The country is in the grip of market turbulence and a possible financial crisis, so if you are just catching up now below is our summary of how we got into this mess.
Thursday 8th September – gas price “freeze”
On her third day in office, Liz Truss announced a sweeping plan to freeze gas and electricity prices for two years. Costing tens of billions of pounds to the British Treasury, this plan has the potential to be the largest single government intervention in the economy in history.
Friday 23rd September – “mini-budget”
Just two weeks into the tenure of Prime Minister Liz Truss, the new Chancellor Kwarsi Kwarteng announced the “mini-budget”.
Among the economic policies were: bringing forward the planned cut in the basic rate of income tax from 20% to 19% from April 2023, rather than April 2024; the removal of the 45% higher rate of income tax in England, Wales and Northern Ireland; the reversal of the April 2022 1.25% rise in National Insurance; and the abolition of the proposed Health and Social Care Levy.
Sunday 25th September – Hints of further Tax Cuts
The Chancellor describes the “mini budget”, largest fiscal event since 1972 as “just the start”.
Monday 26th September – UK Government bond selloff begins, perhaps the start of a financial crisis
The seeming lack of fiscal discipline, fears of inflation and the interest rate rises that would accompany it trigger a sell off of UK government debt. The first month of Liz Truss’s government saw at least £300 billion wiped from the combined value of the UK’s stock and bond markets.
Monday 26th September – Pound falls to $1.05 dollars
It’s lowest level ever.
Wednesday 28th September – IMF statement
The International Monetary Fund (IMF) openly criticised the UK government over its plan for tax cuts, warning that the measures were likely to ignite the cost-of-living crisis.
In an exceptionally outspoken statement, the IMF said the proposal was likely to give rise to inequality and add to pressures pushing up prices.
Wednesday 28th September – Bank of England intervention
The Bank of England announced a temporary, emergency intervention to restore market functioning in government bonds for both UK households and businesses. This is the third time the Bank has had to step in since Kwarteng’s mini-budget spread fear among investors.
Sunday 2nd October – Chancellor thrown under the bus?
Asked on the BBC, Liz Truss claims of the decision to cut the 45p rate of tax “It was a decision that the Chancellor made.”
Monday 3rd October – 45p Tax Rate U-turn
Following widespread negative response to the policy, the planned abolition of the 45% tax rate for higher earners was reversed.
Mr Kwarteng told BBC Breakfast the proposal was “drowning out a strong package”, including support for energy costs, and cuts to the basic rate of income tax and corporation tax.
Asked whether he owed the nation an apology, he said: “We’ve listened to people. And yeah, there is humility and contrition in that. And I’m happy to own it.”
Monday 3rd October – Kwasi Kwarteng’s conference speech
Kwarteng endured a hopeless broadcast media round as he admitted the tax-cutting mini-budget had provoked “a little turbulence”.
Addressing the Tory conference, the chancellor said: “What a day. It has been tough, but we need to focus on the job in hand.
“We need to move forward. No more distractions. We have a plan, and we need to get on and deliver it.”
Wednesday 5th October – Liz Truss’ conference speech
Addressing the Conservative Party conference in Birmingham, Truss said she would make headway with her plan for economic growth, pledging that she would ensure the UK sails through the current turbulent times.
The PM also spoke against the ‘anti-growth coalition’ and vowed to take a new approach to bring the UK out of the high tax and low growth state.
Government bond yields continue to rise
Kwarteng’s mini-budget sparked a collapse in the pound, with the sterling falling to its lowest level against the dollar in history. According to Deutsche Bank, the UK’s borrowing costs for 10-year government bonds has seen the biggest increase in a five-day period since 1976.
Wednesday 12th October – Liz pledges to not make any cuts to public spending
During her first Prime Minister’s Questions (PMQs) since the chancellor’s contentious mini-budget, Liz Truss says she will ‘absolutely’ not cut public spending.
However, Mel Stride, the Chair of the Treasury Select Committee, suggests the chancellor should consider more U-turns.
“[Chancellor Kwarteng] has to be so careful that he doesn’t take any chances, he has to be sure the markets are going to like what they hear, that’s why I think rowing back on the tax cuts have to remain on the table.
“It’s extraordinarily important that whatever the chancellor comes forward with on the 31st, that it cuts it with the market.
“If there is any doubt in his mind about anything he is doing, he would do well to think again, he has got to play it ultra safe,” the senior Tory MP said.
Wednesday 12th October – Bank of England indicated end of intervention
“We have announced that we will be out by the end of this week,” said Andrew Bailey, “three days left now and you’ve got to sort it out”.
Final Thought
*Gulp*.