7 ms·

In a few words, PM Truss's first economic measures indicate that she's ideologically-driven and has no idea what she's doing. Namely, cutting taxes for the rich

by pyb 4y ago

In a few words, PM Truss's first economic measures indicate that she's ideologically-driven and has no idea what she's doing. Namely, cutting taxes for the rich in hope that maybe some economic boost will "trickle-down" to the middle class and the poor. This idea is utterly discredited in economic circles. The UK central bank, the BoE, is forced to take measures to counteract what Truss and her government are doing ! The market is also strongly reacting against Truss by selling the pound.

ksaxena 4y ago
The bigger problem is the energy-price guarantee that Truss has announced that will put a ceiling on fuel price for consumers, with the difference born by the UK treasury - estimated outflow is more than 100 Billion pounds. This outflow is planned to be funded by borrowing, which has resulted in a weaker pound.
- Someone 4y ago
  Adding nuance: it’s not that they put a price cap on energy prices (many countries in Europe do that), but the amount of money allocated to it. Reading https://www.bruegel.org/dataset/national-policies-shield-consumers-rising-energy-prices https://www.bruegel.org/dataset/national-policies-shield-con..., the UK allocates about double of what France, Italy and Germany allocate to it.
  - notahacker 4y ago
    Further nuance: the UK government also ruled out trying to regain some of that expenditure on energy subsidies by increasing taxes on relevant energy company profits. And whilst the fiscal impact of the top rate tax cut (or indeed not introducing energy company windfall taxes) may not have been that huge relative to the energy subsidy, the signal sent by the the triumphal announcements that borrowing to cut taxes would solve problems was that the government wasn't just making emergency funds available to resolve a crisis, but has ceased to care about balancing their budget or inflation and doesn't really know what it's doing.
- hcayless 4y ago
  They really had no choice about that part. The spike (beyond their control) in energy prices was set to bankrupt hundreds or even thousands of small businesses and put many people in a situation of deciding between heat and food. The tax breaks though, were totally an own goal.
  - IshKebab 4y ago
    They could have funded it by windfall taxes rather than borrowing.
    - colinmhayes 4y ago
      No they couldn't have. The electricity companies aren't really making more money than normal, they're paying insane rates to import fossil fuels.
      - olddustytrail 4y ago
        Yes, they really could. We're not talking about your energy supplier company, we're talking about electricity producers and fuel suppliers (oil and gas companies). Different set of companies and they are indeed raking it in.
      - IshKebab 4y ago
        Energy suppliers are just middlemen and are making huge losses due to the price caps, but energy generators are making loads of money. (At least in operating profit; some - but not all - have had huge losses from writing off their Russian operations.)
  - pwinnski 4y ago
    > They really had no choice about that part. Hello from Texas, where electricity providers are free to pass on absurdly-high energy prices to customers, regardless of whether those people can afford to eat or not.
  - janef0421 4y ago
    It is not beyond their control. Britain has significant amounts of gas production capacity, and they could thus pass emergency legislation to reduce the price. For instance, they could insulate the domestic market from foreign buyers by implementing export controls.
- afavour 4y ago
  I’m not sure that’s a bigger problem, it was announced some time ago without significant market movement. Seems the trigger is faith in new leadership or lack thereof.
tut-urut-utut 4y ago
Well, Truss was not elected because of her economic (or any other) competence, but because of her hardliner course against Russia. Rishi Sunak was a better choice in every category, but had two problems: 1. he is not "white" 2. he is not anti-Russian enough EDIT: By "elected" I meant "elected by her own party".
- marksbrown 4y ago
  I won't deny the UK doesn't have issues with race but it is not the US. Here class politics matter far more. Electing a multimillionaire married to a billionaire was never going to end well electorally.
  - caoilte 4y ago
    You forget the voterbase for choosing the Conservative Party leader. Conservative Party members skew older, whiter and more racist than the general public. Although in this case being the man who defenestrated Johnson didn't help his chances.
- pyb 4y ago
  I think the reason Rishi didn't sway Conservative party members is mostly 1., But you're not supposed to say it out loud. Truss was very much a nonentity until last month
  - Brakenshire 4y ago
    The most popular candidate with the party members was Kemi Badenoch, a black woman, so it doesn’t seem credible that people voted against Rishi Sunak mostly because of race.
    - tut-urut-utut 4y ago
      Well, supposedly the most popular was a black woman, the most competent was an Asian man, and who gets the post in the end? The most incompetent of them all, whose only advantage is being white. If that is not racism, I don't know what it is.
bjornsing 4y ago
I think the old adage “correlation is not causation” applies somewhat. It’s probably true that the market got worried about the UKs ability to service its long term debt, but Truss’ announcement came in the middle of the worst bear market in bonds for well over a decade. Also, e.g. the Swedish crown (SEK) has lost about as much against the US dollar as the pound has, completely unrelated to Truss and her announcement.
- rgblambda 4y ago
  Is it not the case that while the Swedish Crown is not officially pegged to the Euro in the same way that the Danish Krone is, it's value is heavily influenced by the Euro? The Euro's decline in value is down to investors moving their money to safer shores in the anticipation of energy shortages in Europe in the coming months.
  - bjornsing 4y ago
    Not pegged no, but strongly correlated of course. SEK has depreciated significantly against the euro too over the last few weeks.
    - piva00 4y ago
      Matching a change of government that's unproven. Having SD in power has no historical precedence so there's a definite lack of confidence in what the new government can achieve.
      - bjornsing 4y ago
        I think it has more to do with the extreme trade deficit. But sure, political quasi-stability is not a positive.
- chimprich 4y ago
  Sorry, but that's nonsense. The market dropped spectacularly during the new chancellor's not-a-budget-honestly speech. You can't get a better smoking gun than that. > but Truss’ announcement came in the middle of the worst bear market in bonds for well over a decade Yes, and she chose to do that. It was amazingly irresponsible. The market response was entirely predictable.
hgdfhgfdfds 4y ago
"This idea is utterly discredited in economic circles." I'm an economist and this is wrong. I usually see this line on on Reddit and not from any journal.
- bluehatbrit 4y ago
  If you're going to counter someone's point y claiming to be an expert, you really need to link to some credentials. If you're not going to do that then linking to some research disproving the parent comment would also be useful. Without any of that it's just an untrustworthy claim and doesn't add to the discussion in anyway.
- colinmhayes 4y ago
  Here you go https://www.igmchicago.org/surveys/tax-reform-2/ https://www.igmchicago.org/surveys/tax-reform-2/
  - jbm 4y ago
    I was looking at that and it seems to be more of an opinion survey of university professors of economics about a bill that had trickled-down as a part of it, rather than a formal journal entry. > Tax policy appears to have little effect at the margin on GDP growth in OECD countries. This idea did come up repeatedly though, so I assume it is a common-enough belief in economic circles.
    - colinmhayes 4y ago
      Some of the professors posted links to journals in their comments.
gadders 4y ago
I think the only person ideologically driven here is you.
agent008t 4y ago
First of all, high income does not mean 'rich'. 45% tax bracket started at £150'000 income - that is not 'rich' in London. Secondly, all else being equal, lower taxes certainly would attract talent and business to the UK and overall make people better off. As a simple example, let us consider an extreme case where the UK has a 20% flat tax while maintaining macro/political stability, and that rate is expected to persist. For starters, there will be a huge move in tech from SF and NY to the UK. It will become a very desirable destination for top talent; startups and unicorns will follow. With clever tax incentives, it would not be just London either, but cities all around the country. That influx of talent and capital would benefit the middle class and the poor too. The one bottleneck, as is usually the case, would be housing - if that is also resolved (say, making it really easy to build in/near currently depressing-looking cities), there could be a real boom to the UK economy. As things are going now, this is unlikely to play out in the UK, unfortunately.
- donpott 4y ago
  Making GBP 150,000 before tax in the year 2019-2020 would put a person in the 98th percentile of salaries in the UK. If that's not rich, I don't know what is, in London or anywhere. Source: https://www.gov.uk/government/statistics/percentile-points-from-1-to-99-for-total-income-before-and-after-tax https://www.gov.uk/government/statistics/percentile-points-f...
  - agent008t 4y ago
    Rich refers to wealth, not income. Having a high income does not mean that one is rich, and it will take a very long time to get rich on 150'000 in London - assuming you live modestly and are able to sustain that level of income for a long time.
    - donpott 4y ago
      Thanks for the clarification, now I understand your point.

by pyb 4y ago

ksaxena 4y ago

The bigger problem is the energy-price guarantee that Truss has announced that will put a ceiling on fuel price for consumers, with the difference born by the UK treasury - estimated outflow is more than 100 Billion pounds. This outflow is planned to be funded by borrowing, which has resulted in a weaker pound.

Someone 4y ago
Adding nuance: it’s not that they put a price cap on energy prices (many countries in Europe do that), but the amount of money allocated to it. Reading https://www.bruegel.org/dataset/national-policies-shield-consumers-rising-energy-prices https://www.bruegel.org/dataset/national-policies-shield-con..., the UK allocates about double of what France, Italy and Germany allocate to it.
- notahacker 4y ago
  Further nuance: the UK government also ruled out trying to regain some of that expenditure on energy subsidies by increasing taxes on relevant energy company profits. And whilst the fiscal impact of the top rate tax cut (or indeed not introducing energy company windfall taxes) may not have been that huge relative to the energy subsidy, the signal sent by the the triumphal announcements that borrowing to cut taxes would solve problems was that the government wasn't just making emergency funds available to resolve a crisis, but has ceased to care about balancing their budget or inflation and doesn't really know what it's doing.
hcayless 4y ago
They really had no choice about that part. The spike (beyond their control) in energy prices was set to bankrupt hundreds or even thousands of small businesses and put many people in a situation of deciding between heat and food. The tax breaks though, were totally an own goal.
- IshKebab 4y ago
  They could have funded it by windfall taxes rather than borrowing.
  - colinmhayes 4y ago
    No they couldn't have. The electricity companies aren't really making more money than normal, they're paying insane rates to import fossil fuels.
    - olddustytrail 4y ago
      Yes, they really could. We're not talking about your energy supplier company, we're talking about electricity producers and fuel suppliers (oil and gas companies). Different set of companies and they are indeed raking it in.
    - IshKebab 4y ago
      Energy suppliers are just middlemen and are making huge losses due to the price caps, but energy generators are making loads of money. (At least in operating profit; some - but not all - have had huge losses from writing off their Russian operations.)
- pwinnski 4y ago
  > They really had no choice about that part. Hello from Texas, where electricity providers are free to pass on absurdly-high energy prices to customers, regardless of whether those people can afford to eat or not.
- janef0421 4y ago
  It is not beyond their control. Britain has significant amounts of gas production capacity, and they could thus pass emergency legislation to reduce the price. For instance, they could insulate the domestic market from foreign buyers by implementing export controls.
afavour 4y ago
I’m not sure that’s a bigger problem, it was announced some time ago without significant market movement. Seems the trigger is faith in new leadership or lack thereof.

tut-urut-utut 4y ago

Well, Truss was not elected because of her economic (or any other) competence, but because of her hardliner course against Russia. Rishi Sunak was a better choice in every category, but had two problems: 1. he is not "white" 2. he is not anti-Russian enough EDIT: By "elected" I meant "elected by her own party".

marksbrown 4y ago
I won't deny the UK doesn't have issues with race but it is not the US. Here class politics matter far more. Electing a multimillionaire married to a billionaire was never going to end well electorally.
- caoilte 4y ago
  You forget the voterbase for choosing the Conservative Party leader. Conservative Party members skew older, whiter and more racist than the general public. Although in this case being the man who defenestrated Johnson didn't help his chances.
pyb 4y ago
I think the reason Rishi didn't sway Conservative party members is mostly 1., But you're not supposed to say it out loud. Truss was very much a nonentity until last month
- Brakenshire 4y ago
  The most popular candidate with the party members was Kemi Badenoch, a black woman, so it doesn’t seem credible that people voted against Rishi Sunak mostly because of race.
  - tut-urut-utut 4y ago
    Well, supposedly the most popular was a black woman, the most competent was an Asian man, and who gets the post in the end? The most incompetent of them all, whose only advantage is being white. If that is not racism, I don't know what it is.

bjornsing 4y ago

I think the old adage “correlation is not causation” applies somewhat. It’s probably true that the market got worried about the UKs ability to service its long term debt, but Truss’ announcement came in the middle of the worst bear market in bonds for well over a decade. Also, e.g. the Swedish crown (SEK) has lost about as much against the US dollar as the pound has, completely unrelated to Truss and her announcement.

rgblambda 4y ago
Is it not the case that while the Swedish Crown is not officially pegged to the Euro in the same way that the Danish Krone is, it's value is heavily influenced by the Euro? The Euro's decline in value is down to investors moving their money to safer shores in the anticipation of energy shortages in Europe in the coming months.
- bjornsing 4y ago
  Not pegged no, but strongly correlated of course. SEK has depreciated significantly against the euro too over the last few weeks.
  - piva00 4y ago
    Matching a change of government that's unproven. Having SD in power has no historical precedence so there's a definite lack of confidence in what the new government can achieve.
    - bjornsing 4y ago
      I think it has more to do with the extreme trade deficit. But sure, political quasi-stability is not a positive.
chimprich 4y ago
Sorry, but that's nonsense. The market dropped spectacularly during the new chancellor's not-a-budget-honestly speech. You can't get a better smoking gun than that. > but Truss’ announcement came in the middle of the worst bear market in bonds for well over a decade Yes, and she chose to do that. It was amazingly irresponsible. The market response was entirely predictable.

hgdfhgfdfds 4y ago

"This idea is utterly discredited in economic circles." I'm an economist and this is wrong. I usually see this line on on Reddit and not from any journal.

bluehatbrit 4y ago
If you're going to counter someone's point y claiming to be an expert, you really need to link to some credentials. If you're not going to do that then linking to some research disproving the parent comment would also be useful. Without any of that it's just an untrustworthy claim and doesn't add to the discussion in anyway.
colinmhayes 4y ago
Here you go https://www.igmchicago.org/surveys/tax-reform-2/ https://www.igmchicago.org/surveys/tax-reform-2/
- jbm 4y ago
  I was looking at that and it seems to be more of an opinion survey of university professors of economics about a bill that had trickled-down as a part of it, rather than a formal journal entry. > Tax policy appears to have little effect at the margin on GDP growth in OECD countries. This idea did come up repeatedly though, so I assume it is a common-enough belief in economic circles.
  - colinmhayes 4y ago
    Some of the professors posted links to journals in their comments.

gadders 4y ago

I think the only person ideologically driven here is you.

agent008t 4y ago

First of all, high income does not mean 'rich'. 45% tax bracket started at £150'000 income - that is not 'rich' in London. Secondly, all else being equal, lower taxes certainly would attract talent and business to the UK and overall make people better off. As a simple example, let us consider an extreme case where the UK has a 20% flat tax while maintaining macro/political stability, and that rate is expected to persist. For starters, there will be a huge move in tech from SF and NY to the UK. It will become a very desirable destination for top talent; startups and unicorns will follow. With clever tax incentives, it would not be just London either, but cities all around the country. That influx of talent and capital would benefit the middle class and the poor too. The one bottleneck, as is usually the case, would be housing - if that is also resolved (say, making it really easy to build in/near currently depressing-looking cities), there could be a real boom to the UK economy. As things are going now, this is unlikely to play out in the UK, unfortunately.

donpott 4y ago
Making GBP 150,000 before tax in the year 2019-2020 would put a person in the 98th percentile of salaries in the UK. If that's not rich, I don't know what is, in London or anywhere. Source: https://www.gov.uk/government/statistics/percentile-points-from-1-to-99-for-total-income-before-and-after-tax https://www.gov.uk/government/statistics/percentile-points-f...
- agent008t 4y ago
  Rich refers to wealth, not income. Having a high income does not mean that one is rich, and it will take a very long time to get rich on 150'000 in London - assuming you live modestly and are able to sustain that level of income for a long time.
  - donpott 4y ago
    Thanks for the clarification, now I understand your point.