Having sealed her chancellor’s fate, the markets could seal the prime minister’s fate
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.
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Analysis: PM’s new tax U-turn
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.
Liz Truss appoints Jeremy Hunt as chancellor. Pic: Andrew Parsons / No 10 Downing Street
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.
The UK’s biggest water supplier has been dealt another blow as the regulator decided to reduce its income.
Thames Water, which supplies 16 million people in England, has been told by the watchdog Ofwat its revenues will be cut by more than £187m.
It comes as the utility struggles under a £17.6bn debt pile and the government has lined up insolvency practitioners for its potential collapse.
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Overall, water firms face a sector-wide revenue reduction of nearly £309m as a result of Ofwat’s determination. Thames Water’s £187.1m cut is the largest revenue reduction.
This will take effect from next year and up to 2030 as part of water companies’ regulator-approved five-year spending and investment plans.
The downward revenue revision has been made as Ofwat believes the companies will perform better than first thought and therefore require less money.
Better financial performance is ultimately good news for customers.
The change published on Wednesday is a technical update; the initial revenue projections published in December 2024 were based on projected financial performance but after financial results were published in the summer and Ofwat was able to apply these figures.
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Is Thames Water a step closer to nationalisation?
Thames Water and industry body Water UK have been contacted for comment.
A huge takeover that would rock the entertainment industry looks imminent, with Netflix and Paramount fighting over Warner Bros Discovery (WBD).
Streaming giant Netflix announced it had agreed a $72bn (£54bn) deal for WBD’s film and TV studios on 5 December, only for Paramount to sweep in with a $108.4bn (£81bn) bid several days later.
The takeover saga isn’t far removed from a Hollywood plot; with multi-billionaires negotiating in boardrooms, politicians on all sides expressing their fears for the public and the US president looming large, expected to play a significant role.
“Whichever way this deal goes, it will certainly be one of the biggest media deals in history. It will shake up the established TV and film norms and will have global implications,” Sky News’ US correspondent Martha Kelner said on the Trump 100 podcast.
So what do we know about the bids, why are they controversial – and how is Donald Trump involved?
Why is Warner Bros up for sale?
WBD’s board first announced it was open to selling or partly selling the company in October after a summer of hushed speculation.
Back in June, WBD announced its plan to split into two companies: one for its TV, film studios, and HBO Max streaming services, and one for the Discovery element of the business, primarily comprising legacy TV channels that air cartoons, news, and sports.
It came amid the cable industry’s continued struggles at the hands of streaming services, and CEO David Zaslav suggested splitting into two companies would give WBD’s brands the “sharper focus and strategic flexibility they need to compete most effectively in today’s evolving media landscape”.
The company’s long-term strategic initiatives have also been stifled by its estimated $35bn of debt. This wasn’t helped by the WarnerMedia and Discovery merger in 2022, which led to it becoming Warner Bros Discovery.
WBD’s announced it was open to selling or partly selling the company in October. Pic: iStock
What we know about the bids
The $72bn bid from Netflix is for the first division of the business, which would give it the rights to worldwide hits like the Harry Potter and Game of Thrones franchises – and Warner Bros’ extensive back catalogue of movies.
If the deal were to happen, it would not be finalised until the split is complete, and Discovery Global, including channels like CNN, will not form part of the merger.
Paramount’s $108.4bn offer is what’s known as a hostile bid. This means it went directly to shareholders with a cash offer for the entirety of the company, asking them to reject the deal with Netflix.
Ted Sarandos, CEO of Netflix. Pic: Reuters
This deal would involve rival US news channels CBS and CNN being brought under the same parent company.
Netflix’s cash and stock deal is valued at $27.75 (£20.80) per Warner share, giving it a total enterprise value of $82.7bn (£62bn), including debt.
But Paramount says its deal will pay $30 (£22.50) cash per share, representing $18bn (£13.5bn) more in cash than its rivals are offering.
Paramount claims to have tried several times to bid for WBD through its board, but said it launched the hostile bid after hearing of Netflix’s offer because the board had “never engaged meaningfully”.
David Zaslav, CEO and president of Warner Bros Discovery. Pic: Reuters
Why are politicians and experts concerned?
The US government will have a big say on who ultimately buys WBD, as Paramount and Netflix will likely face the Department of Justice’s (DOJ) Antitrust Division, a federal agency which scrutinises business deals to ensure fair competition.
Republicans and Democrats have voiced concerns over the potential monopolisation of streaming and the impact it would have on cinemas if Netflix – already the world’s biggest streaming service by market share – were to take over WBD.
Democratic senator Elizabeth Warren said the deal “would create one massive media giant with control of close to half of the streaming market – threatening to force Americans into higher subscription prices and fewer choices over what and how they watch, while putting American workers at risk”.
Similarly, Representative Pramila Jayapal, who co-chairs the House Monopoly Busters Caucus, called the deal a “nightmare,” adding: “It would mean more price hikes, ads, and cookie-cutter content, less creative control for artists, and lower pay for workers.”
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Netflix’s business model of prioritising streaming over cinemas has caused consternation in Hollywood.
The screen actors union SAG-AFTRA said the merger “raises many serious questions” for actors, while the Directors Guild of America said it also had “concerns”.
Experts suggest there’s less of a concern with the Paramount deal when it comes to a streaming monopoly, because its Paramount+ service is smaller and has less of an international footprint than Netflix.
How is Trump relevant?
After Netflix announced its bid, the president said of its path to regulatory clearance: “I’ll be involved in that decision.”
And while Mr Trump himself will not be directly involved, he appointed those in the DOJ Antitrust Division, and they have the authority to block or challenge takeovers.
However, his potential influence isn’t sitting well with some experts due to his ties with key players on the Paramount side.
Larry Ellison (centre left) in the White House with Trump. Pic: Reuters
Paramount is run by David Ellison, the son of the Oracle tech billionaire (and world’s second-richest man) Larry Ellison, who is a close ally of Mr Trump.
Additionally, Affinity Partners, an investment firm run by Mr Trump’s son-in-law Jared Kushner, would be investing in the deal.
Also participating would be funds controlled by the governments of three unnamed Persian Gulf countries, widely reported as Saudi Arabia, Abu Dhabi and Qatar – countries the Trump family company has struck deals with this year.
David Ellison, CEO of Paramount Skydance. Pic: Reuters
Critics of the Trump’s administration has accused it of being transactional, with the president known to hold grudges over those who are critical of him, however, Mr Trump told reporters on 8 December that he has not spoken with Mr Kushner about WBD, adding that neither Netflix nor Paramount “are friends of mine”.
John Mayo, an antitrust expert at Georgetown University, suggested the scrutiny by the Antitrust Division would be serious whichever offer is approved by shareholders, and that he thinks experts there will keep partisanship out of their decisions despite the politically charged atmosphere.
What happens next?
WBD must now advise shareholders whether Paramount’s offer constitutes a superior offer by 22 December.
If the company decides that Paramount’s offer is superior, Netflix would have the opportunity to match or beat it.
WBD would have to pay Netflix a termination fee of $2.8bn (£2.10bn) if it decides to scrap the deal.
Shareholders have until 8 January 2026 to vote on Paramount’s offer.
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