LONDON — If anyone thought Britain was due a period of calm after Boris Johnson’s tumultuous premiership, no one told his successor.
The country was already facing an ugly menu of challenges. But the proposed solution by new Prime Minister Liz Truss has quickly sent the economy spiraling into chaos, threatening consequences both immediate and long-lasting for many Britons.
Her Conservative government’s 45 billion pound ($48 billion) plan to slash taxes — particularly for the country’s highest earners — has sent shock waves through financial markets, causing the pound to plummet and leaving Truss’ own political future in sudden doubt just three weeks after she took office.
After days of turmoil, the U.K. drew a rare stinging rebuke from the International Monetary Fund, one of the world’s top financial institutions, which urged the government to “reevaluate” a plan that may fuel already-soaring inflation and increase economic inequality.
The Bank of England, which is the U.K.’s central bank, made its own emergency intervention Wednesday. It announced it would buy up as much government debt as needed in an effort to restore stability.
Keir Starmer, the emboldened leader of the opposition Labour Party, joined others in urging the government to address the crisis by recalling Parliament, which is on recess.
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Few Brits actually voted for Truss, who won the race to replace scandal-hit Johnson by appealing to around 200,000 members of the ruling Conservative Party. She sold herself as a free-market-loving heir to divisive former leader Margaret Thatcher, but polls in recent days suggest the public at large has not taken to her policy proposals, weakening her position further.
It all stems from her gamble to spur economic growth and combat what many experts say could be a long recession, spearheaded by a grim winter where some families could struggle to pay for energy and food.
Beyond the halls of Westminster and the frenzied trading floors of the City of London, the last week has left many Brits feeling a deepened sense of despair about the country’s future.
“There are many millions of people across the U.K. who will find this winter incredibly difficult financially,” said Rebecca McDonald, chief economist at the Joseph Rowntree Foundation, a charity focused on tackling poverty. “These people had to watch the chancellor cut taxes for those who are better off — it was incredibly difficult to hear.”
The market reaction to Truss’ plan sent government borrowing costs soaring, likely to be met with higher inflation and interest rates that will in turn mean more expensive credit cards and mortgages — even threatening a subprime housing crisis if people can’t make repayments. The nose-diving pound will also make everyday products in Britain more expensive as importers face spiraling costs.
The “mini budget” wasn’t accompanied by spending cuts, or a traditional independent cost estimate that might have eased market fears, if not public criticism of its leader’s priorities.
The government’s argument is simple, in theory. It wants to supercharge Britain’s sluggish economy by any means necessary — even if that means short-term shocks.
It was left up to finance minister Kwasi Kwarteng to drop the biggest bombshell in Parliament on Friday: a tax cut for people who earn more than 150,000 pounds ($160,000) a year. This would “make Britain more competitive” as well as “reward enterprise and work” and “incentivize growth,” he told lawmakers. “It will benefit the whole economy and whole country.”
In its defense, the government points to measures at the other end of the scale, such as cutting the lowest tax bracket and an earlier pledge to freeze household energy bills until 2024, part of a 150 billion pound ($162 billion) public support package that ranks among the biggest in history — something McDonald at the Joseph Rowntree Foundation called “very important and very significant.”
NBC News has reached out to the British Treasury for comment.
Source: | This article originally belongs to Nbcnews.com
