Labour loves to remind voters how Liz Truss ‘crashed the economy’, but Rachel Reeves is making the exact same mistake. She’s asking the markets to lend the Government vast sums and they’re telling her where to get off, says Kate Andrews in the Spectator. Here’s an excerpt.
The last week has shown that there doesn’t have to be any kind of grand plot against a politician for the markets to take a disliking to the Government’s economic agenda. Their verdict isn’t some ideological rebuke or criticism of any particular philosophy. Rather, it’s an indication that the numbers in your Budget aren’t adding up. If anything, this latest crisis mirrors the 2022 crisis more than either Truss or Reeves would like to admit. In both cases, they insisted that their plans to borrow and spend were responsible. In both cases, markets decided they were not.
Re-reading analysis from the time in question is probably a better way of walking down memory lane. But it’s worth reminding ourselves of the key differences between 2022 and the start of 2025. These are not identical situations.
Truss’s decision to cut out practically every branch and institution in Government from knowing the details of her mini-Budget meant that the response to it was far more explosive (many members of her senior team in No. 10 didn’t know what was coming). Markets were mainly reacting to Truss’s request to borrow roughly £100 billion in one year to subsidise all household energy costs – just as borrowing was becoming much more expensive. Interest rates were rising around the world in response to the inflation crisis.
Markets decided this was an expensive bet, and borrowing costs surged. …
Reeves also opted for significant borrowing, asking for £140 billion more over the next five years, with spending increases front-loaded into the first two years of Government. A staggering figure, even bigger than Truss’s request. But unlike 2022 these plans were briefed out months in advance, and significant tax hikes were also announced alongside the plans, making it the biggest tax-and-borrow Budget in about 30 years.
The tax increases – while very painful almost immediately in political terms – bought the Government a little more time, as markets watched to see what the forthcoming ‘growth’ measures would be, and to see whether the Government was going to get serious about finding savings and slashing waste in the upcoming Spending Review.
The time Labour bought came at a very high price, and it didn’t last long. Time seems to have run out. Borrowing costs were drifting up as early as September last year (when details of the Budget were first coming to light). Then costs rose again after the Budget announcement. Now costs have surpassed where they were at the peak of Truss’s mini-Budget fallout.
So the circumstances were different, but the underlying cause of rising borrowing costs is largely the same. Neither party really ‘crashed the economy’ (though Labour could be facing other accusations on that front in the future, if the economy continues to shrink). The fatal error, for both Reeves and Truss, was making the assumption that markets would see their long-term strategy, understand the need for investment, and be willing to ‘finance the transition’. In both cases, this turned out to be a grave misreading of how the markets would interpret their Budgets.
Worth reading in full.
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More delusional reporting about how the UK Chancellor of the Exchequer’s policies have a significant bearing on the cost of UK debt.
The UK is already bankrupt. Like most countries with a bloated overbearing state.
I’m not defending Rachel Reeves or any politician, but some minor policies which represent a drop in our ocean of debt is what wrecked our economy.
That should be “isn’t what wrecked our economy”
My take on the matter:
1.) Any reasonable market analyst or investor must have had strong suspicions about a Labour government anyway, as historically every single Labour government left the economy in worse shape than is had been before they took over.
2.) But they gave Starmer’s government the benefit of doubt. Maybe this time it will be different. You never know.
3.) By now they have realized that their suspicions were well founded, Labour haven’t got a clue and Rachel from Accounts is indeed incompetent.
4.) Borrowing cost up, pound devalued as a result.
Liz Truss may have been a careless driver but was never given a chance to improve. Whereas Rachel Reeves is totally reckless behind the wheel. Her licence to kill our economy should be immediately withdrawn with a life ban.
Rubbish.
Reeves is deliberately trashing the economy, targeting those who Labour hates.
Truss would have been the best Tory PM in 14 years, except she went too fast, too soon and was mugged by the blob. They couldn’t have her fracking, ending ECHR, moving our embassy to Jerusalem, lowering taxes.
Listen to her recent interviews and she, for my money, is leading the charge against the blob that is the real enemy within. She understands and explains how we need a people’s movement, properly led and focused on the 5th Column.
This naive reporting angers me, to be honest.
I agree. In fact this is typical pseudo-journalism. Kate Andrews seeks to make a thesis out of a very straightforward bit of politics, not economics just vicious politics.
Rachel from accounts is acting under orders and those orders are to destroy the British economy and its people. Andrews hasn’t worked this out yet and has sought a hi-brow explanation. The reality is she hasn’t got a scooby and is talking nonsense.
She works for Gove. That’s all you need to know.
Good point.
What was unknown at the time of the Truss budget was that the pensions industry had decided to play casino games with the money in the pension schemes by using LDIs. The Bank of England also neglected to inform Truss or Kwarteng that they selling off a tranche of QE bonds when the budget was announced in what could be seen as a deliberate act of sabotage.
Rachel from Accounts had fucked up all on her own and delivered mortgage rates higher than Truss did.
Let’s not forget that the “necessary intervention” to shore up the LDI pension scheme included the Bank of England’s own pension scheme.
I’m sure the “intervention” was completely necessary and nothing to do with that
That’s more like it.
Interesting (to me) that the thesis in the article alleges that ‘Rachel Reeves is Making the Same Mistake as Liz Truss‘
Surely a more valid comparison would be between Truss and Starmer – what with them both being PM? Or between Kwarteng and Reeves.
I think Starmer is being let off too lightly on the fiscal incompetence argument.
I do not believe there is “fiscal incompetence.” It is inconceivable that so many ministers and civil servants could be acting in a manner so patently fiscally incontinent. They are acting under orders and those orders are to destroy the economy and thus the nation. Nothing these days is as it seems.
I stopped my Spectator subscription because of this person. Needless to say I did not waste my time reading the article.
I suspect that the exchange rate plays more of a role than is discussed here. The govt wants to repay loans in pounds, but why would an investor want to have pounds? The govt is trashing the productive part of the economy, via unnecessary increases in energy prices, taxes, and regulations.
What use will a pound be in 5 years time?
Why would they want to “finance the transition” when “the transition£ is clearly going to destroy our economy since it’s intended to outsource all manufacturing and ensure we have the most expensive energy on the planet?
If the markets (in 22) were mainly reacting to the government’s plan to subsidise energy costs, why didn’t they react two weeks earlier when the announcement was actually made and why didn’t the enormous cost of lockdowns create any panic?
A very simplistic assessment.
Truss’ budget was a lukewarm centrist plan with a strong empirical basis. The energy subsidy was ill advised but despite her plan being thrown out the energy subsidy continued as did money printing and currency devaluation. Furthermore the continuing vast green energy subsidies still continue despite the high debt and low productivity of the UK. The article fails to grasp deeper problems.