Kwasi Kwarteng will double down on his plan for unfunded tax cuts despite the economic chaos and a mounting Tory rebellion.
The chancellor will tell the Conservative conference in Birmingham the government must “stay the course”.
Advertisement
And he will say: “I am confident our plan is the right one.”
Kwarteng’s comments risk further inflaming the Tory civil war, with Michael Gove among the big-hitters urging the government to change course.
The former cabinet minister said he was “profoundly” concerned by the mini-budget, which saw the chancellor unveil plans to slash taxes for the highest earners and end the cap on bankers’ bonuses.
Gove also suggested that he would join other Tory rebels in voting against the plans when they come before parliament – despite party chairman Jake Berry warning that any MP who does so will lose the whip.
In a sign of the mounting anger, 13 Tory MPs have now gone public to voice their opposition to the decision to axe the 45p tax rate paid by those earning more than £150,000.
Advertisement
They include former chief whip Julian Smith, who said: “We cannot clap for carers one month and cut tax for millionaires months later.”
The first job of an MP is to act in the interest of their constituents & in the national interest. We cannot clap for carers one month & cut tax for millionaires months later. https://t.co/iKtnOxm1jB
But in his keynote address to the party faithful in Birmingham today, Kwarteng will insist he had no choice but to take radical action to grow the UK economy, and will not back down.
He will say: “We must face up to the facts that for too long our economy has not grown enough.
“The path ahead of us was one of slow, managed decline, and I refuse to accept that it is somehow Britain’s destiny to fall into middle income status, or that the tax burden reaching a 70-year-high is somehow inevitable – it isn’t, and shouldn’t be.
Advertisement
“We needed a new approach, focused on raising economic growth.That is the only real way to deliver higher wages, more jobs, and crucially, revenue to fund our precious public servicee and it is the only way to achieve long-term fiscal sustainability.
“We must stay the course. I am confident our plan is the right one.”
The chancellor will add: “With energy bills skyrocketing.A 70 year high tax burden.Slowing long-term growth rates. Painfully slow infrastructure delivery.
“Should we really have just accepted that fate? Think about the cost to livelihoods and the impact on our communities.
“What Britain needs is economic growth.And a government wholly committed to economic growth.
“That is why we will forge a new economic deal for Britain backed by an iron-clad commitment to fiscal discipline.”
The chancellor’s speech will be closely watched by the money markets for details on precisely how the government plans to balance the books.
The language of economics and the financial system can be confusing for those not steeped in the world of pensions, gilts and bear markets.
But there’s been a lot of around, as the Conservative Party’s mini-budget spooked the markets, causing a collapse in the pound and a surge in the UK’s borrowing costs. Here’s an explanation to some of the phrases and ideas being bandied around.
Advertisement
Why is ‘supply-side economics’ being mentioned?
The economic theory is highly fashionable having been fully embraced by the UK’s new prime minister, Liz Truss and her chancellor, Kwasi Kwarteng, in their controversial “fiscal event”.
The theory holds that the supply of goods and services within the economy is the main driver of growth. Put bluntly, the idea is to give wealthy individuals or large corporations tax cuts, which in turn creates jobs and later increases the number of people paying taxes and boosts the amount of money collected by the Treasury. The prime minister’s approach has been dubbed “Trussonomics”, and supporters talk a lot about baking a bigger economic “pie” that everyone can share.
The theory was particularly popular in right-wing circles in the 1980s. In common with US president Ronald Reagan, UK prime minister Margaret Thatcher experimented in this kind of low-tax economics, the results of which have been disputed ever since.
<img class="img-sized__img landscape" loading="lazy" alt="Chancellor Kwasi Kwarteng arrives at Darlington station for a visit to see local business.” width=”720″ height=”482″ src=”https://www.wellnessmaster.com/wp-content/uploads/2022/09/a-guide-to-the-confusing-language-describing-the-uks-financial-markets-meltdown-3.jpg”>
Chancellor Kwasi Kwarteng arrives at Darlington station for a visit to see local business.
Owen Humphreys via PA Wire/PA Images
Advertisement
The phrase “trickle-down” economics – the benefits generated at the top trickling down to everyone – has become synonymous with the idea.
When talking about supply-side economics, commentators will invariably refer to the Laffer Curve – a graph showing the relationship between tax rates and the amount of tax revenue collected by governments. It’s named after Arthur Laffer, a member of Reagan’s economic policy advisory board, who also advised Thatcher, earning him the nickname the “father” of supply-side economics.
When do we know we’re in a recession?
A technical recession is defined by two successive quarters of falling economic output – measured by gross domestic product (GDP), which attempts to summarise all the activity of companies, governments and individuals in an economy in a single figure.
Some people argue the term “recession” is an unreliable indicator because people could be suffering all the effects of an economic downturn, such as long-term unemployment, but the data might not officially say as much.
Kwarteng has admitted the UK is “technically” in a recession, even if the official figures are yet to confirm it.
Advertisement
In 2020, the Office for National Statistics (ONS) officially declared the UK in recession – the steepest on record – after the economy plunged by 19.6% between April and June due to the coronavirus lockdown.
It followed a 2.2% contraction in the previous three months – marking the first recession since the 2008 global financial crisis, when the UK fell into a year-long recession.
What is inflation?
At its heart, inflation is the measure of how quickly the cost of goods and services is growing. It is an average across many categories, so if food prices rise, that could still be offset by drops in, say, the price of petrol.
In the UK, the ONS is tasked with estimating the inflation rate.
It has a basket of goods and services that it tracks. It might be helpful to think of this as a massive shopping basket with what the ONS thinks that people in the UK buy. It includes around 730 items, anything from dating agency fees to condoms, wild bird seed to petrol, and crumpets to pet food.
What is in the basket changes every year – with some additions and some removals – because what people buy changes. For 2022 antibacterial surface wipes were added, along with meat-free sausages and other items.
Advertisement
What’s the Bank of England’s role?
Owned by but independent from the UK government, the Bank of England is tasked with keeping inflation under control, targeting 2% a year.
But in recent months inflation has started to run away. It hit 9.9% in August and, despite government action to freeze energy bills, is still expected to strike a new 40-year-high “just below 11%”, the central bank has said.
The Bank of England also has a wider remit to ensure the health of the economy. Many will remember the economy-boosting stimulus in the form of quantitative easing – often referred to as printing money – being deployed during the 2008 financial crisis.
How do interest rates fit in?
An interest rate is a measure that tells you how high the cost of borrowing money is, or how high the rewards are for saving.
Advertisement
The Bank of England’s “base rate” – the interest rate at which banks borrow from the central bank, which has billions of pounds in assets at its disposal – has a knock-on effect on the interest rates offered on the high-street for mortgages and savings.
Raising and lowering interest rates is the blunt instrument at the Bank’s disposal to control the economy. Hiking the base rate increases the cost of borrowing, making both credit and investment more expensive. The idea is to put the brakes on the economy and curb soaring inflation. Bringing rates down is an attempt to have the opposite effect – stimulate growth by making borrowing cheaper, and in turn, encourage investment.
UK interest rates. See story ECONOMY Rates. Infographic PA Graphics. An editable version of this graphic is available if required. Please contact graphics@pamediagroup.com.
PA Graphics via PA Graphics/Press Association Images
Before the mini-budget, the Bank raised the base rate by 0.5 percentage points – the seventh hike since December – in a bid to keep inflation under control. Now some analysts are predicting the base rate, currently standing at 2.25%, will have to rise to as high as 6% next year.
What about bonds and yields?
The Bank of England has also intervened to try to bring surging yields in government bonds – known as gilts – under control as they spiralled higher, sending UK public borrowing costs soaring.
Advertisement
It said it would buy bonds “on whatever scale is necessary”. The Bank stepped in to calm markets after some types of pension funds were at risk of collapse.
Bonds are loans that investors make to a bond issuer and can be issued by companies or governments to raise money.
The yield on a bond is the amount of money an investor receives for owning the debt and is represented as a percentage of its price. When a bond price falls, its yield rises.
Yields fall when investors are less willing to own the debt, meaning they will pay a lower price for the bonds.
Alarm bells were ringing when yields on 10-year UK government bonds rose above 4%, the highest since the 2008 financial crisis, and more than triple the 1.3% rate at the start of the year.
Advertisement
The higher yield reflected fears investors had in the state of the UK economy, and again impacts how much interest banks charge for various types of loans, most notably mortgages.
Austerity is to be revived to tackle the economic crisis critics says was caused by a splurge on tax cuts in the government’s mini-budget.
HuffPost UK understands Chris Philp, chancellor Kwasi Kwarteng’s deputy in the Treasury, will write to Cabinet ministers to urge them to make efficiency savings in their departments’ existing budgets to help balance the public finances.
Advertisement
It marks a significant change in direction since, in 2018, then prime minister Theresa May declared the government’s programme of austerity – started by her predecessor David Cameron eight years earlier – was “over”.
It also signals Liz Truss’s government will not row back from a massive £45 billion tax cut funded by government borrowing.
Chris Philp, Chief secretary to the Treasury, to write to all Secretaries of State telling them to identify efficiencies and reprioritise departmental spending plans.
Treasury source insists that even with 10% inflation, departmental spending is still growing in real terms.
It came as the Bank of England has launched an emergency UK government bond-buying programme to prevent borrowing costs from spiralling out of control.
Advertisement
It was the latest shock move after the pound briefly slumped to an all-time low, triggering fears of sharp interest rate rises to save the currency.
The Bank’s extraordinary intervention, responding directly to the government’s tax-cutting strategy, will pile further pressure on Truss and Kwarteng to defend a vision for the economy that has spooked markets and shocked most mainstream economists.
While the pound hit an all-time record low of 1.03 against the US dollar on Monday, the yield on 10-year gilts – which is a proxy for the effective interest rate on public borrowing – has also soared by the most in a five-day period since 1976, according to experts.
Truss and Kwarteng have stayed publicly silent since the weekend, with only financial secretary to the Treasury Andrew Griffith sent out to the media on Wednesday.
He insisted the government was sticking to the plan set out by Kwarteng in the Commons on Friday.
“What the chancellor and I are focused on is delivering that economic growth plan,” he said in a pooled clip for broadcasters.
Advertisement
“We think they are the right plans because those plans make our economy competitive.”
A Treasury minister has denied the government’s mini-budget has caused an economic meltdown, as a senior figure in government finally spoke publicly about the market turmoil.
With prime minister Liz Truss and chancellor Kwasi Kwartengsilent on the tumbling pound and interest rate fears in recent days, financial secretary Andrew Griffith was presented to the media to answer questions on their behalf.
Advertisement
It came as the Bank of England has launched an emergency UK government bond-buying programme to prevent borrowing costs from spiralling out of control, and followed the International Monetary Fund urging the UK to reverse a massive £45 billion tax cut funded by government borrowing.
On Wednesday, Griffith was asked by Ed Conway of Sky News if the government took responsibility for “the storm in the financial markets” since last Friday’s “fiscal event”.
In response, Griffith said: “No, we both know we’re seeing the same impact of Putin’s war cascading through things like the cost of energy, some of the supply side implications of that. And that’s impacting every major economy. Every major economy you are seeing interest rates going up as well. Every major economy is dealing with exactly these same issues.”
Griffith welcomed the “timely” intervention by the Bank of England in the markets, adding: “What the chancellor and I are focused on is delivering that economic growth plan.”
Advertisement
Treasury financial secretary, Andrew Griffith says the current economic issues are being experienced in “every major economy” due to Putin’s war, not the mini budget.
While the Tories are denying a self-inflicted wound, some are happy to blame others.
Tory peer Daniel Hannan was mocked after he blamed the economic on the prospect of Keir Starmer becoming prime minister.
He said a Labour victory at the next election would lead to “higher taxes, higher spending, and a weaker economy”.
Meanwhile Andrew Lilico, a right-wing economist supportive of the tax cuts, hit out at the IMF as a “left-wing body” after its rare criticism of a developed country as the lender of last resort highlighted the negative impact of the tax cuts.
The scale of the crisis in the markets has led to unease in some quarters of the Tory party, while Labour has joined calls for parliament, currently on a conference recess, to be recalled.
Advertisement
“The government has clearly lost control of the economy,” Keir Starmer told reporters in Liverpool.
The International Monetary Fund has made a stunning intervention over the state of the UK economy after the Tory mini-budget caused financial turmoil.
In the group’s first public reaction to Britain’s growing crisis, the IMF said on Tuesday that it would urge the UK to “re-evaluate” a massive £45 billion tax cut funded by government borrowing as it does “not recommend large and untargeted fiscal packages” given soaring inflation across the world.
Advertisement
It went on to warn the measures will likely increase inequality, and urged more action to hep those affected by the energy crisis and rising cost of living.
What is the IMF? Why do their comments matter?
The Washington DC-based “lender of last resort” has helped bail-out struggling nation states around the world for more than 70 years.
It is extremely rare for the organisation to intervene in a developed country’s economic policy. Britain was forced to apply for an IMF loan of nearly $4 billion during the 1976 financial crisis, with negotiators for the group insisting on deep cuts in public expenditure at the time.
IMF officials have warned repeatedly in recent months of the need to carefully calibrate fiscal and monetary policy as central bankers raise interest rates across the globe to get inflation under control.
Advertisement
Against a backdrop of the pandemic, Russia’s invasion of Ukraine and rising global interest rates, the organisation’s lending has hit a hit a record high at $14billion, the FT reported. Zambia and Sri Lanka, which both defaulted in the pandemic, are currently negotiating IMF bailouts as part of efforts to restructure debts.
What is it responding to?
The IMF comments followed the Tories unveiling a controversial mini-budget on Friday that was designed to reboot growth – a move that saw the pound slump to a record low against the dollar by Monday.
The sell-off of sterling, as well as jitters across the financial markets, has led to fears the Bank of England is certain to raise interest rates dramatically to save the currency, which in turn is likely to spell bad news for homeowners.
Chancellor Kwasi Kwarteng responded by saying he would set out medium-term debt-cutting plans on November 23, alongside forecasts from the independent Office for Budget Responsibility of the full scale of government borrowing.
What did the IMF say?
In response to a query from Reuters after the British pound hit an all-time low amid spiking market concerns, the IMF spokesperson said: “We are closely monitoring recent economic developments in the UK and are engaged with the authorities.
Advertisement
“Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy.”
The IMF understands that Britain’s “sizable fiscal package” was intended to help residents deal with higher energy prices and to boost growth via tax cuts and supply measures, but such measures could put fiscal policy at cross purposes with monetary policy, the spokesperson said.
Kwarteng’s fresh budget would provide an “early opportunity for the UK government to consider ways to provide support that is more targeted and re-evaluate the tax measures, especially those that benefit high-income earners”, the spokesperson added.
What has the reaction been?
The BBC’s economics editor Faisal Islam: “The IMF telling a G7 member and major shareholder to ‘re-evaluate’ their signature economic policy because it ‘does not recommend’ such packages and will ‘increase inequality’… suggests profound international concern in finance ministries about a global impact of UK crisis.”
This the IMF telling a G7 member and major shareholder to “reevaluate” their signature economic policy because it “does not recommend” such packages and will “increase inequality”… suggests profound international concern in finance ministries about a global impact of UK crisis
This from IMF is humiliating for Kwarteng and Truss: “Given elevated inflation pressures in many countries, including UK, we do not recommend large untargeted fiscal packages at this juncture, as it is important fiscal policy does not work at cross purposes to monetary policy”.
An economist and former interest rate-setter has hit out at the government’s “raging incompetence” as he questioned whether Liz Truss and Kwasi Kwarteng would survive the economic turmoil created by their mini-budget.
David “Danny” Blanchflower, who sat on the Bank of England’s monetary policy committee for three years, said the prime minister and chancellor’s “credibility is completely trashed” within days of taking office.
Advertisement
His outspoken comments followed the Tories unveiling a massive £45 billion tax cut funded by government borrowing on Friday – a move that saw the pound slump to a record low against the dollar by Monday.
The sell-off of sterling, as well as jitters across the financial markets, has led to fears the Bank is certain to raise interest rates dramatically to save the currency, which in turn is likely to spell bad news for homeowners.
Appearing on the Sarah-Jane Mee Show on Sky News, Blanchflower referenced Kwarteng’s plan to explain how he will get debt falling in a medium term fiscal plan to be published on November 23, as he said the uncosted government plans mean Truss and the chancellor “just don’t look credible”.
Advertisement
He added: “So the question is, if you if you’re the chancellor of the exchequer and what you’ve done is you’ve stood up and you crashed the markets – you’ve crashed the bond market, you’ve crashed the foreign exchange market, the stock market dropped, the housing market’s in trouble – and you created a giant recession as the Bank of England has to raise rates … your credibility is completely trashed.
“And what’s the prime minister going to say – well, at the moment she appears to be hiding – but the questions journalists like you and (Sky News journalists) Ian King and Ed Conway and others are going ask is, what are you going to do, it’s all completely failed, hasn’t it? They told you it was going to fail, and it has now, what are you going to do?
“And obviously the question then is, politically, is she going to survive the month? Does she get to – and does he get to – this statement in two months time, because presumably politically they’ve created a disaster. And there’s even an issue: could you get to get this through the House of Commons? Unclear.
“I have never seen anything like this. I’ve been an economist for 50 years. I went through the great recession, and I have never seen such a raging incompetence ever.”
Advertisement
After two days of big changes, the pound settled down on Tuesday, trading at around 1.08 dollars for most of the day, deviating only briefly with a two cent drop.
London’s top stock index, the FTSE 100, was also subdued for most of the day.
The FTSE closed the day down 0.5% on Tuesday afternoon while gilt yields, reflecting the cost of government borrowing, rose 1.6%, more than a quarter higher than just a week ago.
But with some analysts predicting the base rate – currently standing at 2.25% – will have to rise to as high as 6% next year, some lenders began withdrawing some mortgages amid uncertainty over how far they will rise.
A Conservative peer and former chief Brexit negotiator has said he doesn’t think “anything has gone wrong” after a day of turmoil on the markets which saw the pound briefly slump to an all-time low.
Lord David Frost described the dramatic events since Friday’s mini-budget as “unwarranted” and an “over-reaction” as the Bank of England moved to assure investors it “will not hesitate” to raise interest rates to prop up the value of sterling.
Advertisement
Chancellor Kwasi Kwarteng’s £45 billion package of tax cuts has prompted a run on the currency that has caused wider fears about the state of the economy.
But Lord Frost, speaking on BBC Radio 4’s PM programme as Kwarteng avoided a public statement, appeared relaxed about the pummelling of the pound.
He said: “Well I don’t think anything has gone wrong actually. Liz Truss promised change, a different economic approach to get us back to growth and away from stagnation and that means a number of things have got to happen.
“Yes, rates have got to go up to get inflation under control, we’re going to have to have lower taxes and fiscal support to get people through this period, we’re going to have lots of structural reform as the chancellor said today and we need to hold down spending in the medium term and that’s coming in November.
Advertisement
“So I think what we’ve seen in the last few days is (a) unwarranted and a over-reaction approach to some elements of that, you’ve got to look at the total package which is taking the country on a different direction to get us out of stagnation and get us back to growth.”
Such was the market turmoil on Monday there was growing speculation in financial markets that the Bank would make an emergency interest rate rise after it hiked rates only last week to 2.25% from 1.75%.
Instead, with the pound fragile and bond prices still tumbling, Kwarteng issued a statement just before the British stock market closed to say he would set out medium-term debt-cutting plans on November 23, alongside forecasts from the independent Office for Budget Responsibility of the full scale of government borrowing.
The central bank welcomed “the commitment to sustainable economic growth” from Kwarteng and the independent scrutiny that the OBR growth and borrowing forecasts would bring.
Advertisement
Meanwhile, banks and building societies are withdrawing some of their mortgages from sale.
Three lenders – Halifax, Virgin Money and Skipton Building Society – have so far withdrawn some of their products amid the uncertainty, according to reports.
Kwasi Kwarteng’s tax giveaway for the rich would not have looked out of place in Latin America and could lead to economic meltdown, according to Ken Clarke.
The Tory grandee – who served as chancellor under John Major – said the decision to scrap the 45p tax rate for high earners could send inflation even higher and cause the value of the pound to collapse.
Advertisement
Kwarteng unveiled a £45 billion package of tax cuts in Friday’s mini-budget, which he said would lead to increased economic growth.
But Clarke, who quit parliament in 2019 after nearly 50 years as an MP, said they would not work.
He told Radio Four’s ‘World At One’ programme: “I don’t accept – I never have, the Conservative party never has – the overall premise of the budget, which is that you make tax cuts for the wealthiest 5 per cent, and it makes them work so much harder, and [there’s a] rush to invest.
“I’m afraid that’s the kind of thing that’s usually tried in Latin American countries without success.
“I do not think you stimulate growth by cutting taxes on the better-off, or taxes on business. If it was so simple, we would have got rid of taxes all together some time ago.
Advertisement
“What the increased spending power … is going to do is run the risk of further stimulating inflation. And we’re going into a serious inflationary recession this winter.”
Kwarteng is paying for the tax cuts by piling another £70 billion on the national debt, which Clarke said was now too high.
He said: “We’re heading in the Italian direction. That is going to be a problem, a very great problem, in the short term if it leads to a collapse in the pound and the loss of confidence in our economy. We’re going to drive investment away, not attract it.
“I don’t think anybody I was ever in government with would have contemplated a budget like this.”
Kwarteng this morning defended his mini-budget, and suggested more tax cuts were on the way.
He said: “We’ve got to have a much more front-footed approach to growth and that’s what my Friday statement was all about.
Advertisement
“I think that if we can get some of the reforms … if we get business back on its feet, we can get this country moving and we can grow our economy, and that’s what my focus is 100 per cent about.”
He said: “I do not think that the choice to have tax cuts for those that are earning hundreds if thousands of pounds is the right choice when our economy is struggling the way it is, working people are struggling the way they are and our public services are on their knees. So it is the wrong choice.
“I would reverse the decision that they made on Friday, let’s be absolutely clear about that.”
While she has sought to distance herself from the comparison, there is one thing she does share with her late predecessor: she has taken over as prime minister at a time when Britain’s economy is crumbling and its workforce is more mutinous than ever.
Advertisement
Angered by an inflation rate of 9.9 per cent that is outstripping stagnant wages, trade unions are organising en masse for industrial action that threatens to take Britain back to the turmoil of the 1970s.
One by one, they are rejecting the government’s single-digit pay offers and organising strike ballots. Collectively, they have said “enough is enough”.
Their resistance sets the scene for a new front in the divisive culture wars in which unions fear Truss will attempt to “crush the enemy within” by bringing in a series of measures that will hamper their ability to take industrial action.
Kwasi Kwarteng, Truss’s new chancellor, confirmed this week the government will bring forward legislation making it harder to go on strike.
Advertisement
“What we have is a government that seems to be struggling to come up with answers to the cost of living crisis,” says Tim Sharp, senior policy officer for employment rights at the Trades Union Congress (TUC).
“It appears that some in government would like to distract from that with a culture war against the unions.
“We had a leadership contest in which the candidates had to appeal to some of their more ideological members and that’s why we’ve seen the pledges in terms of anti-union action.”
Which unions are striking?
The RMT and Aslef rail unions, the Communication Workers Union (CWU) representing Royal Mail workers and barristers under the Criminal Bar Association (CBA) have all been on strike over pay and working conditions in recent weeks.
Dockhands represented by Unite have also been striking at the port of Felixstowe and are set to do so again in September, in the shadow of the Labour Party conference in Liverpool.
Advertisement
The National Education Union (NEU), the largest education union in the UK that represents teachers, lecturers and support staff, will open its online preliminary ballot for strike on September 24, before a formal ballot takes place in November.
RMT general secretary Mick Lynch has said Britain could be brought to a standstill by a wave of strikes hitting “every sector of the economy”.
Ian Forsyth via Getty Images
The Royal College of Nursing (RCN), whose members include half a million nurses, midwives, nursing support workers and students, opened a postal ballot for strike action on September 15 that will close on October 13.
If enough members vote for industrial action, it will be the first time in the union’s history that its members in England and Wales go on strike.
The British Medical Association (BMA) has also said it will ballot junior doctor members in England for industrial action if the government fails to restore pay to 2008/09 levels by the end of this month.
Advertisement
The public needs to be prepared for the havoc such strikes could wreak on their daily lives.
“Every school in the country is going to be shut bringing total chaos,” one union source says. “Tens of thousands of hospital appointments are going to be cancelled.
“This is the price you pay for a Tory government that has slashed public services.”
The tools in Truss’s arsenal
If Truss is looking at how she might limit trade union rights, David Cameron’s Trade Union Act of 2016 might provide some inspiration.
Billed at the time as some of the most “regressive” anti-union legislation in the world, the law brought in measures such as higher thresholds for success in industrial ballots.
It also increased the notice period unions must give to employers ahead of any strike action from one week to two weeks.
In an ordinary union, there must be a 50 per cent turnout for an industrial ballot in order for their results to be legally valid. A simple majority has to vote in favour of strike action for it to go ahead.
Advertisement
But for workers who deliver “important” public services, not only does the 50 per cent turnout have to be met, the support of 40 per cent of all eligible members must also be attained for the strike action to be legal.
Unions fear that Truss could use a new law to bring in thresholds that are so high that they could make strikes nigh on impossible.
They anticipate that she could also widen the definition of what counts as a public service to include bus drivers and tube drivers, for example, to apply the 40 per cent threshold.
“If she goes in this direction there will be new laws — that’s a fact,” says one union source.
“She’s got a parliamentary majority. You’re not going to stop her legislating.
“If the Tories use an act of parliament to redefine what defines a public service, at a stroke they would cover huge sections of private industry.
“They can make it even more difficult for unions to get through the thresholds. These laws are already the most stringent of anywhere in Europe.”
Advertisement
A new law to guarantee a minimum level of service on “vital national infrastructure” was a key pledge to come out of the leadership campaign, as was a tax on the strike benefit members receive when they don’t go into work.
Truss also suggested brining in a cooling-off period so that unions can no longer strike as many times as they like in the six-month period after a ballot.
Tim Sharp says the effect of Truss’s plans could be that they make union disputes harder to resolve.
“The industrial action we’ve had has been grassroots driven,” he tells HuffPost UK.
“They risk making industrial disputes harder to resolve. You often see a day of strikes here and there, but if a union is being limited in how often it can take industrial action, then what you could see is longer periods of strike action.”
Another union insider agrees: “If Truss thinks she’s going to shut down the unions she’s got another thing coming.
“She will just create so much anger it increases turnout in the many union ballots currently going on.”
Advertisement
Workers of the world unite
Criminal barristers are on strike over pay for legal aid work.
Mike Kemp via Getty Images
In the unions, Truss has found herself an opponent that will not go down without a fight.
Sharon Graham, the boss of the Unite union, tells HuffPost UK there will be a “prolonged and fierce resistance to Truss attacking workers’ rights”.
“If Liz Truss thinks we have just been sitting waiting for her anti-trade union laws, she’s wrong,” she says.
“We’re ready. If she puts up the thresholds for legal strike action we’ll employ more organisers to get the vote out. If she taxes strike pay, we’ll take more money from the strike fund to hold the real value of strike pay.
“And if she tries to gag trade unions we’ll find ways to speak out more and more.”
And in a swipe at Truss’s own result in the Tory leadership contest Graham says: “Right now if workers plan strike action 50 per of those who can vote in the strike ballot must vote for the strike to be legal.
Advertisement
“It’s a bit rich for Liz Truss to be upping the figures in new laws. In her election for leader she only got 47 per cent of Tory members who were entitled to vote.
“If the Tory Party was bound by the same restraints as the unions Truss would not have made the grade for leader. You could not make it up.”
RMT general secretary Mick Lynch said workers could be forced to take “unlawful industrial action” if the government makes it impossible for legal strikes to take place.
He told Sky News: “We’re fast getting to a situation where we’re going to have laws that are as oppressive as those that exist in Russia and China and back in Poland before Solidarnosc came along and took unlawful industrial action to break free of the oppression of the old Soviet bloc an the communist regime.”
The TUC is already preparing its campaign to appeal to the public when the battle begins.
National rallies will take place in Westminster and there will be a tour of town halls, a national day of action and a lobby of parliament.
Advertisement
The message members have been told to stick to is that Truss plans’ “threaten the right to strike” and are an attempt to distract the public from the burgeoning cost of living crisis.
And crucially, there is the edict to “stay calm: they want us to blow our tops, don’t give them the satisfaction”.
Failing that, the government could find itself in court.
In a sign of the resistance to come, 11trade unions launched legal action against the government on Tuesday over government plans to replace striking workers with agency staff.
They claim the government has broken the Employment Agencies Act 1973 by failing to consult them on the changes and is violating “fundamental trade union rights” protected by Article 11 of the European Convention on Human Rights.
No pain, no gain
For Truss, a protracted battle with the unions could help her forge her reputation with voters, for whom she remains largely unknown.
Advertisement
According to pollster James Johnson, the co- founder of JL Partners, Truss could win plaudits from the public from sticking to what she thinks is right.
“I don’t think it’s a politically calculated move, I think it comes from a genuine frustration within government,” he says.
“What pays off for Liz Truss is that if they are pursuing what they think is right, even if it doesn’t go down well, that may have a long term effect in popularity in showing that there is a steeliness and sense of inner conviction — and that is what the public do crave.”
By taking such a firm line, she also sets a contrast in voters’ minds between herself and Labour leader Keir Starmer, whom the public still perceive as weak on strikes.
“There are negative views about Starmer because of his position on strike — at first he seemed to back people going out, then he didn’t,” Johnson explains.
Advertisement
“It reinforces that view that he doesn’t stand for anything, and that is fine if the other leading party is seen like that — but if we get that contrast developing between Truss and Starmer, then he could be in trouble.”
The jury is out on whether Truss can recapture the status of a conviction politician — or whether the turmoil that ensues is so great that it would cancel any benefit that came from taking a stand.
The chief secretary to the Treasury has faced online ridicule after celebrating the rise in the pound – just before it repeatedly dropped to a 37-year low.
He tweeted: “Great to see sterling strengthening on the back of the new UK Growth Plan.”
But once the markets digested what amounted to tax cuts costing up to £45 billion annually, the currency went in reverse.
At its lowest point on Friday afternoon £1 could buy just 1.0896 US dollars – the worst exchange rate for Britons since 1985.
It was a drop of over 3%, and means the pound has lost more than 7% of its value against the dollar in just a month.
Advertisement
Twitter was in unforgiving mood.
Advertisement
Advertisement
Appearing on the BBC later, Philp said the markets will see that the government has a “credible and responsible” economic plan
He told BBC Radio 4’s PM programme: “I think when the chancellor sets out his medium-term fiscal plan, which includes getting debt to GDP falling, then I think markets and others will see that we have a credible and responsible plan.”.
He also insisted the government has a “plan” to drive up GDP by 1% on current forecasts every year.
“I have every confidence that the objective we set out, the extra 1%, will be delivered. We’re not hoping, we’ve got a plan to do it.”
Philp rejected the idea that the government has abandoned the cautious approach to the public finances taken by previous Tory administrations.
Using more than £70 billion of increased borrowing, Kwarteng on Friday set out a package which included abolishing the top rate of income tax for the highest earners.
Advertisement
He cut stamp duty for homebuyers, and brought forward a cut to the basic rate of income tax, to 19p in the pound, a year early, to April, as part of tax cuts costing up to £45 billion annually.
Kwarteng told the Commons tax cuts are “central to solving the riddle of growth” as he confirmed plans to axe the cap on bankers’ bonuses while adding restrictions to the welfare system.
