British politics is being reshaped this week – but not because of Keir Starmer. After only 22 days as prime minister, Liz Truss is already facing her demise. Party conferences, those jamborees of suited choreography and confected excitement, look utterly irrelevant beside the financial meltdown engulfing the country. Yet politics and finance are, in this moment, deeply bound up with each other. This crisis was largely manufactured by our failing political class and it will now determine their terms of trade. For the rest of us, the result threatens to be austerity 3.0: the third big wave of spending cuts to follow the third crisis in the last 12 years, with even more social wreckage and human misery in tow.
I covered my first financial crisis 25 years ago, in 1997, and I have never before seen one so entirely avoidable as this is. It began with the Tory leadership election in the summer, when Liz Truss promised tax cuts of £30bn in order to win the keys to No 10. It picked up last Friday, as Kwasi Kwarteng unveiled his “plan for growth”, which turned out to be a further £15bn of handouts – and mainly to people who didn’t need them.
It wasn’t just bad economics, it was bad faith. And when it bombed in the next day’s papers, the chancellor promised yet more tax cuts. This was on top of the emergency support on energy bills, costing £60bn for just this winter. The difference being that the energy package was essential and temporary, while these permanent tax cuts were supposed to buy voters and influence party donors.
What was intended as mere bribery has turned out to be a gigantic financial bomb. The pound dived so far that it won a new name: shitcoin. (One wag mused on Reddit: “Apparently britbongs use it to purchase crumpets and tea, but other than that doesn’t have any usage.”) Lending rates in the markets soared, so Halifax and other big mortgage firms had to pull some of their products. The Bank of England essentially lost control over interest rates, while pension funds and other investors began scrabbling around for cash. Finally, today, the Bank started buying government bonds in a bid to quell panic.
A week is a long time in financial wreckage. Thanks to Kwarteng and Truss, you have just got a lot poorer. If you’re a homeowner on a standard variable mortgage or looking to renew, your bills have spiralled. If you have a money-purchase pension or a nest-egg Isa, you probably don’t want to check your balance. Prices for pretty much anything from overseas – from food to T-shirts to cars – have just gone up.
Institutionally, the Treasury’s credibility has been ruined and the Bank of England’s monetary policy destroyed. It was meant to be reversing quantitative easing, just as Truss and Kwarteng had demanded. Then came this afternoon, when to bail out the hapless blunderers at No 10 and 11 it was forced to turn on the money-printing machine again.
Despite our newfound impoverishment, this debacle has provided moments we can all relish. Kwarteng handed a big tax cut to the very people who shorted the arse out of his policies. Among his helpers were the free-market thinktanks, most prominently the Institute for Economic Affairs, which has spent decades claiming to be the master of capitalist science. All it has taken is a few days to expose its members as charlatans, expert only at cloaking who actually provides its funding.
Chris Philp, the chief secretary to the Treasury who describes himself as a “serial entrepreneur” and looks like Patrick Bateman if he’d gone into selling timeshares, spent part of last Friday afternoon crowing about the pound’s slight rise. Ever since, he has gone awfully quiet. Finally there is Truss, the third Brexit prime minister in six years to vow to “take back control”, and the third to exhibit precisely as much control as a gap-year student after their first meal in Delhi.
Even after all the Tories’ efforts to wreck standards in public life, one assumes consequences will follow. At the very least, I can’t see how Kwarteng can stick around to deliver the next budget, due in a few weeks. But there are more profound issues here. Truss got into power with almost zero scrutiny from the political-media class. Countless MPs swallowed their scruples and backed a woman they knew was wrong but assumed would win. The Conservative membership showed all the interrogative skill of a flock of sheep, and much of the press focused more on her Instagram profile than her policies.
The checks and balances that stood between us and this national humiliation failed. And for what? The Saga-going classes, on whom the Tories depend for their core vote, will find their foreign holidays are now vastly more expensive. The hard-pressed, heavily mortgaged families who read the Mail have just been landed in further debt by the woman their newspaper chose to be prime minister. And the BBC, which duly puts on the Institute for Economic Affairs and the rest on its news programmes, stands once again guilty of pretending corporately funded know-nothings are “economic experts”. This is not just a moment of reckoning for the people in charge of our democracy: it is a moment to recognise just how dangerously corroded our democratic institutions are.
That’s not what the Tories, the rightwing press and the lobotomised thinktanks want. They’re already pushing for spending cuts by November, and for the next two years to be about austerity, dismantling the NHS and squeezing those on social security. If Keir Starmer and Rachel Reeves are suckered into this as the “sound money” politics they promised this week, that turns the next election into the party of the small state versus the party of the even smaller state.
A country in which you can’t see a GP for months and your mum can’t get an operation for years, where the beaches have been covered with sewage and the trains don’t work, is not one that can stand another round of spending cuts. And an economy that relies on imports and debt to get by needs investment and redistribution, not more of the same old policy slop. Even the winners in the UK today live a worse life than their counterparts in Europe. They drive their Audis over potholed roads to drop their kids off at overcrowded schools, then go home to wonder how they’ll pay their groceries and energy bills.
This is their crisis, not ours. You didn’t benefit from these big tax cuts, the Tory donors did. Truss can reverse her stupid, cynical budget, resign, and force a general election – and Labour should demand she does so.
Aditya Chakrabortty is a Guardian columnist
