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With friends like these, does Liz Truss need enemies?
Two of the U.K.’s top international allies — the United States and Germany — have taken potshots at the economic agenda being pursued by the country’s new prime minister, as markets reeled from her plan to go for debt-funded tax cuts in a bid to grow the economy.
In a withering rebuke to the British leader, whose chancellor last week unveiled a mini-budget that triggered a market rout and a steep fall in the value of the pound, U.S. Secretary of Commerce Gina Raimondo predicted the Truss plan would only add to inflation.
“The policy of cutting taxes and simultaneously increasing spending isn’t one that is going to fight inflation in the short term or put you in good stead for long-term economic growth,” Raimondo said at a Brookings Institute event. And she added: “Investors, business people want to see world leaders taking inflation very seriously — it’s hard to see that from this government.”
Kwarteng’s budget slashed taxes and increased government borrowing, rather than introducing spending cuts. It came on top of a multibillion-pound plan to cap energy prices for consumers and businesses.
In a widely criticized move, the U.K. chancellor — who fired his top Treasury official in one of his first acts in office — did not involve the country’s independent fiscal watchdog, which normally scrutinizes the government’s numbers.
In Germany, Chancellor Olaf Scholz unveiled his own €200 billion plan to freeze gas prices. But Finance Minister Christian Lindner pointedly said: “We are explicitly not following the U.K.’s example down the path of an expansionary fiscal policy.”
Even Turkey’s President Recep Tayyip Erdoğan — whose own currency has been volatile this year — found it hard to resist a dig at the U.K. Thursday. “The pound has blown up,” he said at a televised event in Ankara.
In a round of interviews with radio and TV journalists Thursday, Truss insisted she needed to take “decisive action” and refused to change course. She argued that record falls in the pound and surging borrowing costs are part of a “global crisis” sparked by the war in Ukraine.
A series of voting intention opinion polls taken amid the market turmoil suggest that Truss has failed to convince the public of her plan’s merits.
One YouGov poll, conducted for the Times newspaper, put the opposition Labour Party 33 points clear of the Conservatives, with 54 percent of the vote compared to just 21 percent for Truss’ struggling Tories. POLITICO’s poll of polls has Labour on 46 percent, and the Conservatives on 29 percent.
Senior Conservative MP Charles Walker told Channel 4 News Thursday night that the polls, if replicated at an election, would mean the Tories “cease to exist as a functioning political party.”
“This is a moment of danger for the country and the government has got to heed the warning shot that has been put across its boughs and get its act together,” he said. “And we’ve made our bed, we’ve got to lie in it, this is where we’re at now. It’s a very lumpy bed.”