Having sealed her chancellor’s fate, the markets could seal the prime minister’s fate

Published

3 years ago

October 14, 2022

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So farewell, then, Trussonomics.

The demise of the country’s second shortest-lived chancellor also brings with it the demise of the country’s shortest-lived economic movement.

Liz Truss came into office promising to boost the country’s growth rate through a forensic combination of tax cuts, reforms to the country’s supply side (for which read: things like planning reform) and spending restraint. This was, if you squint a little bit, not dissimilar to the kinds of policies espoused by Ronald Reagan and Margaret Thatcher.

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It always looked risky – especially at such a fragile point for the global economy. We are coming to the end of a 12-year period of cheap money, something which is causing a near-nervous breakdown in financial markets. Central banks are in the process of raising interest rates and trying to feed the glut of bonds they bought during the financial crisis back in the market.

As if that weren’t enough, Europe is facing one of its bleakest economic winters in modern memory, with a war raging in Ukraine and energy prices touching historic highs. It is hard to think of many less auspicious periods to attempt an untested new economic manifesto.

Yet Ms Truss and her former chancellor Kwasi Kwarteng pushed on all the same. And unlike Thatcher, whose first few budgets were grisly austerity packages which no one much enjoyed, Ms Truss and Mr Kwarteng aimed to turn Thatcherism on its head. Instead of fixing the public finances first and then cutting taxes second, they opted to spend the fruits of economic growth before that growth had even been achieved.

The mini-budget of 23 September was a small document with extraordinarily large consequences. Ironically, the more expensive the measures were, the less controversial they turned out to be. The scheme to cap household energy unit costs will potentially cost hundreds of billions of pounds, yet (and we know this because it was pre-announced long before the mini-budget) investors barely batted an eyelid. They carried on lending to this country at more or less the same or equivalent rates.

The same was not the case for the rest of the mini-budget’s policies. Shortly after they were announced – everything from the abolition of the 45p rate (actually quite cheap in fiscal terms) to the cancellation of Rishi Sunak’s corporation tax rise – markets began to lurch in what was, for Ms Truss, and most UK households, the wrong direction. The pound sank, the yields on government debt, which determine the interest rates across most of the economy, began to climb.

That was bad enough. When Mr Kwarteng announced gleefully a couple of days later on television that he had more tax cuts up his sleeve, the trot out of the country became a stampede. The pound fell, briefly, to the lowest level against the dollar in the history of, well, the dollar.

Even more worryingly, those interest rates on government bonds rose at an unprecedented rate, causing all sorts of malfunctions throughout the money markets.

The most obvious – and the one that perhaps will have the longest legacy – is the rise in mortgage rates. But the unexpected consequences were even more worrying, among them a crisis in funds used by pension schemes. That sparked a “run dynamic” which compelled the Bank of England to step in with an emergency support scheme.

Even at this point, we were into unprecedented territory. Never before had the Bank been forced to intervene quite like this. Never before had it had to do so as a result of a government’s Budget.

The intervention, however, had some success, bringing down the relevant interest rates and bringing markets back from the edge. But there was a sting in the tail: a deadline. Today, 14 October.

In hindsight perhaps it’s obvious that this, then, would always have been the day when the government might face another existential crisis. Investors were always going to be nervous ahead of the Bank’s withdrawal from this neck of the bond market. And that is precisely what happened: after the governor reiterated, on a panel in Washington, that he was indeed serious, all eyes then turned to the chancellor. Could he say something to reassure markets?

In the event, the answer was: no. But something else changed matters: growing rumours of a U-turn. That brings us to this morning. The chancellor, pulled back from Washington early, was dismissed. The U-turn began. The corporation tax freeze is to be abandoned. The coming medium-term fiscal plan will involve austerity and a big dose of fiscal pain. The upshot is that Trussonomics, which was hinged clearly on tax cuts like these, is dead in the water.

However, the bigger question concerns what happens next. Those markets, which Ms Truss said explicitly were the reason for her U-turn, are still pretty frantic. No one knows how they’ll fare on Monday, but, whether right or wrong, another grisly day will almost certainly be seen as a sign of the government’s failure. And, having sealed the fate of her chancellor, the markets could well seal the fate of the prime minister.

But that’s a few days away – a long time in both politics and markets.

In the meantime, here is something to dwell on: an alternative version of history. In a parallel universe, Ms Truss and Mr Kwarteng did things slightly less hastily. They decided their emergency Budget would simply deal with the energy price shock coming this winter. They promised an OBR statement and hatched plans for a growth-generating budget in a few months’ time.

In that parallel universe, interest rates probably wouldn’t have risen so high. The rises would, anyway, have been blamed on the Bank of England, not the government. The government would have enjoyed some kudos for having prevented energy-related penury this winter and made merry in their honeymoon. Things could have been oh-so different.

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Now, all of this is of course imponderable. But it does rather underline an important point: none of this was inevitable. This wasn’t a crisis like 1992 – where the UK faced monetary pressures suffered by nearly every other nation in Europe. It was simply a succession of very unfortunate decisions at precisely the wrong moment.

At a time of market turmoil and war in Europe, Ms Truss and Mr Kwarteng chose to take a gamble. It did not pay off.

:: The new chancellor, Jeremy Hunt, will talk to Sky News tomorrow morning. Tune in from 7am on Saturday.

Business

Thames Water debt pile rises further despite return to profit

Published

7 hours ago

December 3, 2025

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Thames Water debt pile rises further despite return to profit

Cash-strapped Thames Water has revealed a further rise in its debt pile while recording a return to profit on the back of inflation-busting hikes to bills.

The UK’s largest supplier said the 31% rise to customer bills since April had allowed it to increase capital investment by 22% to £1.3bn amid demands it improve performance in preventing sewage spills and stopping leaks.

Thames Water said it recorded a 20% drop in pollution incidents over the six months to the end of September, and leakage performance was holding steady despite the “extremely dry summer”.

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While waste complaints dipped by 11%, according to the company, there was a 42% surge in the number of customers complaining about the hike to bills.

Thames Water revenue rose 42% on the same period last year to £1.9bn, helping a return to profit after tax of £328m on the back of a £190m loss during April-September 2024.

The company said profitability was damaged by higher debt serving costs.

Its debt pile was recorded at £17.6bn – a rise of 5%.

The results were released against the backdrop of continuing talks involving the government and regulators over a proposed rescue deal by major Thames Water creditors.

Their consortium is known as London & Valley Water.

It effectively already owns Thames Water under the terms of a financial restructuring agreed early in the summer but regulator Ofwat is yet to give its verdict on whether the consortium can run the company, averting the prospect of it being placed in a special administration regime.

Without a deal the consortium, which includes investment heavyweights Elliott Management and BlackRock, would be wiped out.

Ofwat, which is to be scrapped under a shake-up of industry oversight, has been leading scrutiny of London & Valley’s operational plan and proposed capital structure.

The prospective deal would write off billions of pounds of the company’s debt and inject billions in fresh equity, in return for an adjustment in the regulator’s approach to future financial penalties.

Thames sees the creditors’ proposal as the only viable solution.

Despite huge hikes to household bills – allowed across England and Wales to bolster aging infrastructure including storm overflows – the company says its financial turnaround has been hampered by record fines for things like sewage leaks and bonuses to retain key staff.

Sky News revealed on Tuesday that its remuneration committee will meet next week to decide whether to proceed with nearly £2.5m in retention payments to 21 senior managers.

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Thames Water chief executive Chris Weston said the company had made good progress on its operational and transformation targets.

“This progress has all been achieved as we also manage the recapitalisation of the business. We continue to work closely with stakeholders to secure a market-led solution that we believe is in the best interests of our customers and the environment.

“This in turn will allow the transformation of Thames to continue, a programme that will take at least a decade to complete and will restore the infrastructure and operations of the company.”

Business

FIFA backs away from dynamic pricing for all World Cup 2026 tickets

Published

7 hours ago

December 3, 2025

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FIFA backs away from dynamic pricing for all World Cup 2026 tickets

FIFA has backed away from using dynamic pricing for all 2026 World Cup tickets amid concerns about the cost of attending the tournament in North America.

The organisers insisted they always planned to ring-fence tickets at set prices to follow your own team.

But the announcement comes just days ahead of Friday’s tournament draw in Washington DC, which Donald Trump plans to attend.

Fans will have to wait until Saturday to know exactly where and when their teams will be playing in next summer’s tournament.

Variable pricing – fluctuating based on demand – has never been used at a World Cup before, raising concerns about affordability.

England and Scotland fans have been sharing images in recent days of ticket website images highlighting cost worries.

But world football’s governing body said in a statement to Sky News: “FIFA can confirm ringfenced allocations are being set aside for specific fan categories, as has been the case at previous FIFA World Cups. These allocations will be set at a fixed price for the duration of the next ticket sales phase.

“The ringfenced allocations include tickets reserved for supporters of the Participating Member Associations (PMAs), who will be allocated 8% of the tickets for each match in which they take part, including all conditional knockout stage matches.”

FIFA says the cheapest tickets are from $60 (£45) in the group stage. But the most expensive tickets for the final are $6,730 (£5,094).

There will also be a sales window after the draw from 11 December to 13 January when ticket applications will be based on a fixed price for those buying in the random selection draw.

It is the biggest World Cup with 104 matches after the event was expanded from 32 to 48 teams. There are also three host nations for the first time – with Canada and Mexico the junior partners.

FIFA defended using fluctuating pricing.

“The pricing model adopted for FIFA World Cup 26 reflects the existing market practice for major entertainment and sporting events within our hosts on a daily basis, soccer included,” FIFA’s statement continued.

“This is also a reflection of the treatment of the secondary market for tickets, which has a distinct legal treatment than in many other parts of the world. We are focused on ensuring fair access to our game for existing but also prospective fans.”

The statement addressed the concerns being raised about fans being priced out of attending.

FIFA said: “Stadium category maps do not reflect the number of tickets available in a given category but rather present default seating locations.

“FIFA resale fees are aligned with North American industry trends across various sports and entertainment sectors.”

Ireland, Northern Ireland and Wales could also still qualify.

Business

Rachel Reeves hit by Labour rural rebellion over inheritance tax on farmers

Published

10 hours ago

December 3, 2025

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Rachel Reeves hit by Labour rural rebellion over inheritance tax on farmers

Chancellor Rachel Reeves has suffered another budget blow with a rebellion by rural Labour MPs over inheritance tax on farmers.

Speaking during the final day of the Commons debate on the budget, Labour backbenchers demanded a U-turn on the controversial proposals.

Plans to introduce a 20% tax on farm estates worth more than £1m from April have drawn protesters to London in their tens of thousands, with many fearing huge tax bills that would force small farms to sell up for good.

MPs voted on the so-called “family farms tax” just after 8pm on Tuesday, with dozens of Labour MPs appearing to have abstained, and one backbencher – borders MP Markus Campbell-Savours – voting against, alongside Conservative members.

In the vote, the fifth out of seven at the end of the budget debate, Labour’s vote slumped from 371 in the first vote on tax changes, down by 44 votes to 327.

‘Time to stand up for farmers’

The mini-mutiny followed a plea to Labour MPs from the National Farmers Union to abstain.

“To Labour MPs: We ask you to abstain on Budget Resolution 50,” the NFU urged.

“With your help, we can show the government there is still time to get it right on the family farm tax. A policy with such cruel human costs demands change. Now is the time to stand up for the farmers you represent.”

After the vote, NFU president Tom Bradshaw said: “The MPs who have shown their support are the rural representatives of the Labour Party. They represent the working people of the countryside and have spoken up on behalf of their constituents.

“It is vital that the chancellor and prime minister listen to the clear message they have delivered this evening. The next step in the fight against the family farm tax is removing the impact of this unjust and unfair policy on the most vulnerable members of our community.”

The government comfortably won the vote by 327-182, a majority of 145. But the mini-mutiny served notice to the chancellor and Sir Keir Starmer that newly elected Labour MPs from the shires are prepared to rebel.

Speaking in the debate earlier, Mr Campbell-Savours said: “There remain deep concerns about the proposed changes to agricultural property relief (APR).

“Changes which leave many, not least elderly farmers, yet to make arrangements to transfer assets, devastated at the impact on their family farms.”

Samantha Niblett, Labour MP for South Derbyshire abstained after telling MPs: “I do plead with the government to look again at APR inheritance tax.

“Most farmers are not wealthy land barons, they live hand to mouth on tiny, sometimes non-existent profit margins. Many were explicitly advised not to hand over their farm to children, (but) now face enormous, unexpected tax bills.

“We must acknowledge a difficult truth: we have lost the trust of our farmers, and they deserve our utmost respect, our honesty and our unwavering support.”

Labour MPs from rural constituencies who did not vote included Tonia Antoniazzi (Gower), Julia Buckley (Shrewsbury), Torquil Crichton (Western Isles), Jonathan Davies (Mid Derbyshire), Maya Ellis (Ribble Valley), and Anna Gelderd (South East Cornwall), Ben Goldsborough (South Norfolk), Alison Hume (Scarborough and Whitby), Terry Jermy (South West Norfolk), Jayne Kirkham (Truro and Falmouth), Noah Law (St Austell and Newquay), Perran Moon, (Camborne and Redruth), Samantha Niblett (South Derbyshire), Jenny Riddell-Carpenter (Suffolk Coastal), Henry Tufnell (Mid and South Pembrokeshire), John Whitby (Derbyshire Dales) and Steve Witherden (Montgomeryshire and Glyndwr).