How the UK Finance Minister ignored the financial experts

LONDON – With inflation rising, borrowing costs rising and Britain teetering on the brink of recession, many politicians would use all the expert advice if given the reins to manage the country’s economy. .

But when Kwasi Kwarteng became prime minister of Britain’s Exchequer competition last month, his first act was to fire the highest-ranking Treasury official, Tom Scholar.

Just weeks later, Mr Kwarteng’s work is on track, with critics calling for him to step down after his disastrous announcement of tax cuts sent markets into a tailspin.

After announcing a non-refundable tax cut, bypassing the government’s system of independent monitoring of economic plans and setting aside warnings, Mr. Kwarteng was blamed for the crisis. Britain’s biggest financial crisis in years.

However, even after the pound plunged and his announcement was nicknamed the “Kamikwasi budget,” he doubled down on his plan to cut taxes – even for the top earners – told the BBC there was “so much more”.

After a week of being battered by economists, bankers and the opposition Labor Party, he will return to publicly defend the policies when speaking on Monday at the Conservative Party conference in Birmingham.

On Sunday, prime minister Liz Truss told the BBC the government should have “created a better basis” for the announcement, acknowledging that the cabinet had not been consulted in advance about tax breaks for those have a higher income and describe the cut as Mr. Kwarteng’s decision.

Trying to explain the growing crisis, one of his lawmakers accused the government of “crazy. But analysts say the miscalculation reflects a legacy of bitterness surrounding Britain’s departure from the European Union, leaving supporters of the policy’s liberalism – like Mr Kwarteng – deeply suspicious. excellent advice from the economic and political establishment.

During the 2016 Brexit referendum, most business unions, many bankers and much of the civil service wanted to stay in the bloc. So did the prime minister and the prime minister at that time. Instead, the left flank rose to victory.

In the years since, liberal Brexit supporters say this establishment has prevented Britain from adopting policies that, in their view, it should have thrived outside the European Union – deregulation, cut taxes, and attract jobs and investment from continental neighbours.

During her successful campaign to become prime minister, Liz Truss lashed out at the Treasury Department for criticism, accusing it of stifling growth in the “mainstream” pursuit of the economy.

“It’s a combination of the ideological path he and others have followed as libertarian marketers – which tells them they’re right – and reality. is that they are frustrated by previous Conservative administrations not performing as ‘real Conservatives’ in terms of economics and Brexit,” said Alistair Burt, a former Conservative lawmaker and colleague Kwarteng, giving his explanation of the prime minister’s actions. Although Boris Johnson, Ms. Truss’ predecessor, was a strong supporter of Brexit, his economic instincts were more interventionist.

“They’re in power now, so they have confidence that everything they’ve said can be done and will have the impact they’ve always believed they will,” added Mr Burt.

Others are more blunt.

Anand Menon, professor of European politics and foreign affairs at King’s College London, said: “I don’t know if these people will convince themselves that the experts are wrong about Brexit and so they will again. wrong. “That just makes me unreasonably stupid, but that doesn’t rule it out.”

Mr. Kwarteng, an extremely confident, slick performer and academically accomplished, has a perfect resume, but at times he appeared aloof (at the funeral of Queen Elizabeth II, he was seen smiling to himselfdidn’t know that the camera was on him).

He certainly shares a skepticism towards conventional economic thinking.

In 2019, Professor Menon interviewed Mr. Kwarteng, then a rising star and mid-level minister, in an hour-long conversation about Brexit in which Mr Kwarteng addressed a dizzying array of historical figures. He also defended Michael Gove, a former cabinet minister who famously argued during the 2016 Brexit referendum that the British people already “have enough experts”.

Mr. Gove had a view “on the assumptions of economics,” Kwarteng said, adding: “Some of the claims made by economists on the subject, and some of the authority it attempts to assert. gives itself, is well-off. You have to season it with a little salt. “

Tall, stocky with a resonant voice, Mr Kwarteng was born in 1975 in East London and was raised by parents who had immigrated from Ghana to the UK as a student in the 1960s and later returned to England. become an economist and lawyer. At the age of 8, he attended a private school, then won financial support to attend Eton College, England’s most famous high school, before transferring to Cambridge University.

Graduating with distinction, Mr. Kwarteng spent time at Harvard before returning to Cambridge for a doctorate in economic history, during which time he majored – appropriately enough – for a period. previous financial turmoil, the so-called “recovery crisis” of 1695-1697.

After working as a journalist and a financial analyst, Mr. Kwarteng was elected to Parliament for the Conservative Party in 2010 but maintains other interests, publishing several books, in there was a book about the British Empire.

In 2012 he contributed to a more overt political line called “Britannia Unchained” – a tribute to free markets that described Britons as “amongst the worst of the lazy.” In the world”. One of its co-authors is Ms. Truss.

In 2015, Mr. Kwarteng started his promotion as an unpaid assistant minister and is also making friends in high positions.

In her diary chronicling her life as the wife of a Conservative lawmaker, Sasha Swire recounts meeting in early 2016 at Dyerswood, the country residence of then prime minister George Osborne. “Basically Kwasi is an academic,” she wrote. “He’s enthusiastic and flamboyant and barely breathless.”

Although a former supporter of the European Union, Mr Kwarteng was fervently supportive of the Leave campaign at the time of the referendum later that year.

Another winning political call followed in 2019, when Theresa May stepped down as prime minister and Mr Kwarteng – then a junior minister – backed Mr Johnson to succeed her.

His reward was a promotion in the government ranks that landed him in the cabinet in 2021 as business secretary. But it was his close connection with Ms. Truss that earned him his recent promotion to prime minister, the second most powerful political job in the country.

Mr. Kwarteng and Mrs. Truss live close to each other in Greenwich, south-east London, and the ideological relationship they forged while writing “Britannia Unchained” has blossomed.

So while the odds makers did not assess Mr. Kwarteng’s chances of survivalLosing him would be a huge blow to Ms. Truss as his announcement was the completion of their joint project to stimulate growth through tax cuts and deregulation.

Their idea is to shift policy away from the interventionist instincts of Mr Johnson, whose landslide victory in 2019 promises to spread prosperity to poorer areas. , is overlooked in the north and center of the country.

Mr Johnson’s liberal spending policies have irked critics of low-tax, small-state conservatism. And with only about two years left before an election is due, Ms. Truss and Mr. Kwarteng seem to feel they have no time to lose.

Analysts believe financial markets would devour a version of their plan if they were given more warning and the financial watchdog, the Office of Budget Responsibility, was allowed to issue an independent review. create.

Even without Mr. Scholar, a former Treasury official, at the helm, it seems unbelievable that others in the Treasury have not urged caution. One of the prime minister’s allies, Gerard Lyonssaid he had issued privacy warnings.

“I’ve warned them quite clearly about the need to be aware of the market’s fever, how they need to make sure the market fully understands what they’re doing,” he said. Mr Lyons told The Daily Telegraph.

Plowing defiance is a surprisingly basic mistake for an Exchequer master. But Professor Menon recalls part of his conversation in 2019, when Mr Kwarteng talked about Britain’s economic growth since 1800, arguing that during this time even seismic events such as war The world also barely disrupts the long-term trend.

“Maybe,” said Professor Menon, “he is more of a historian than a politician.”