Elizabeth Trass announced on October 20 that he would resign as British Prime Minister and as head of the ruling Conservative Party. As soon as the news came out, it attracted widespread attention from the media. After resigning for only 45 days in power, Trass became the shortest-term prime minister in British history. Tras issued a brief statement on the same day saying that when she took office as Prime Minister, the economic and international situation facing the UK was very unstable, and given the current situation, she was unable to complete the task of changing this situation.
Economic plan suffered a sharp drop
Tras is a British Conservative Party right-wing representative with the idol of " Iron Lady ", advocating free markets, tax cuts, restrictions on government spending, etc. After taking office, she faced economic difficulties such as energy crisis, high inflation, and currency depreciation.
In order to get out of the predicament, on September 23, the Trass government announced the largest economic stimulus plan in the UK in 50 years, aiming to stimulate the economic development of through tax cuts and reforms. In Trass' words, this is a "bold plan."
At first, the British government's expectations for the stimulus plan were optimistic, but things went against their expectations. Once the plan was announced, it caused the exchange rate of pound sterling and to fall, government bonds were sold, and the financial market fluctuated sharply. Under the pressure of political, financial and social public opinion, the government has made major policy adjustments one after another, but it has not recovered the losses caused.
In Manchester, England, a woman walked past a currency exchange point
The previously announced economic stimulus plan by the Trass government caused severe market volatility, mainly because investors were afraid of the prospect of a surge in government lending. Some people believe that its tax cut plan increases medium-term inflation pressure and fiscal crisis risks, which makes it difficult for the market to be confident in an economy that already has huge debts. Since the outbreak of the new crown epidemic, the scale of UK government debt has increased significantly. Data from the UK's National Office for Statistics shows that as of the end of the first quarter of 2022, the total amount of UK government debt was 2365.4 billion pounds, equivalent to 99.6% of its GDP . The tax cuts announced by the Tras government on September 23 are equivalent to exempting taxes of up to £45 billion, which will have a serious impact on UK public finance.
The market shock caused by the "bold plan" of the Trass government also exposed the collision of its political ideas and financial markets. The government's loose fiscal policy is in contrast to the Bank of England's deflationary monetary policy that attempts to curb inflation. Although its original intention is to promote economic growth, it is likely to intensify inflation, which will make the depreciation of the pound and the rise in treasury bond yields a vicious cycle of mutual influence, ultimately curbing medium- and long-term economic development.
Regarding the Trass government's previous economic plans, International Monetary Fund also publicly criticized that it may "intensify injustice" and increase pressure on price increases. International rating agency Moody's said that large-scale, unfunded tax cuts are "credit points reduction" for the British government.
From a realistic perspective, the launch of this plan does seriously endanger the credibility and legitimacy of the cabinet, and the market and people's confidence in the government are declining at an accelerated decline. A poll shows that as of October 9, the British Labor Party's support rate was 52%, far ahead of the 22% of the Conservative Party where Tras is located.
Where is the way to change the situation
At present, among the sequelae of "Brexit", population aging, energy crisis, and rising public debt, how to boost the economy is the most important issue facing the British government.
No matter who is the prime minister, if the UK wants to boost the economy, it may need to start from the following aspects: significantly reduce energy subsidies and improve the targeted and efficient use of energy subsidies; balance the fiscal deficit by increasing tax revenue; formulate specific plans for supply-side reform to achieve policy purposes for promoting employment, private investment, infrastructure construction and economic growth; further improve government operation efficiency and reduce government spending.
In addition, the financial industry is a pillar industry of the British economy. Its international influence has declined all the way after the UK's "Brexit". Euro-denominated stocks, bonds and foreign exchange transactions, as well as related financial practitioners, flowed to the EU market.Against this background, former British Exchequer Kwasi Kwoten proposed the "Big Bang 2.0" to revitalize the British financial industry in September this year, which is regarded as a continuation of the "Big Bang" of financial regulatory reform in Thatcher era. With Trass' resignation and changes in the UK's political situation, the policy prospects are also full of uncertainties. In the future, the UK in economic difficulties should rely more on the EU. For the next government, how to deepen communication and cooperation with the EU in the fields of diplomacy, economy and trade and regulatory will also be a focus.
Author: Zhou Mu (Author’s unit: European Institute of Chinese Academy of Social Sciences)
Source: Banyuetan
