Economy

Britain is on the cusp of change as Truss resigns and sunak steps in

An Authored article by Ramnath Narayanswamy, Distinguished Professor – Social Sciences, FLAME University.

Britain’s cup of woes and that of her remarkably undistinguished Prime Minister has reached a new peak. Even while the embattled Prime Minister, Liz Truss, bravely declared she was a fighter and not a quitter, there was a humiliating volte-face within the next twenty-four hours. In just 44 days, the tenure of Britain’s new Prime Minister came to an abrupt, unceremonious end. She lasted just 45 days, the shortest term of any British Prime Minister.

 It was a terrible week of reversals. After firing her Chancellor, Kwasi Kwarteng, the next to go was the inimitable Suella Braverman. Britain’s former Home Secretary won no laurels with thoughtless and intemperate remarks. While the ostensible reason was her leaking of secret files into her private email, her outbursts on Indians over-staying the period stipulated in their visas, and her equally mindless remarks on the projected free trade agreement between India and the United Kingdom that Diwali should have signed could certainly have contributed to her dismissal. The truth is that Indians are universally respected in the UK. In sharp contrast, Indians generate employment, respect the law, create wealth, and pay taxes. Why did these truths escape Ms. Braverman’s attention? Disturbingly, she is on record to have said that she dreamt of airlifting migrants to Rwanda.

Her undisguised admiration of the alleged accomplishments of the British empire (that were quite simply outrageous) was not grounded in history as we know it. The fact that she is an immigrant of Indian origin born in Goa (of a Goan father and a Tamil mother) moving to the UK from Mauritius rankled both the Indian diaspora in the UK and the Ministry of Foreign Affairs back in New Delhi. The Indian High Commission in London gave a fitting rebuttal to her provocative remarks. The free trade agreement that would have benefitted Britain after Brexit has now been indefinitely shelved.

Ms. Braverman’s ignorance of Britain’s colonial atrocities is understandable. Even today, British kids are completely unaware of Britain’s colonial past. It has been wiped out of history textbooks in British schools. Even if British adults – let alone kids – are told that Britain owes 45 trillion dollars to India in reparations, most of them will either be in shock or open their eyes wide in disbelief. 

They will get a similar shock if they are informed that India accounted for 23% of world GDP before British rule, which was reduced to 4% when they left Indian shores. There is little to crow about. But this is beyond Ms. Braverman’s ken; she is not competent to occupy a role that requires effective communication, circumspection, and tact. Her remarks on the immigration clauses of the free trade agreement were likewise baffling and betrayed a startling ignorance of the provisions related to immigration.  She was assuming that India had demanded open and free migration that migrants from Central and Southeast Europe had enjoyed in Britain before Brexit when that was not the case at all.

Astonishingly, neither Truss nor Kwarteng initially showed any inclination to remedy the damage they had done or reassure markets that measures would be taken to arrest the slide. Instead, the Chancellor was at a champagne party with managers of hedge funds on the very day the mini-budget was presented. There is public anger against 70,000 Tories who voted for Liz Truss. Tory party members cannot be relied upon to make a sound judgment. A number of them still support Boris Johnson, who is a personality who has serious difficulty facing up to the truth. 

Amazingly, both Truss and Kwarteng refused to express remorse or apologize. Further announcements of price increases in electricity and gas bills led to large-scale protests in London. The rail and postal unions went on strike. The situation soon became precarious. There is a touching faith in a British version of Reaganomics; the underlying belief of this Trussonomics is that if it can deliver in the USA, why can it not bail out Britain?  
The problem is that the UK is not the USA; their contexts differ. The nominal GDP of the US stands at 24.88 trillion USD, while the nominal GDP of Britain stands at 3.198 trillion USD by the end of 2022. And India’s GDP stands at 3.469 trillion USD, making it the fifth-largest economy in the world today.
Nonetheless, the strong backlash from backbenchers and the public invited a complete volte-face.  The same Prime Minister who said she would continue to defend her policies suddenly backtracked and effected a complete U-turn by announcing the government’s decision not to proceed with the tax cut on the super-rich. It was reversed just like that. But the Prime Minister swore she still stood by her mission to usher in higher growth. However, the truth remains that she was elected by 0.01 % of the British population.
Reports of powerful right-wing lobby groups working tirelessly to further their private agendas soon emerged. Liz Truss and Kwasi Kwarteng are closely associated with these think tanks. Driven by market fundamentalism, several of their members held positions in the government. These organizations include the Adam Smith Institute, the Tax Payers Alliance, the Free Enterprise Group, the Centre for Policy Studies, and the Institute of Economic Affairs. It is alleged that the now-discredited mini-budget was the brainchild of these entities. The charge is credible if judged by the warm reception they accorded the mini-budget. The tobacco industry and other interest groups in the United States fund them. 
Economic reforms are a tricky business. The core of reform economics consists of redistributing power from the few who wield it to the many who do not. Those threatened by loss will resist and those likely to benefit will welcome it. But there is more. Before radical change is initiated, it is essential to ensure that institutional wherewithal is established. The patient needs to be prepared before conducting the surgical operation. 
Macroeconomic stability needs to be secured. Curbing fiscal spending, balancing the budget, reducing inflation, stabilizing the currency, and a slew of other measures need to be undertaken. This takes time. For them to collectively impact, growth comes much later, if it does come at all. Given this backdrop, Truss’s refrain from her commitment to embark on a high growth path without a tangible plan on how that was to be accomplished raised questions about her credibility to deliver. There was no reasoned explanation of the maxi-blow dealt by the mini-budget. Her competence was in serious doubt.
Who then will rescue Britain from the unprecedented crises that stalk the country? This challenging enterprise now rests squarely upon the shoulders of Rishi Sunak, the first Prime Minister of Asian origin in Britain. While his impressive credentials will doubtlessly serve him well, the reappointment of Suella Braverman as Home Secretary by the new Prime Minister has justly invited widespread dismay and criticism. Mr. Sunak will have to skilfully navigate the rough edges of his colleagues in the opposition benches and equally within his divided party. He will have to be the glue to bring Britain out of the worst economic crises it has faced since the end of the second world war. It is a daunting task. There is no gainsaying the fact that Britain is unquestionably in for the long haul. 
The author is a Distinguished Professor at FLAME University, Pune.
This article was shared with Prittle Prattle News as an authored article.
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