truss: ‘Britain faces disaster – Liz Truss backs ‘fairytale economics’ as described by Rishi Sunak’ | Whuff News


Sir Charles R. Bean former deputy governor of the Bank of England and professor of economics at the LSE. Talk to
Srijana Mitra DasSir Charles discusses the risks to the UK economy – and managing uncertainty:

What is your research topic?
I have worked both as an academic and policy maker. Most of my academic research has investigated the causes of high unemployment in Europe in the 1980s-1990s. I work in the areas of macroeconomics and monetary policy as well. I joined the Bank of England in 2000 as chief economist and later as deputy governor of the Bank. For the past five years, I have worked in the UK’s police agency, the Office for Budget Responsibility (OBR).

Liz Truss has resigned as Prime Minister – but what happened to the British economy?
Like many countries, Britain is also suffering from the crisis in Ukraine that affects energy, grain and other prices. In addition, coming out of the pandemic, Britain saw the reduction of 30-million labor force by half a million, strengthening the labor market. And, we are disturbed by – and there is no other word for it – recent events. After the dismissal of Boris Johnson, there was a leadership contest between Rishi Sunak, the former UK Chancellor who I know very well and is very capable, and Liz Truss, who was very popular in the Conservative Party. He advocated a libertarian philosophy of cutting taxes, saying it would spur growth, even eliminating the need to cut government spending all together.

Sunak described this idea as ‘fairytale economics’ but when he came to power, Truss introduced a ‘mini-budget’ – in the short term, to protect households and businesses from high inflation. Gas, it established a collection of prices, usually. help them. That was expected to cost £ 60 billion but it is not permanent – a major problem is the abolition of some of the permanent taxes established by Sunak to pay for health expenses, lower income tax, dismissal the high tax rate, etc. These measures amount to £45 billion in tax cuts, with no significant details on how they will be funded.

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At first, Truss said he could pay for the tax cuts from the £30 billion headroom that Sunak left himself in the spring – but because of the crisis in Ukraine, it became a recession. And, the government made another £ 45 billion of tax cuts, up to a £ 70 billion deficit, about 3% of GDP, without anything to convince the market how this would be materials and policies.

In addition, in the approach to all this, the government destroyed some institutions that support the policy – there were complaints from Truss supporters of the Bank of England on the cost of the economy, and talk about the reduction of the independence of the Bank. . The Treasury was criticized for its ‘abacus economics’ but the OBR was not asked to produce an account, which would surely reveal a huge financial hole. The markets reacted very badly to what happened next. Truss brought in a new Chancellor, Jeremy Hunt, who reversed two-thirds of the previous policies and announced that there would be further spending cuts and/or tax increases to balance the books. Hunt needs to find £30 billion – the biggest unknown is the comparison between spending and taxes.

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Is there a lack of clarity now about the UK’s main economic goals?
Yes. In recent years, we experienced Brexit or our painful separation from the European Union (EU). For some happy ‘Takers’, Brexit was expected to lead to the UK becoming a low-tax, free-market Singapore. With the budget shrinking, that plan has hit a brick wall. People outside the EU trade area are now becoming aware. There is a real question about the British side of immigration. I hope we develop a better relationship with the EU.

Have you worked with ‘future-proof’ statistics – in today’s world of change, how do statisticians do this?
The bodies that collect the statistical information need to experiment and adapt – it is unwise to use the same statistical structure for the next 50 years without changes. During the pandemic, official economic data in the UK can come after months. So, the Office for National Statistics (ONS) took a new approach to new research, including data obtained from mobile phones. Statisticians must be willing to rely on other sources of information such as companies, supermarkets, etc.

Central banks around the world are dealing with inflation and deflation right now. What would you recommend to them?
Humility – I have learned from my career in politics to expect the unexpected. In the last 12 years, there have been three ‘once in a century’ events, from the global financial crisis to the pandemic and the war in Ukraine. The structure of the economy will change due to unforeseen events. Being aware of the limits of one’s understanding is important. In an uncertain world, avoiding big and bold actions in policies makes sense – adapt to the data and be willing to change your judgment if the information is different from what you expected.

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