@SarahCharles92

1 year ago

The main issue with what the Government did was NOT to do with helping UK Homes with their bills (Gas/Electric). The markets were perfectly okay with this, hence the value in the Pound not really changing at all after the 8th September announcement. The main issue came from the September 23rd "Mini-Budget", which had 3 major things that caused the economic market to lose faith in the Pound/British Government: 1. It came after Kwasi Kwarteng - the Chancellor - fired a long-term, unbiased senior staff member of the exchequer shortly after becomming Chancellor. People were worried that this would lead to financially more risky decisions. 2. The Office of Budgetary Responsibility (aka, the OBR) are almost ALWAYS made to provide a report of the expected economic effects of Government policy, so as to explain to investors/economists exactly why certain decisions might be taken. Kwasi Kwarteng excplititly refused/stopped the OBR from doing so for the 23rd September Mini-Budget announcements. Combined with point 1, above, this spooked investors as it makes it appear that the new Chancellor is not actually sure the new policy is economically sound, but is gonig to do it anyway. 3. Finally, it was the actual policy that was announced by the Chancellor on the 23rd that really caused the issue: Removing the top rate of tax: i.e., outright removing the 45% tax band, which only applied to those earning over £150,000/year. The median household income (before taxes) in the UK was £37,100 in 2020, and not too much higher in 2021. So, this policy only really helped those in the top 2 or 3%. It would also cost the country about £18-20bn to lose out on this tax. If this was uncosted - it would mean it would be serviced by debt for no benefit to the actual country (i.e., investors did not beleive it was debt to help build the country's infrastructure/economy in the longer term). In fact, in order to pay for such debt, economists believed that it would be likely that public services - which have been cut to the bone since the Tories came into power in 2010 - would have to be cut even more, possibly causing the public services to compeltely fail. This, too, scared economists/investors, causing a loss in confidence in the British economy. The 8th September announcement didn't have too much to do with the sudden crash. However, I will say that even that £100bn announcement was not necessary, given that Labour, the opposition party, had already suggested a much cheaper (~£23bn) and much more effective plan (said plan would have provided long-term benefit in the form of home insulation) before Truss even won the leadership contest. Basically, Truss and Kwarteng's ideologically driven (at best), or outright corrupt (at worst - see news about Kwarteng's meetings with ForEx traders around the time of the announcement) refusal to do what is actually best for the country is the cause of the issue, not necessarily just the cost of living crisis that has been caused by COVID/Russia's invasion/Brexit.

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