after taking office as prime minister)
The premier understood that, if she had not pulled back at least in part, she would not have survived the summit
On Monday morning, Kwarteng tweeted that the 45% to 40% cut in the rate for the income of the richest would not be enforced due to widespread criticism. “We understand, we listened,” she explained. And while some conservatives praised the correction, others, such as former culture minister Nadine Dorries, saw it as negative. “It is true that they should seek a certain balance – he said -, but throwing the finance minister under the bus is not”.
The serious thing for Truss, and for the UK, is that on the contrary, the economic crisis has little resolution, since the bulk of the plan is still standing and it can bring the country to the brink of bankruptcy. The popular London newspaper Daily Mirror was more categorical: “The damage has already been done,” he headlined. But in addition, the change leaves Kwarteng and the premier herself in a very fragile position. A weakened and unpopular government, facing the worst economic storm in decades, is not exactly the kingdom that Charles III, who waited so many years to ascend the throne, hoped to inherit.
Conservative Party Annual Conference in Birmingham.
Brexit legacy
It would be unfair to blame Truss and Kwarteng for everything that happens. It is true that they poured a gallon of petrol on the flames, but also that the bonfire that the UK consumes today was lit several years ago, when in 2016 the populism that blamed Europe for all evils convinced the majority of British voters to give free rein, through a referendum, to the withdrawal from the European Union, the famous Brexit.
Boris Johnson, who would later become prime minister, was a major driver. He and his traveling companions made dream of a revitalized Great Britain which, freed from the alleged obstacles that Europe imposed on it, would regain its predominant place on the planet. None of this happened and, indeed, six years after the vote, and even before the mistakes of Truss – who, incidentally, was opposed to Brexit at the time – the data shows that the UK has weakened.
(You can read: British Pound: Why is it worth nearly as much as a dollar?)
A report from the Center for European Reform is devastating. Comparing what has happened to the British economy over the past six years with countries that advanced at a similar pace to their own before Brexit and that suffered the pandemic in the same way, it turns out that British GDP has grown by 5.2. % in less; gross investment, 13.7 per cent less, and trade in goods, 13.6 per cent less.
The costs of the procedures and paperwork they now have to fill out to export to Europe have forced fishermen, agricultural producers and small and medium-sized industrialists to forgo their sales on the continent. Post-Brexit customs taxes have increased import costs by 6%, which partly explains why inflation in the UK is around 10%, while in European Union countries it is 7.5%.
The UK’s withdrawal from the European Union had a major impact on the nation’s finances.
It’s what Economist analyst Duncan Weldon calls the ‘perfect storm’: high energy prices, the strongest inflation in 40 years, slowed exports, rising interest rates, higher public debt (as a percentage of GDP) in half a century and affects the increase. Unsurprisingly, a recent UK consumer confidence study scored the lowest figures since 1974.
Nor is it that, in a survey by the Statista firm, 52% of Brits said Brexit was a bad decision, compared to only 36% who considered it good. In another survey, by the company Omnisis, 67% said that Brexit increased inflation and 64% that it brought negative effects.
Who knows what would happen if there was a referendum on returning to the European Union, but if that vote was held and a return to Europe was imposed, negotiating that return would be extremely complicated. It is much easier to remove the toothpaste from the tube than to put it back in.
the disunited kingdom
The crisis also threatens the unity of the old empire. In Scotland, the majority believe that the withdrawal from the EU did them enormous damage that they did not seek, because, in fact, in that region, voters rejected Brexit, even if they still had to submit to the national result.
In the cold Scottish lands the winds of independence have returned to blow. While 55 percent of voters voted against independence in 2014, versus 44 percent who voted in favor, polls now show a draw, with a new referendum in sight in October 2023, which will be consultative in nature. .
Northern Ireland, another part of the UK that did not win Brexit, has been particularly hard hit: its sister nation, the Republic of Ireland, remains in the EU and the deals that have brought peace after decades of violence in that region are expected there would be free trade between the two Irish. Due to Brexit, customs barriers exist to trade between Northern Ireland and the rest of the UK, which has made life difficult for many employers and workers.
(Read on: First country to seek separation from the British crown after Queen Elizabeth’s death)
Scottish Prime Minister Nicola Sturgeon has launched the campaign for a new referendum to allow them to become independent from the UK.
This explains why the separatists of Sinn Féin won the parliamentary elections in May and why the desire of most of its inhabitants in favor of joining the Republic of Ireland and leaving the United Kingdom has grown again. Something similar happened with the inhabitants of Wales, the other region that makes up the United Kingdom. In short, in addition to the high economic costs that the British, Welsh, Scottish and Irish have had to bear for Brexit, there is also the risk that the remains of the former British empire will implode.
Solutions? The economic crisis will continue if the Truss measures do not worsen it further. As for a possible return to Europe, it would take years to become a reality and even longer to bring benefits. So the only thing the British can hope for, with their new King Charles III at the helm, is that the government will be able to mitigate, at least in part, the damage already done. If not, the real crisis has just begun.
MAURICIO VARGAS LINARE
FOR THE MOMENT
[email protected]
More news
Gas consumption in Europe will experience a record 10% decline in 2022
The escalation of the annexation of the Ukrainian territories to Russia
Giorgia Meloni: How did you rise from the ranks of post-fascism to power in Italy?
