![]() ![]() ![]() According to the Bruegel think tank, the UK is already the country that has allocated the most funding to shield households and businesses from the energy crisis - 7% of GDP. Yet for all the uproar, by far the biggest commitment in the mini-budget was found elsewhere: the energy price freeze, which is expected to cost around £60 billion. Most of the criticism aimed at Kwarteng reflected the opinion of orthodox economists: that cutting taxes is the wrong policy when unemployment is low and there is little spare capacity in the economy for additional non-inflationary growth. The mini-budget in question consists of a series of deficit-financed economic measures aimed at cushioning the effects of the energy crisis and boosting growth - namely a freeze on energy bills and various tax cuts, for a total cost of around £160 billion. Was all the fuss justified? Is the UK really in danger of becoming the next Argentina or Zimbabwe? And was Kwarteng’s U-turn yesterday really necessary? Speaking for many, Jason Furman, former economic adviser to Barack Obama, wrote: “I can’t remember a more uniformly negative reaction to any policy announcement by both economists and financial markets than the UK’s policy.” ![]() The IMF launched a biting attack on the UK government, while Larry Summers, former US Treasury secretary, called the policy “utterly irresponsible”. The reaction from international quarters was just as hysterical. Then, all hell broke loose: some analysts even went as far as saying that Britain was heading for a full-blown “currency crisis” and was starting to look like an “emerging market country”. Instead, 10 days after he announced his plan to scrap the top rate of income tax, Britain’s Chancellor found himself being schooled in a real-world crash course in macroeconomics - and media-fuelled hysteria.Īs soon as it was made public, on September 23, Kwarteng’s “mini-budget” prompted a massive sell-off of “gilts” - UK government bonds - and also saw the pound fall to an all-time low against the dollar. No doubt Kwasi Kwarteng expected to spend yesterday morning putting the finishing touches to his Party Conference speech. ![]()
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