GBR | Sep 29, 2022

I told you so: Rishi Sunak did say the Government’s fiscal plan would cause turmoil

Al Edwards

Al Edwards / Our Today

Former British Chancellor of the Exchequer Rishi Sunak. (File Photo: REUTERS/John Sibley)

During the Conservative Party leadership race, former Chancellor of the Exchequer Rishi Sunak poured scorn on Liz Truss’ plans to cut taxes and go on a borrowing spree.

“We have to be honest. Borrowing your way out of inflation isn’t a plan, it’s a fairy tale,” he said during the contest.

Sunak is credited with doing a good job as chancellor during the COVID pandemic crisis. He is regarded as prudent and a safe pair of hands. Truss, who beat him in the leadership race and is now the new British prime minister, took the opposite view of managing the economy, looking to spur growth by lowering taxes and borrowing heavily.

Following the announcement of the mini-budget that saw a £45-billion reduction in taxes, the markets reacted unfavourably with the Pound hitting a 40-year low of $1.03 against the Greenback.

British Prime Minister Liz Truss. (File Photo: REUTERS/Toby Melville)

The Bank of England has had to resort to a £60-billion bond buying exercise. There is turmoil and uncertainty and many are exhorting the government to change course.

Sunak saw this coming.

As early as August of this year he tweeted: “There will be a run on sterling. The gilts market will be in freefall and the FTSE will tumble as global investors take fright and sell off every form of British asset.

“It might take only a few days, or the government might stagger through until the end of September… but before long Liz Truss and her new Chancellor Kwasi Kwarteng will have been forced to call in the IMF to stabilise a collapsing economy.”

He has always maintained that Truss’s and Kwarteng’s plans would lead to an increase in inflation, interest rates and turbo boost borrowing costs.

Earlier this week, the IMF admonished the UK Government, saying: “We are closely monitoring recent economic developments in the UK and are engaged with the authorities. 

“We understand that the sizable fiscal package announced aims at helping families and businesses deal with the energy shock and at boosting growth via tax cuts and supply measures. 

“However, given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy. 

“Furthermore, the nature of the UK measures will likely increase inequality.”

James Chapman tweeted: “He was ridiculed for predicting it, but it looks like Rishi Sunak was right.”