The U.K.’s economic crisis shows no signs of easing, with Prime Minister Liz Truss doubling down on her near $50 billion tax cuts package that has sent markets into disarray.
Just weeks into her tenure as Prime Minister, Truss’ tax-cutting spree has pushed the U.K. into an unprecedented economic crisis, forcing interventions from the Bank of England and an unprecedented rebuke from the IMF.
The pound has crumbled to all-time lows, spooked investors have sold off $500 billion in British assets and the U.K. housing market has been driven to the edge of a precipice.
While Truss’ fiscal overhaul has been widely condemned and earned the U.K. comparisons to emerging countries from the likes of Ray Dalio, the policies were always at the heart of her leadership campaign and helped her win enough votes from around 180,000 Conservative party members to secure the top job in Parliament.
Sunak saw it coming
Her main rival for the post, Rishi Sunak, has earned some vindication over the past week, having made it clear he was ardently against cutting taxes as the two competed to take over from Boris Johnson who resigned midterm.
As the leadership campaign went on, Sunak made some ominous forecasts about the tax-cutting policies favored by Truss, warning that by authorizing them she would increase borrowing to “historic and dangerous levels” and add “fuel to the fire” of rising costs.
Both candidates served in Johnson’s cabinet, but their clashing views on tax cuts—and Sunak’s dire warnings about what would happen if such policies were enacted—saw him dismissed, and in some cases ridiculed, in the press.
Labeled a ‘doomster’ and ‘desperate’
Sunak, who denounced Truss’s plans as “fairy tale” economics for months before she became Prime Minister, was dismissed as a pessimist for voicing these views.
Nadhim Zahawi, who replaced Sunak as Finance Minister, labeled Sunak a “doomster” at the end of July as he endorsed Truss as the next Prime Minister, a term that followed Sunak throughout his leadership campaign.
“Who is Sunak kidding with his warnings about sterling?” The Spectator questioned in an August article, labeling him “desperate” for warning that sterling, gilt markets and the FTSE would go into freefall if Truss were to significantly cut taxes.
Despite the criticism, Sunak doubled down on his warnings about the fate of the British economy if tax cuts were delivered while the cost-of-living crisis raged on.
Cutting taxes for the very wealthy would be a mistake, Sunak warned at the beginning of August, insisting that Truss’s “dangerous” plans risked “making everything worse.”
“If we don’t do that, I can tell you not only will millions of people suffer, we will get absolutely hammered when it comes to an election,” he predicted. “The British people will not forgive us for not doing that.”
Warnings of irresponsible borrowing
The latest poll on U.K. voting intentions from YouGov showed this week that Truss’s Conservative party has taken “a severe hit” following the unveiling of the government’s tax cutting plans. The opposition Labour party, YouGov said, now had the highest lead ever recorded, winning 45% of the vote versus the Conservatives’ 28%.
Writing in British newspaper The Times weeks later, Sunak set out an argument that Truss’ proposed fiscal policies would do nothing to alleviate the U.K.’s cost of living crisis.
“Cost of living support or lower taxes?” he asked. “It can’t be both.”
In a later interview with the Financial Times, he said Truss was making unfunded spending commitments by pledging to immediately cut taxes, saying he “struggled to see” how her promises to both reduce taxes and help those struggling with the cost of living crisis would add up.
“The most pressing economic priority for the new prime minister and the new government is to grip inflation,” Sunak said during a leadership debate over the summer, where he and Truss clashed on the best method to help the economy recover.
“I don’t think the responsible thing to do right now is launch into some unfunded spree of borrowing and more debt, that will just make inflation worse, it will make the problem longer.”
Speaking directly to Truss, he added: “Liz, we have to be honest. Borrowing your way out of inflation isn’t a plan, it’s a fairytale.”
Sunak’s representatives did not respond to Fortune’s request for an interview.
While Sunak has made no public statement on the impact of Truss’ policies, his supporters have noted in recent days that the government was “warned exactly what the consequences [of its tax cuts] would be.”
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