‘Fantastic’: What Truss’s allies said about budget that crashed UK economy
Think tanks celebrated Kwasi Kwarteng’s mini-budget as ‘welcome’ and ‘a boost’ in a series of now-awkward briefings
When the UK’s new chancellor, Kwasi Kwarteng, announced a raft of tax cuts for high earners last week in his mini-budget, the response from the markets was damning. The pound fell to its lowest level against the dollar since decimalisation, and the cost of government borrowing jumped sharply.
But the announcements were cheered on by a group of secretive think tanks closely connected to Liz Truss and her advisers. After years of lobbying, a Conservative government had finally adopted their proposals to scrap the top rate of income tax, remove the cap on bankers’ bonuses, shelve a planned rise in corporation tax, and pledge a fresh crackdown on unions.
The Adam Smith Institute, where Truss’s political secretary Sophie Jarvis was head of government affairs, said the plans were “a welcome first step to getting the British economy back on track”.
The mood was particularly buoyant at the Institute of Economic Affairs (IEA), whose director general Mark Littlewood greeted the announcement by claiming: “This isn’t a trickle-down budget – it’s a boost-up budget.”
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Truss and Kwarteng have faced accusations that their proposals are inspired by ‘trickle-down economics’, a term for a set of policies adopted by the former US president Ronald Reagan that cut taxes for the richest in the belief that wealth would then filter down to the poorest. The theory has been discredited by both the International Monetary Fund and Nobel Prize-winning economist Joseph Stiglitz.
None of the think tanks discloses its funders, but the IEA has received donations from BP and ExxonMobil and, along with the Adam Smith Institute and the Centre for Policy Studies, the tobacco industry. The IEA and the Adam Smith Institute have also received millions of dollars from US funders of climate denial.
Later, speaking at a post-budget briefing, Littlewood was asked by journalists if he was anxious about his policies being put to the test.
“We don't write policy ideas just for them to sit on the shelf – we write them in the hope that one day they're enacted,” he said. But he also admitted that: “If it turns out that these don’t work, I think the IEA has got a lot of hard thinking to do.”
Tim Montgomerie, a former adviser to Boris Johnson, wrote on Twitter that the budget was a “massive moment for the IEA”. “They’ve been advocating these policies for years,” he said. “They incubated Truss and Kwarteng during their early years as MPs. Britain is now their laboratory.”
Truss is particularly close to the IEA, having founded its parliamentary wing FREER in 2011 and hired its former communications director Ruth Porter to run her campaign, later rewarding her by making her deputy chief of staff.
The Taxpayers’ Alliance, which once shared a Westminster office with the IEA, predicted that the budget would boost economic output by £99bn over the next ten years and said it was the “most taxpayer-friendly budget in recent memory.”
The economic projections were produced in collaboration with another think tank, Europe Economics. Andrew Lilco, the organisation’s executive director, was later asked to respond to criticism that the budget would benefit the rich more than the poor in an interview on Sky News.
“I have no interest in equality. I think it’s an incorrect policy objective. I don’t think it’s morally or economically sound as a policy objective,” he said.
The Centre for Policy Studies, a think tank co-founded by former Conservative PM Margaret Thatcher, also claimed credit for many of the policies announced in Kwarteng’s budget.
Tom Clougherty, its ‘head of tax’, said on the IEA’s podcast earlier this week that: “I think that frankly both the overall message and the specific announcements contained within [the mini-budget] are fantastic. Exactly what we would have hoped for and what people like us have been calling for for a long time.”
The reaction from the markets and financial institutions has been in stark contrast to the celebratory rhetoric from Truss’s allies.
On Wednesday, the International Monetary Fund issued a stinging rebuke of the government’s tax cuts and called on the prime minister to reconsider them to prevent increasing inequality.
The United Nations fund, which monitors the international monetary system to identify risks and recommend economic policies, said the budget could undermine efforts to tackle already rampant inflation.
With turmoil continuing since Friday, the Bank of England was forced to step in to calm the markets. The same day, the bank announced it would buy £65bn of government bonds over the next fortnight as fears grew that pension funds could be affected.
The former Bank of England governor Mark Carney later accused the government of “undercutting” financial institutions and said its tax-cutting measures were “working at some cross-purposes” with the bank.
Speculation that the central bank will now increase interest rates to nearly 6% has prompted nearly 300 mortgage deals to be pulled by lenders. Millions of existing mortgage holders could now also face huge hikes to their monthly repayments.
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