Truss: foolish but dangerous

Submitted by AWL on 21 September, 2022 - 11:45 Author: Martin Thomas
Liz Truss

Liz Truss’s energy-bills measure will give people high bills instead of huge ones. The tax cuts predicted by Kwasi Kwarteng’s “mini-Budget” on 23 September will give £30 billion more relief, mostly to the well-off.

What’s not to like? A lot.

The Tories moved under the threat of worse-placed energy retailers and businesses with high gas usage going bust, and Tory or floating voters with big houses being alienated by huge bills. The energy-bills measure will also save the government some billions in interest payments on RPI-linked bonds by reducing the predicted rise in measured inflation rates.

But from the point of view of the working class:

• The 4.3 million mostly-poorer households on pre-payment meters will suffer most. Direct debits spread costs over the year.

Pre-payment meters mean more spending in winter, when it’s colder — and maybe twice as much this winter as last. Solidarity advocated a crash insulation and energy-efficiency drive, and a free basic quota of energy per household, paid for by taxing the rich and by taking the whole energy industry into public ownership and so confiscating profits.

• Price rises, e.g. for food, still remain high.

• We face the prospect of paying in other ways longer term.

Truss and Kwarteng are essaying a big shift in Tory economics. For decades the dominant ideology among capitalist market enthusiasts has been “budget-balancing”.

But now Truss is doing probably the biggest “handout” (subsidy) in British history, and tax cuts, and “putting it all on the credit card”, with the plea that these measures will increase growth from which to pay off the increased debt.

The precedent is Ronald Reagan in the USA, after 1980. Reagan cut taxes for the well-off, ran huge budget deficits, and claimed that would unchain new growth which would “trickle down”. It didn’t in any short term, though Reagan rode out resistance and by 1984 the slump had turned round sufficiently to get him re-elected.

Truss’s energy tariff relief is done by a handout to the energy retailers. Immediately the handout is “paid for” by adding another £150 billion of government borrowing (about the same as the NHS annual budget) to a government debt which already stands at £2,400 billion (up from under £1,000 billion in 2009-10, before the Tories came in). Fact-check for those blaming aid to Ukraine: for that Truss promises £2.3 billion in 2023, small change in government-spending terms.

The Truss plan could force an extra-big surge in interest rates to enable the government to continue to sell bonds, especially if the pound continues to decline relative to other currencies as it already has done since June 2021 ($1.42 to $1.14) and the balance-of-payments deficit continues to widen. Expect moves later down the line to recoup the debt by cutting benefits and public-service jobs and pay.

Also, much of the consumer benefit will go to better-off people with big houses, incentivising them to continue wastefully high energy consumption instead of going for insulation and other energy-efficiency measures.

Ecologically the policy is bad for that reason and because it comes in a package with fracking, more North Sea gas extraction, and a block on onshore wind and solar farms.

Much of the benefit of the £150 billion will go to capitalist firms in the energy sector. Before the plan, Bloomberg News estimated £170 billion excess profits over the next two years for gas producers and electricity generators, from higher world-market gas prices and marginal pricing. The handout means they can continue to expect those profits despite tariffs being limited.

The Tories have strong incentives to rally round Truss short-term, but many know her economics is quackery.

If the current strike surge accelerates, it has a good chance of pushing Truss off balance.

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