Davey: Truss must cancel Tory conference to deal with economic crisis

Liberal Democrat Leader Ed Davey has called on Liz Truss to cancel the Conservative party conference which begins this weekend, and instead recall parliament to vote to fix the disastrous mini-budget. Lib Dems are also calling on the government to bring forward a rescue package for homeowners unable to pay higher mortgage bills as a result of last week’s budget.

Ahead of the energy price cap rising on Saturday (1 October), new analysis by the Lib Dems reveals the predicted rise in mortgage bills will be more than double what the government has offered to support households with their energy bills.

Ministers have pledged to freeze energy prices at £2,500 for the average household, which would have equated to around £1,000 support for the average household.

However, the fallout from last week’s budget is predicted to force the Bank of England to raise interest rates to as much as 5% next year, costing the average mortgage borrower on a Standard Variable Rate a staggering £2,100 per year. Those on an average tracker mortgage would face an even higher annual increase of £3,000 per year if interest rates rise to the predicted 5% next year.

Ed Davey said:

There is no way the Conservative Party can hold their conference whilst the British economy nosedives. The arrogance of Liz Truss and Conservative ministers is frankly an insult to millions who now face higher bills as a direct result of last week’s budget. From this weekend they will abandon their posts in Downing Street, leaving a mess behind them and heading for the cocktail parties and mutual back-patting of the classic conference season.

In one fell swoop, Liz Truss and Kwasi Kwarteng crashed the economy, trashed the pound and paved the way for record interest rate rises.

Innocent mortgage borrowers will be left to pick up the bill of this gross incompetence. It is time parliament is recalled and new measures passed to save families and pensioners unable to cope with this mortgage crisis. This botched budget cannot survive any longer.

Yesterday, Ed Davey challenged Liz Truss to set out in the next 24 hours how she will fix the mess caused by last week’s disastrous budget. He said:

We’ve now heard from the Bank of England but nothing at all from the Prime Minister.

Liz Truss has 24 hours to fix this economic disaster and prevent people losing their homes. Now is the time for the Prime Minister to recall Parliament to reassure not just the financial markets, but also British homeowners at risk of higher mortgage costs. Truss and Kwarteng must come forward and spell out how they will repair the damage from their shambolic budget.

Every hour the Prime Minister and Chancellor hide from this economic nightmare increases the chances of interest rates spiralling out of control and people losing their homes. We can’t wait till the Conservatives’ proposed November statement to rescue the pound and property market. For the sake of the country, Liz Truss must act now.

 

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23 Comments

  • Joseph Bourke 29th Sep '22 - 3:39pm

    As Napoleon Bonaparte advised “Never interrupt your enemy when he is doing a mistake, allow them to do so! Know that everything is fair in love and war.”
    The Conservative party conference is quite likely to be a shambolic effort to justify a deeply flawed economic policy, when what is required is an acknowledgement of the mistake and a u-turn on the tax cuts. The Bank of England intervention has provided a two-week respite from the initial turmoil on financial markets, but the measures are not a fix for the underlying fiscal issues.
    The Libdem parliamentary party have an opportunity to showcase the alternative economic case for a green investment led recovery and guaranteed minimum income in the press and broadcast media while Parliament is in recess.
    It is hard to believe that a Chancellor who earned a PhD in economic history from the the home of John Maynard Keynes at the University of Cambridge, could so blithely ignore the lessons of economic history and repeat the missteps of Reginald Maudling (that was the catalyst for the 1967 Sterling devaluation), the Barber boom and bust and Norman Lamonts runaway inflation and housing crash. Kwasi Kwarteng is not looking like one of Napoleons “lucky Generals”.

  • Andrew Toye 29th Sep '22 - 4:11pm

    I read an article in the New Statesman that Truss has for long been a follower of economically right-wing think tanks, which dominated Conservative and American Republican thinking in the 1980’s. Far from being an opportunist, her political career has been centred on pushing this ideology regardless, even as a Lib Dem (she was initially attracted to ‘Orange Book’ thinking). The Orange Book is not quite as right-wing as its critics claim, which is probably why she preferred the harder edge of Thatcherism.

  • Joseph Bourke 29th Sep ’22 – 3:39pm:
    It is hard to believe that a Chancellor who earned a PhD in economic history from the the home of John Maynard Keynes at the University of Cambridge, could so blithely ignore the lessons of economic history and repeat the missteps of Reginald Maudling (that was the catalyst for the 1967 Sterling devaluation), the Barber boom and bust…

    It is hard to believe, because it’s untrue. Maudling and Barber let the money supply rip causing inflation. Kwarteng is aiming to reduce inflation by tighter monetary policy while supporting the economy with a looser fiscal policy and enabling higher growth through supply-side reforms. It’s a sensible plan.

    ‘The hysterical over-reactions to the Budget betray ignorance of history and economics’:
    https://www.telegraph.co.uk/opinion/2022/09/24/hysterical-over-reactions-budget-betray-ignorance-history-economics/

    The problem is that many observers – including Left-leaning economists in the US, in financial institutions and international bureaucracies – don’t understand what Mr Kwarteng is trying to do. Their economic understanding is too narrow and conventional, their models faulty. He is a supply-sider, not a Keynesian: he wants to boost incentives to increase investment and work. Mr Kwarteng and free-marketeers believe that it is the job of the central bank to control inflation, and the role of the state to drive growth via reforms.

  • Jenny Barnes 29th Sep '22 - 5:26pm

    “. Mr Kwarteng and free-marketeers believe that it is the job of the central bank to control inflation”
    I wonder how you know this, it seems more likely that they are just bunging huge sums of our money to the already rich. Anyway, when the average mortgage doubles in price, costing people another £1,000 a month, do you think Mr/Ms average mortgage holder is going to get a second job? Or cut their discretionary spending to the bone, crashing the discretionary economy, and probably the housing market?

    Seems to me the “free markets” have declared their verdict on KKs special fiscal operation, and it’s not positive.

    BTW, his PhD was in “the great recoinage of 1600 & something” not exactly relevant to today.

  • Jeff 29th Sep ’22 – 5:12pm…………….‘The hysterical over-reactions to the Budget betray ignorance of history and economics’:……………..

    However, it’s hard to imagine how a brilliant economist like Kwartang could fail to realise that almost all of of the world’s ‘Lefty’ economists (including those at the IMF) would react as they did..

    Although TBH, your comment rather reminds me of the old army joke whose punch line ends, “Look at our Willie; he’s the only one in step”

  • Paul Barker 29th Sep '22 - 9:45pm

    The reaction of The Voters seems fairly “hysterical” as well & they are the Bosses.

  • Jenny Barnes 29th Sep ’22 – 5:26pm:
    …when the average mortgage doubles in price, costing…

    Were interest rates at 2-3% sustainable with inflation in double-digits? The world has turned…

    ‘Liz Truss must hold her nerve as the world tips into a calamitous recession’:
    https://www.telegraph.co.uk/news/2022/09/28/liz-truss-must-hold-nerve-world-tips-calamitous-recession/

    Cheered on by politicians, central banks kept interest rates low, favoured borrowers over savers, printed money with abandon and engineered an artificial boom in house prices, tech firm stocks, crypto-currencies, bond markets, art and more. […]

    Yet it was a Potemkin economy, a facade, a con. Much of the “growth” and wealth weren’t real. The UK was stagnating, not booming. House prices “enriched” the haves while infuriating the have-nots. It was a bubble at best, and a Ponzi scheme at worst, keeping zombie projects alive and fuelling obscene malinvestment. […]

    This madcap experiment is now ending, killed off by a money printing overdose from Covid,… […]

    The necessary transition from cheap to rational money will be traumatic and could trigger a vicious global recession, higher unemployment and bankruptcies. Long-term mortgages are already at 7.1 per cent in America as the old order crumbles, and financial markets are in turmoil worldwide.

    This is the context for the punishment beating meted out to Britain. The readjustment that every other country will also undertake – especially much higher borrowing costs – has taken place in accelerated form in the UK, triggered by the financial markets’ ridiculous reaction to the Budget.

  • Jenny Barnes 29th Sep ’22 – 5:26pm:
    …when the average mortgage doubles in price, costing…

    Are interest rates at 2-3% sustainable with inflation in double-digits? The world has turned…

    ‘Liz Truss must hold her nerve as the world tips into a calamitous recession’:
    https://www.telegraph.co.uk/news/2022/09/28/liz-truss-must-hold-nerve-world-tips-calamitous-recession/

    Cheered on by politicians, central banks kept interest rates low, favoured borrowers over savers, printed money with abandon and engineered an artificial boom in house prices, tech firm stocks, crypto-currencies, bond markets, art and more. […]

    Yet it was a Potemkin economy, a facade, a con. Much of the “growth” and wealth weren’t real. The UK was stagnating, not booming. House prices “enriched” the haves while infuriating the have-nots. It was a bubble at best, and a Ponzi scheme at worst, keeping zombie projects alive and fuelling obscene malinvestment. […]

    This madcap experiment is now ending, killed off by a money printing overdose from Covid,… […]

    The necessary transition from cheap to rational money will be traumatic and could trigger a vicious global recession, higher unemployment and bankruptcies. Long-term mortgages are already at 7.1 per cent in America as the old order crumbles, and financial markets are in turmoil worldwide.

    This is the context for the punishment beating meted out to Britain. The readjustment that every other country will also undertake – especially much higher borrowing costs – has taken place in accelerated form in the UK, triggered by the financial markets’ ridiculous reaction to the Budget.

  • Jeff,

    The Independent provides a helpful recap of what happened when other chancellors tried a dash for growth
    “There have been three previous notable examples of such a “dash for growth”, all under Tory governments. The first was in 1963…Reginald Maudling set out a series of measures to boost public spending, cut taxes and make credit easier – all designed to boost output to such an extent that economies of scale and an investment boom would soon transform productivity levels and international competitiveness. It failed. The substantial fiscal stimulus overheated the economy, pushed inflation up, sucked in imports (consumer goods as much as raw materials) and there was a sterling crisis.”
    “In 1971 {Ted Heath] ordered Tony Barber to cut taxes, spend and borrow in his own dash for growth. As unemployment mounted in 1972 towards the shocking level of one million, Barber was told to administer another huge fiscal adrenaline shot, one that ranked as the biggest tax cuts package until Kwarteng arrived. Growth in 1973 reached 6.5 per cent in real terms, a post-war record, but soon enough went into reverse.”
    “Third up was Nigel Lawson in 1988 under the Thatcher government. Again, supply side reforms – union laws, privatisations, deregulations – had accompanied a general, if uneven programme of tax cuts, culminating in the symbolic reduction of the top rate of tax in the 1988 budget from 60 per cent to 40 per cent. Again, it ended in tears, and a recession duly followed.”
    “In 1963, sterling was fixed in a rigid international system colloquially known as Bretton Woods. It meant that a trade deficit and loss of demand for and confidence in the pound had to be remedied by austerity”. Now the pound is free floating. “It is going to be a period of huge turbulence and, frankly, misery for the heavily indebted, those who eventually lose their jobs and those at the bottom of the economic pile. The economy will eventually adjust, driven by exchange rate movements – and it will hurt.”

  • Joe Bourke 30th Sep ’22 – 12:49pm:
    The Independent provides a helpful recap of what happened when other chancellors tried a dash for growth

    That article is not helpful in this case. Comparisons with the Maudling, Barber, and Lawson booms are uninformed and misplaced. Kwarteng is not going for a “dash for growth”, he is not aiming to “boost public spending” (other than to partially cover the rise in energy bills), and he is not trying to “make credit easier – on the contrary he is expecting monetary policy to tighten (not that he has any choice about this – the era of rock-bottom interest rates is over). Even his tax cuts mostly only restore taxes to what they were in the recent past.

    Do you seriously think that the economy is going to become “overheated” with taxes still at a 70 year high, energy and mortgage costs more than doubling, food and other essentials rising in price at double-digit rates while wages and benefit rises lag well behind? If so, I suggest buying shares in some high street retailers – most that rely on discretionary spending are expecting a deep recession.

  • Jeff 30th Sep ’22 – 2:28pm

    Jeff, Do you seriously think that Kwartang’s promise to ‘grow the economy’ will be achieved by borrowing to fund tax cuts when said borrowing has forced up interest rates, energy and mortgage costs are more than doubling, food and other essentials are rising in price at double-digit rates and wages and benefits are lagging well behind?

    I’m no economist but my understanding is that rising interest rates are a certain way to lower growth..

  • Jeff,

    the Independent’s analysis is an objective one. The mini-budget announced 45 billion of unfunded tax cuts on top of an expected 150 billion bill for energy market support and other borrowing over the next two years. The largest of these cuts being the reduction of the basic rate of tax and corporation tax cuts. The government plans to issue more than £200bn in additional debt, the highest level of borrowing since the Barber Budget in 1972. This marks an ideological shift from fiscal discipline, focussed on keeping the deficit in check, to fiscal stimulus, based on the idea that money spent by the government and tax cuts are an investment that will pay off and help cover the debt.
    The FT writes “The UK prime minister’s experiment fails to take account of unforeseen consequences in the real world” in Lessons for Truss when economic orthodoxy bites back
    “Despite accusations that economic orthodoxy is driven by a cosy cabal of the Davos-attending global elite, the truth is much more mundane. Economic orthodoxy is not ideological but simply the accumulated knowledge and experience of what tends to work best. It is not the slave of some defunct economist, but a constantly evolving body of thinking and experimenting in the real world. It is always open to challenge.”
    “With a twin budget and current account deficit, the UK needs the global economic orthodoxy to keep lending it money. So it is not wise to denigrate its thinking, nor to sack the respected top Treasury civil servant nor to refuse to allow independent assessment of the public finances.
    In fact, the past week has shown the only problem with the economic orthodoxy is its name. Call it knowledge and experience instead”.
    This is the same misstep that previous Tory chancellors have made.

  • expats 30th Sep ’22 – 3:14pm:

    Do you seriously think that Kwartang’s promise to ‘grow the economy’ will be achieved by borrowing to fund tax cuts…

    Not in the short-term and not on their own. Lower taxes are a necessary prerequisite to breaking free from 20 years of low growth, poor productivity, and stagnant wages. They need to be combined with a comprehensive programme of supply-side reforms right across the economy. Kwarteng made a start in this budget, but those supply-side measures — Investment Zones, better access to child care, acceleration of infrastructure projects, etc. — received little attention despite being wide-ranging…

    ‘The Growth Plan 2022: documents’:
    https://www.gov.uk/government/publications/the-growth-plan-2022-documents

    …when said borrowing has forced up interest rates,…

    The budget may have acted as a catalyst, but interest rates are rising worldwide regardless of Kwarteng’s budget. The US is 1% higher than the UK – hence the strength of the dollar. Real interest rates of -7% were never sustainable; they need to be higher to squeeze inflation out of the system.

    I’m no economist but my understanding is that rising interest rates are a certain way to lower growth.

    Yes, they will to some extent, but rates have been at near-zero for too long – a symptom of a dysfunctional world economy. That is now changing. The era of cheap money is drawing to a close.

  • A curious call by Davey.

    I imagine that the hothouse of a Tory Conference must be the perfect place for plots to be cultivated and grow like weeds. Tory MPs (all of them!) – fearful for their seats, getting calls from children and other younger relations about their suddenly unaffordable mortgages, hearing from businesses in their constituencies about their soaring energy costs and impending layoffs and closures – all this will make a very combustible mix.

    Out by Christmas I would think. And provided the various opposition parties don’t drop the ball (highly likely, I fear), the Tories will be unelectable for at least one generation, possibly two, because of their demonstrated economic incompetence.

    Also, why not go big on the pensions angle which is being soft-pedalled by the media. The reason the Bank of England had to intervene in the markets so quickly was apparently (according to an estimate carried on the front page of yesterday’s FT) that around 90% of pension funds were within hours of going insolvent. Why isn’t that a banner headline?

    I don’t imagine it’s a thought that would play well with Tory Party members, average age 72.

    This is the collapse of the 40+ year Thatcherite/neoliberal project – the new Winter of Discontent. Davey needs to fill the void by articulating a different vision of how the economy should work.

    Sadly, the LibDem’s collection of disjointed policies doesn’t sum to a vision; the party needs to rethink how it does things.

  • Jeff 30th Sep ’22 – 5:04pm..

    Jeff, Your post is a long winded way of promising ‘Jam Tomorrow’

    As for your comment on Interest rise/lower growth ‘Yes, they will to some extent’

    A few effects of rises..

    1) Increases the cost of borrowing. ..Spending falls….. LOWER GROWTH
    2) Increase in mortgage interest payments …. LOWER GROWTH
    3) Increased incentive to save rather than spend…. LOWER GROWTH
    4) Higher interest rates increase the value of a currency ….reducing exports and increasing imports… LOWER GROWTH
    5) Rising interest rates affect both consumers and firms. Therefore the economy is likely to experience falls in consumption and investment…LOWER GROWTH
    6) Government debt interest payments increase. This could lead to higher taxes in the future ..LOWER (longterm)GROWTH
    7) Reduced confidence. … makes firms and consumers less willing to take out risky investments and purchases…LOWER GROWTH

    Seems a bit more than, ‘Yes, they will to some extent’, to me,

  • CJ WILLIAMS 30th Sep '22 - 5:50pm

    Expats. We have had a long period of ultra low interest rates leading to a prolonged period of lower growth.

  • CJ WILLIAMS 30th Sep ’22 – 5:50pm…Expats. We have had a long period of ultra low interest rates leading to a prolonged period of lower growth……

    Kwartang promised growth of 2.5%..I’m old enough to remember the last time the UK even got anywhere near to 2.5%; it was the ‘boom’ of late 1986; that high lasted one quarter, followed, as always, by a recession ‘bust’ two years later…
    2,5% is an unsustainable figure,, If the OBR had agreed that such growth was achievable their figures would have been lauded by No.10..Their refusal to publish speaks volumes..

  • Barry Lofty 30th Sep '22 - 7:40pm

    Although an extended period of low interest rates may not be wholly desirable, I personally would accept that scenario over the car crash that has happened to our economy this week with policies that are relying on a wing and a prayer for us normal citizens of the UK, I would like to know who are pulling the puppets strings behind the scenes??

  • CJ WILLIAMS 30th Sep '22 - 8:11pm

    Expats. Your list is simplistic. Higher interest rates will (hopefully) slow or even reverse the disastrous effects of Buy to Let mortgages that allow for huge returns plus capital gains within the housing market but with no economic benefit to the country. Perhaps that money, seeking a good return, will be invested in good UK companies that actually employ people allowing for investment and the creation of real jobs. We need to get away from this rentier economic model.

  • David Garlick 30th Sep '22 - 9:32pm

    Cannot but agree with Ed, but…
    Perfectly fair Tory Bashing is of little value if we don’t ‘bash out’ our better ways to do things. Some Conservative voters will only turn to us rather than Labour if they believe we have a good programme to put in place. Don’t let up on the ‘bashing’ but do add they good narrative we have to share. They will need it over and over again in order to believe it.

  • CJ WILLIAMS 30th Sep ’22 – 8:11pm……Expats. Your list is simplistic. Higher interest rates will (hopefully) slow or even reverse the disastrous effects of Buy to Let mortgages that allow for huge returns plus capital gains within the housing market but with no economic benefit to the country…..

    If the list is simplistic I suggest you contact Tejvan Pettinger (who teaches economics and who has written many books on the subject)..It is from his syllabus

    As for ‘housing’..I believe the opposite..Higher interest rates will make ‘getting on the property market ladder’ even harder, thereby increasing the demand for rental property and allowing higher rents (supply/demand)..Buy-to-Let landlords will use their extra money, on a deflated housing market, to buy more houses to increase their incomes..

    You use the word ‘hopefully; that, sadly, I believe is the logic behind the ‘budget’

  • CJ WILLIAMS 1st Oct '22 - 11:12am

    Expats. I use the word ‘hopefully’ because I am not an economist. Perhaps if economists used the word to describe there predictions people may have a little more trust. But taking your lead I will begin to read A level revision books on Economics. Perhaps you could look at this video from the American Institute for Economic Research. I’m convinced that these video’s (there are many) could garner much more interest in the subject esspecialy amongst the young.

  • CJ WILLIAMS 1st Oct '22 - 11:18am

    Expats. Looks like I’m not very good at this. Iff you are interested in these video’s please search for The March of History. Mises V Marx. Alternately try Fight of the Century. Keynes V Hayek. Both Brilliant.

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