What Went On With Truss’s Tax U-Turn?

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Those of you who read our article in August will know that we were fairly optimistic about the medium-term economic prospects for the UK

It seemed to me that there was so much ‘good stuff’ in the pipeline that if the new prime minster could be patient for a few months, perhaps a year or perhaps even two, the economic direction of travel would create its own momentum and make any reasonably competent administration look good.

A much harder set of circumstances (but not altogether dissimilar) faced Margaret Thatcher when her administration came to power in 1979.

Inflation was at 14%, the upper income tax rate was 98% and the lower rate was 33%. There were over two million unemployed, the country had recently been bailed out by the IMF and industrial unrest, which had paralysed the country in the 1970s, had been too hot for even recent Labour administration to handle.

Britain had become known as the ‘sick man of Europe’, so many were the days of economic activity lost to strikes.

Although her economic policies were not too dissimilar to Truss and Kwarteng’s, she had the sense to bide her time.

In the first budget (NOT! A fiscal event!) a few months after being elected, her Chancellor Geoffrey Howe reduced the upper income tax rate to 83% and the lower rate to 30%. The ‘indirect tax’ VAT, which had an 8% and a 12% rate, were merged and raised to 15% and there were increases in oil duty.

The income cuts were matched by cuts in public spending.

At that time, the government was also responsible for setting the Bank of England interest rate and one of her first actions was to increase interest rates to squeeze out inflation, which she saw as the most important problem to overcome.

This led to increased unemployment peaking at three million which, along with the cuts in public services, led to civil unrest and riots on the streets.

She came under intense pressure from economists who said there was no basis in economic theory to justify her policies. In 1981, 365 economists signed a letter to the Times newspaper arguing the government should reverse its economic policy and seek an end to the recession

At the 1980 Conservative Party Conference, in her speech to the party faithful, she said:-

“You turn if you want to. The lady’s not for turning.”

Margaret Thatcher’s policies were not everyone’s cup of tea and there were certainly significant consequences then and over the longer term.

Indeed, she may not have survived the next election had it not been for the Falkland’s War and who knows what the next administration would have done and what direction the UK economy and society would have gone in.

The situation facing Truss and Kwarteng was not of the same scale and one cannot help but conclude that their arrogant, unfunded, reckless ‘budget’ and the chaos that has ensued since, was completely of their own making and it is hard to feel much sympathy for them.

Truss and Kwarteng may well say that had a ‘Falklands’ type event come along in time to save them, their economic policy would have been proven wright in the fullness of time.

We’ll just never know; but I doubt many will agree.

This article, as with all other articles we produce, is for guidance purposes only. It does not constitute formal advice and should not be relied upon as such. For bespoke, unbiased advice relating to your commercial roofing project please contact us and we would be pleased to assist.

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