Liz Truss turned UK into 'Argentina on Channel', former Bank of England chief Carney says

Taxation and spending cuts are being used by Conservatives around the world as a 'Pavlovian reaction to every problem', he says

Former British Prime Minister Liz Truss arrives at the Institute for Government to deliver a speech defending her time in power. EPA
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Former Bank of England governor Mark Carney has accused former prime minister Liz Truss of turning Britain into “Argentina on the Channel”.

“When Brexiteers tried to create Singapore on the Thames, the Truss government instead delivered Argentina on the Channel – and that was a year ago,” Mr Carney said at a Global Progress Action Summit in Canada.

“Those with little experience in the private sector – lifelong politicians masquerading as free marketeers – grossly undervalue the importance of mission, of institutions and of discipline to a strong economy.”

Argentina has faced a string of economic crises. It has defaulted on its international debts nine times.

Mr Carney said “extreme Conservatives” in Britain and abroad had “a basic misunderstanding of what drives economies”.

He said they used taxation and spending cuts as a “Pavlovian reaction to every problem”.

“Nothing, even far-right populist politicians, can demolish our efforts more quickly than a fiscal crisis, and the market reaction to the Truss budget underscored the tough new macroeconomic environment,” Mr Carney said.

“Sound money and credible policies will be rewarded. Mistakes will be punished. No government will be exempt.”

Mr Carney's criticism comes as Ms Truss is expected to say in a speech on Monday that the plans outlined in her government's mini-budget last year would have eventually cost £35.5 billion ($44 billion) less than current spending.

It is almost a year since Ms Truss and her chancellor Kwasi Kwarteng unveiled their spending plans, which included £45 billion worth of unfunded budget cuts.

In the days that followed, the British pound plunged and the cost of government borrowing rose, which had a knock-on effect on the UK mortgage market.

Ms Truss is expected to claim in her speech later on Monday, according to early released excerpts, that the cuts were not unfunded and that referring to them as such is “not a fair or accurate description”.

“Independent calculations by the CEBR [Council for Economic and Business Research] suggest that cutting the higher rate of income tax and the ‘tourist tax’ would have increased rather than decreased revenues within five years,” she will tell the Institute for Government think tank.

“So, quite the opposite of being unfunded, these tax cuts could have increased funding for our public services.

“The CEBR also says that the cost of freezing corporation tax was much less than the Treasury suggested.

“Their costing of the measures was £25 billion over five years, not £45 billion.”

'Smaller government'

Ms Truss will also claim that if her plans had been carried through, government spending would be £35.5 billion lower than it is today, not least because she would have linked welfare payments to wage rises and not price rises.

“We would have saved £35.5 billion over two years – £18.4 billion in 2023-2024 and £17.1 billion in 2024-2025, she will say.

“But even those modest savings did not command the support of the parliamentary party.

“It is a very serious issue for those of us who want to see smaller government that currently making significant changes to spending simply doesn't have enough political support.”

Ms Truss will also say that if all parts of the mini-budget, or growth plan, had been implemented and adhered to, the British economy would be in better shape now, with GDP 2 per cent higher by 2030 and investment increasing by at least 10 per cent.

“Investment would not have faltered in the North Sea, were it not for the windfall tax,” she will say.

“We would have got moving on fracking and lower energy bills would now be on the horizon.

“And a more competitive rate of corporation tax would have persuaded the likes of AstraZeneca not to relocate elsewhere.

“There would have been more duty-free shoppers and a boom in the number of self-employed.”

The mini-budget was extremely short-lived, as was Ms Truss's government.

Because it was not accompanied by an assessment by the government's official spending watchdog, the Office for Budget Responsibility, confidence quickly drained from the markets.

“They [the plans] weren’t implemented because there was a reaction from the political and economic establishment which fed into the markets – markets that were already destabilised by the Bank of England’s slowness to hike interest rates and the failure to regulate LDIs [liability-driven investments],” Ms Truss is expected to say.

“I was effectively forced into a policy reversal under the threat of a UK meltdown.”

After several U-turns, Ms Truss sacked Mr Kwarteng and his replacement, Jeremy Hunt, reversed almost all of the tax measures in the mini-budget, except for the cut to National Insurance and the changes to stamp duty.

She was later removed from office by her own MPs.

'Like an arsonist giving a talk on fire safety'

Some experts say Ms Truss will do little to heal the rifts within the ruling Conservative party as it prepares to move into an election year.

“After the most catastrophic premiership in the history of the country, she wants to find a way of justifying herself,” a cabinet source told The Telegraph newspaper.

Meanwhile, the opposition Labour party claims Ms Truss's mini-budget did damage to the UK economy that her successor, Prime Minister Rishi Sunak, has been unable to repair.

Labour points to a fall of about 5 per cent in house prices since last September, which equates to about £336 billion being wiped off property values.

And the deputy leader of the Liberal Democrats, Daisy Cooper, said that “Liz Truss giving a speech on economic growth is like an arsonist giving a talk on fire safety”.

Updated: September 18, 2023, 9:25 AM