British Prime Minister Tras was criticized.
Recently, the Trass government launched a tax cut policy called "Mini Budget". Its original intention was to stimulate the UK's sluggish economy, but it backfired, causing a huge shock in the market and attracted criticism from many parties. International Monetary Fund (IMF) directly points out that this policy is not targeted and may exacerbate inequality in the UK.
Faced with criticism from multiple parties, Tras still insisted on implementing the plan. Some foreign media pointed out that Trass' insistence may lead her to step down early before the next election in the UK.
On September 29, 2022, British Prime Minister Tras walked out of No. 10 Downing Street, and went to House of Commons to attend the government's anti-inflation budget meeting. On the same day, Tras defended her tax cut policy, which triggered market turmoil and forced Bank of England to intervene to prevent the economy from facing "substantial risks". Photo/Visual China
"Mini Budget" plan triggers turmoil in the UK
Tras once promised her Conservative members that if she can successfully be elected as the new British prime minister, she will launch a tax cut plan aimed at stimulating the economy.
less than a month after taking office, last Friday (September 23 local time), Tlas government's Chancellor Kwasi Kwoten announced a tax cut called the "Mini Budget".
However, the size of this "mini budget" is not mini, and the relevant tax cuts are worth up to £45 billion, including the cancellation of the plan to raise corporate tax to 25%, the cancellation of the maximum tax rate of 45%, and significant reductions in stamp duty. The British think tank Institute of Finance believes that this is the largest tax cut in 50 years.
According to the Trass government, the plan aims to revive the UK economy by driving the investment boom by cutting individual and corporate taxes. But before its expected results were seen, the financial market fell into turmoil.
According to Reuters , the Financial Times and other British media reports, the UK directly suffered a "three-kill of stocks, bonds and foreign exchanges", the stock market fell sharply, and the British Treasury bonds staged a "big collapse". The exchange rate of pound fell to a historical low in nearly 40 years, and was once close to parity with the US dollar.
British asset manager Toby Nagar pointed out in the Financial Times that a country's currency depreciation is because investors question their economic policies, and this time the depreciation of the pound is no exception. In short, the pound plunge shows that investors are more concerned about the long-term impact of tax cuts on the UK budget than are excited about the policy’s potential economic upside.
On September 29th local time, Tras defended the tax cut bill that caused the market to be shocked for the first time in a radio interview. She said, "I am very clear that the government has done the right thing. It is the right plan."
However, after Tras made a statement, the market was still turbulent. According to the British " Guardian " report on September 29 local time, Tras will hold an emergency meeting with the UK Office of Budget Responsibility (OBR).
tax cut plan has been criticized by many parties
Tras government's tax cut plan has been criticized by many parties.
tax cuts belong to expansionary fiscal policy . Focus Economics wrote in a recent report that, while the plan may have some effect on stimulating the economy in the short term, it will also "increase public debt, expand budget deficits, intensify inflation and suppress the pound."
If the pound further depreciates, British imported goods will be more expensive, thereby increasing the prices of goods such as cars, furniture, clothing, and food. The pressure brought by the price increase will ultimately be borne by British consumers. Millions of British families face further financial difficulties, according to the British Mirror. When the
tax cuts were launched, the UK was facing high inflation. Data released by the UK's National Office for Statistics showed that the UK's CPI rose 9.9% year-on-year in August, a slight decline from July, but is still at a higher level in 40 years.
Many foreign media also pointed out that the biggest winner of this tax cut is the rich. CNN reported that this series of measures includes the removal of the highest tax rate paid by the highest income population, and these adjustments will benefit the rich.CBS said tax cuts have brought the biggest gains for the wealthiest Britons, many of whom have established a considerable financial buffer during the pandemic, and they are most likely to save rather than spend extra income.
The International Monetary Fund (IMF) has rarely condemned the UK's tax cuts for being untargeted. In a statement, the IMF pointed out that tax cuts are likely to exacerbate income inequality and urged the UK government to provide more targeted support and reassess tax measures, "especially those that benefit high-income earners." The
statement also pointed out that the tax cut plan may undermine the relevant monetary policy. "Considering the rising inflationary pressures in many countries, including the UK, we do not recommend introducing large-scale, untargeted fiscal plans at this critical moment, because fiscal policies cannot go against monetary policy."
Credit rating agency Moody's also warned of the UK's new policy and expressed concerns about the UK's economic prospects. Moody's believes that the UK's large-scale unfunded tax cuts are not good for government credit, and the UK is not expected to restore its potential for economic growth until 2026.
Tras "may not last the next election"
Local time on September 30, local time, Sky News Network quoted the latest poll data saying that Labour Party leads Conservative Party Conservative Party html 33 percentage points, which is considered the biggest lead in any recorded poll since 1998.
poll data shows that in terms of voting intention, voters' support for Labor reached 54% (9 percentage points higher than last week), while the Conservatives only had 21% (7 percentage points lower than last week). The Trass government's tax cuts have lowered the Conservative Party's vote share.
Outsiders pointed out that for the British Labor Party, the chaos caused by the tax cut policy is "right the time", and the Labour Party's support rate is increasing. But for Tras, it is undoubtedly a bet for her to place the Prime Minister on the implementation of tax cuts.
US political news network Politico believes that unlike former British Prime Minister Johnson , in early September, Tras was elected as the new British Prime Minister with a slight advantage and his situation was not excellent.
vote counting results of the prime minister's election show that Tras won 57% of the votes of Conservative members and Sunak won 43% of the votes. This is the weakest victory since the Conservative Party implemented new rules for intra-party elections in 2001, that is, Tras's support rate in the Conservative Party is lower than that of the previous party capitals of this century.
Less served as prime minister for less than a month, and the major tax cuts announced by Tras made his situation worse. Bloomberg analyzed that given the huge market response, Tras' economic policies are unsustainable. If she sticks to the policy, the longer she will be, the greater the damage to the people and the finances will be. However, this is again a policy she has always advocated, and maintaining its credibility while changing it requires her to have special political skills, which may be something she cannot do. Therefore, the possibility of Tras being forced to step down is getting higher and higher.
The British " Daily Telegraph " believes that if the pound falls below 1.0 against the US dollar, Tras may be abandoned by the Conservatives. Among the Conservative MPs, both supporters and critics of Tras, believe that if the pound falls in such a trend, it will trigger MPs to vote against the fiscal bill or submit a case of distrust of the Prime Minister.
The report from the British Sky News seems to verify this. Some Conservative MPs were dissatisfied with the market response of the tax cuts, telling Sky News that it was "completely a humiliation" and were "shocked" by the Bank of England's intervention in buying Treasury bonds.
has predicted that Tras may be ousted by the Conservatives before the next British election. The outside world generally expects that the next election in the UK will be held in 2024.
"She will likely not be able to hold on to the next election." Tim Bell, a professor of political science at Queen Mary University in London, said, "If the Conservatives feel that expelling pilots could get rid of the dive-sliding crisis, they would do so."
The Scottish Herald reported that if the crisis brought about by this tax cut deepens, Tras will end the "prime minister's journey" in shame.Not only will she be criticized for her incompetence in dealing with economic problems, but she will also be recorded in history for having the shortest term of prime minister in history.
Beijing News reporter Zhu Yuehong
edited by Bai Shuang proofreading Li Lijun
