Kwarteng's plan?

[Nemo]

It had better be a good one:

Pound slumps - live news: Kwarteng releases 'plan' statement - as Britons warned of 6% interest rates and potential housing crash

https://news.sky.com/story/pound-slumps ... id=4532874

[Gilgongo]

Tax cuts will stimulate spending and investment, which in turn will lead to more economic activity and thereby higher tax revenues. Last time this was tried it led to rather extreme inflation, public sector pay strikes, and a foreign exchange crisis, all leading to the government’s defeat in the 1974 election.

But maybe it'll be different this time?

[Lootman]

Tax cuts will stimulate spending and investment, which in turn will lead to more economic activity and thereby higher tax revenues. Last time this was tried it led to rather extreme inflation, public sector pay strikes, and a foreign exchange crisis, all leading to the government’s defeat in the 1974 election.

But maybe it'll be different this time?

No, the last time it was tried was by Thatcher in the 1980s, and you won't find many people claiming that was not successful.

[NotSure]

Tax cuts will stimulate spending and investment, which in turn will lead to more economic activity and thereby higher tax revenues. Last time this was tried it led to rather extreme inflation, public sector pay strikes, and a foreign exchange crisis, all leading to the government’s defeat in the 1974 election.

But maybe it'll be different this time?

No, the last time it was tried was by Thatcher in the 1980s, and you won't find many people claiming that was not successful.

Big differences - Thatcher's cuts were no so big (in GDP terms), national debt was about 35% GDP and we were running a budget surplus.

Edit: it also took MrsT several years of gaining credibility to get around to it, not 10 minutes...

[Lootman]

Tax cuts will stimulate spending and investment, which in turn will lead to more economic activity and thereby higher tax revenues. Last time this was tried it led to rather extreme inflation, public sector pay strikes, and a foreign exchange crisis, all leading to the government’s defeat in the 1974 election.

But maybe it'll be different this time?

No, the last time it was tried was by Thatcher in the 1980s, and you won't find many people claiming that was not successful.

Big differences - Thatcher's cuts were no so big (in GDP terms), national debt was about 35% GDP and we were running a budget surplus.

We will see. My point was limited to refuting the idea that tax cuts have always failed. They have not.

Whether they will work this time is not something that can be predicted any more than anything else in economics. If you have 100% predictive powers, then why aren't you filthy rich?

[NotSure]

Tax cuts will stimulate spending and investment, which in turn will lead to more economic activity and thereby higher tax revenues. Last time this was tried it led to rather extreme inflation, public sector pay strikes, and a foreign exchange crisis, all leading to the government’s defeat in the 1974 election.

But maybe it'll be different this time?

No, the last time it was tried was by Thatcher in the 1980s, and you won't find many people claiming that was not successful.

Big differences - Thatcher's cuts were no so big (in GDP terms), national debt was about 35% GDP and we were running a budget surplus.

We will see. My point was limited to refuting the idea that tax cuts have always failed. They have not.

Whether they will work this time is not something that can be predicted any more than anything else in economics. If you have 100% predictive powers, then why aren't you filthy rich?

I wasn't predicting anything, just pointing out potential flaws in your comparison.

[Lootman]

Tax cuts will stimulate spending and investment, which in turn will lead to more economic activity and thereby higher tax revenues. Last time this was tried it led to rather extreme inflation, public sector pay strikes, and a foreign exchange crisis, all leading to the government’s defeat in the 1974 election.

But maybe it'll be different this time?

No, the last time it was tried was by Thatcher in the 1980s, and you won't find many people claiming that was not successful.

Big differences - Thatcher's cuts were no so big (in GDP terms), national debt was about 35% GDP and we were running a budget surplus.

We will see. My point was limited to refuting the idea that tax cuts have always failed. They have not.

Whether they will work this time is not something that can be predicted any more than anything else in economics. If you have 100% predictive powers, then why aren't you filthy rich?

I wasn't predicting anything, just pointing out potential flaws in your comparison.

They are differences and not flaws, except if judged so by history.

I think the strategy is worth a try, given that current policies have not changed the long-term decline in UK Inc. In fact the only thing that has ever done that n the last 100 years is the similar policy adopted by Thatcher.

[NotSure]

They are differences and not flaws, except if judged so by history.

I think the strategy is worth a try, given that current policies have not changed the long-term decline in UK Inc. In fact the only thing that has ever done that n the last 100 years is the similar policy adopted by Thatcher.

I said 'potential flaws'. Also Thatcher's cuts were far more useful - 60% to 40% really would change behaviour. But I do not think these cuts were anywhere near the whole story. She also rode the wave of tax revenue generated from the North sea. Hard to disentangle all this, even with the benefit of hindsight.

But I think most, not just those to the right, would argue 60% is too high when running a surplus and with debt/GDP at 35%. I also think that most, not just those to the left, would disagree that 45% for those over £150k is excessive when debt/GDP is approaching 100% and we are already running a huge deficit and still reeling from Covid and energy crisis. Heck, the BoE still has stuff on it's balance sheet from the GFC! Thatcher got the house in order (and taxed at 60% for years) before she acted.

edit:typos

[SalvorHardin]

There is also a fair bit of deregulation in the pipeline. Many regulations are designed to restrict economic activity, for various reasons (including creating barriers of entry to protect incumbents, usually disguised as consumer welfare).

In theory cutting back on these should stimulate the economy. In practice there are lots of vested interests who will defend these regulations, especially EU laws. Solvency II is a classical example of such; scapping it could lead to an investment boom.

The sort of things that should have been done once we left the EU, but the government under Boris turned out to be like the dog that caught the car it was chasing and didn't know what to do with it.

Then there's the NIMBY and BANANA (Build Absolutely Nothing Anywhere Near Anyone) attitudes, which have become entrenched and restrict economic development.

Fighting these may not be successful. That's why I prefer to invest overseas nowadays; IMHO the "blob" prefers lower economic growth which means less disruption (at least until things are shaken up by new technologies and/or external events).

[Gilgongo]

No, the last time it was tried was by Thatcher in the 1980s, and you won't find many people claiming that was not successful.

I think the word "it" is doing some rather heavy lifting in that sentence.

https://academic.oup.com/cje/article/44/2/319/5550923

"Thatcher claimed that she had improved the economic prospects of the UK and all its citizens through the application of neo-liberal policies; that is (according to her definition of neo-liberalism), free-market policies. The evidence, however, does not support this claim."

[Nimrod103]

She also rode the wave of tax revenue generated from the North sea.

No. There was a massive collapse in North Sea tax revenue from 1985 on as production declined, but mainly the oil price substantially declined, and also reflected a cut in the main rate of offshore corporation tax from 45 to 33 per cent and strong growth in operating and capital expenditure.
https://obr.uk/box/the-rise-and-fall-of ... -revenues/

[Lootman]

No, the last time it was tried was by Thatcher in the 1980s, and you won't find many people claiming that was not successful.

I think the word "it" is doing some rather heavy lifting in that sentence.

https://academic.oup.com/cje/article/44/2/319/5550923

"Thatcher claimed that she had improved the economic prospects of the UK and all its citizens through the application of neo-liberal policies; that is (according to her definition of neo-liberalism), free-market policies. The evidence, however, does not support this claim."

What "evidence" is that? At this point there is near universal agreement that Thatcher saved the UK from the economic ruin it had suffered since WW2.

I am stunned that any thinking person would want to go back to the 1970s with its 98% tax rates, exchange controls, endless strikes and begging letters to the IMF.

[chrissyr]

So now the tory party are the party to support the affected and interest rates are due to go up to 6% - extra £600 a month on a £200k mortgage - is another hand out due?
I've a small offset but could borrow more if there's an opportunity

One nice thing is Boris left the details of his hiding place for Lizzie an KK.

[1nvest]

I also think that most, not just those to the left, would disagree that 45% for those over £150k is excessive when debt/GDP is approaching 100% and we are already running a huge deficit and still reeling from Covid and energy crisis.

Napkin ...
UK GDP £2.3Tn
UK Debt £2.3Tn ... of which the BoE holds £0.84Tn and returns all interest paid on those Gilts back to the Treasury, paramount to not existing, so more like £1.45Tn 63% of GDP.

Much of older higher cost (pre 2009 issued) debt, 5% type interest rate Gilts, were bought by the BoE, whilst the Treasury issued around twice as much new Gilts, paying half that rate and with maturities spread out over more years. Give or take. £500Bn of UK 2008 debt paying 5% (£25Bn/year service cost) rose to 1.5Tn of which 500Bn had all of the 5% interest paid out by the treasury being returned by the BoE, leaving 1Tn paying 2.5% (25Bn/year service cost). Which in real terms, resulted in LESS being paid to service the UK debt. Yes that's grown by another £1T nominal, but again at historic exceptionally low interest rates, negative real yields (in effect a benefit/asset) and spread out over 60 years, where a sizeable amount are nominal gilts such that their (maturity repayment) value is deflated over time.

The BoE are looking to start QT https://www.bankofengland.co.uk/markets ... -september. Sell £80Bn over the next 12 months. If the BoE returns the sale proceeds back to the Treasury for those, that would be like the Treasury having borrowed £80Bn at negative real and low interest rate, rather than having to pay 5% to foreign/public buyers of Gilts.

By giving large tax breaks to the rich, that money is more inclined to be invested, rather than wasted away. Just requires the 'independent' BoE to fall in line with whatever 'new remit' Truss/KK define.

I reckon T/KK's plan may very well see a bad 2022/23, but a very good 2024, just in time for the next General Election.

Pound down relative to a EU that massively devalued their Euro in a attempt to export its problems onto others. Pound massively down relative to a very strong (fear flight to) US$, wages down in real terms (so more company earnings/profits if sale prices rise with inflation), resulting in strong growth (after the 2022/2023 decline).

That, or BJ's directed high tax, low debt (in real/actual terms), high government interventions/redistribution, more often in a 'wasted' manner vs T/KK's low tax, high (but affordable) debt, less government intervention, more of wealth towards those inclined to invest rather than waste ... and potentially the T/KK is the better choice (BJ's steadier downward linear slope/slide, or T/KK's 2 year of pain - subsequent great rebound).

A low/weak £ is also inclined to see a turn around from running a trade deficit to a trade surplus (high cost of imports). Whilst debt will expand, when its internal, Japan style, then its not a real issue, just a internal money distribution issue.

I reckon that in 2024 many will be singing their praises and the Polls will be indicating a Tory lead and possible re-election. Especially if SKS is still the primary alternative choice. But I also suspect that if the Tories do win, it will be a much tighter majority, where much of the Northerly reds that turned blue will again have reverted to red.

[DrGuid]

I don't see a magical recovery in 2024. China's crashing hard (I used to work there) and Russia's gone mad so their oil has pretty much gone offline forever.

REITS just crashed and I sold out of most of these supposedly "safe(ish) as houses" investments.

The plan has been a catastrophe. Banks are pulling mortgages and anyone refinancing is in for the shock of their lives. There are many people in this country like my mom who has a fully paid off house but a small pension. There could be a wave of forced selling as the boomers try to stay afloat.

The worker shortage will persist as the last of the boomers leave the workforce plus increasing numbers of Gen X'ers like me choose lifestyle over work. Inflation will be sticky given we import most of our energy and half our food.

I'm just thankful I put this year's ISA almost exclusively into the US. Any high earners who benefited from this ludicrous budget will be doing something similar, not investing in the UK. They'll probably not be spending like crazy either given the uncertain outlook.

[JohnB]

Every quarter I reinvest all my ETF dividends. Its been the US for the last 4 years, this time it had better be the EU. I can't see why I'd buy FTSE trackers now. As the coming recessions is going to be deep and long, any intervention will be swallowed, and just leave us with a second or third 'once in a lifetime' addition to the national debt within 3 years.

[88V8]

The main problem is that little of this will bear fruit before the next GE, and if the belief is that Labour will win and reverse the tax cuts where is the incentive to invest.

The growing expectation of a Labour win is of itself the greatest headwind to any economic recovery.

V8

[ayshfm1]

I'm broadly in support. The optics don't look great but carrying on as we are is certain doom. If we can grow the pie significantly then it will look inspired.

On a personal level I retired because the tax situation make it madness to work. I'm an example of the Laffer curve, everyone has there own point on the curve where they stop earning, mine was breached so that no more tax for HMRC. I know a fair few like me.

With IR35 somewhat more sensible and the tax rates more attractive, it's possible I might go contracting come April, which certainly wasn't happening before that mini budget.

[XFool]

The main problem is that little of this will bear fruit before the next GE, and if the belief is that Labour will win and reverse the tax cuts where is the incentive to invest.

The growing expectation of a Labour win is of itself the greatest headwind to any economic recovery.

So, if it fails, it will be "Labour's fault"?

[88V8]

The main problem is that little of this will bear fruit before the next GE, and if the belief is that Labour will win and reverse the tax cuts where is the incentive to invest.

The growing expectation of a Labour win is of itself the greatest headwind to any economic recovery.

So, if it fails, it will be "Labour's fault"?

We're arranging our alibis early... but in seriousness, who would invest to take advantage of tax cuts that may not be there in two years' time.

V8