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.
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Hamas has said it is ready to cooperate with a request to deliver food to Israeli hostages in Gaza, if Israel agrees to permanently open a humanitarian corridor into the enclave.
The militant group’s statement comes amid international outcry over two videos it released of Israeli hostage Evyatar David, who it has held captive since 7 October 2023.
The now 24-year-old looks skeletal, with his shoulder blades protruding from his back.
The footage sparked huge criticism, with EU foreign policy chief Kaja Kallas labelling the videos “appalling” and saying they “expose the barbarity of Hamas”.
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Video released of Israeli hostage
Israeli Prime Minister Benjamin Netanyahu said on Sunday he had asked the Red Cross to give humanitarian assistance to the hostages.
Hamas’s military spokesperson Abu Obeidah said it is “ready to engage positively and respond to any request from the Red Cross to bring food and medicine to enemy captives” if certain conditions are met.
These are that Israel must permanently open a humanitarian corridor and halt airstrikes during the distribution of aid, he said.
Gaza’s health ministry said on Sunday that six more people had died of starvation or malnutrition in the enclave in the past 24 hours.
This raises the number of those who have died from what multiple international agencies warn may be an unfolding famine to 175 since the war began, the ministry said. This includes 93 children, it added.
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Baby Zainab starved to death in Gaza
No aid entered Gaza between 2 March and 19 May due an Israeli blockade and deliveries of supplies including food, medicine and fuel have been limited since then.
Israeli authorities have previously said there is “no famine caused by Israel” – and that its military is “working to facilitate and ease the distribution of humanitarian aid in the Gaza Strip”.
Meanwhile, Palestinian health authorities also said at least 80 people in Gaza were killed by Israeli gunfire and airstrikes on Sunday.
These included people trying to reach aid distribution, Palestinian medics said.
The Israel Defence Forces (IDF) has repeatedly said it “categorically rejects the claims of intentional harm to civilians” and has previously blamed Hamas militants for fomenting chaos and endangering civilians.
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Hamas killed around 1,200 people, mostly civilians, in its attack on 7 October 2023 and abducted 251 others. Of those, they still hold around 50, with 20 believed to be alive, after most of the others were released in ceasefires or other deals.
Israel’s retaliatory offensive has killed more than 60,000 Palestinians, according to Gaza’s Hamas-run health ministry, which does not differentiate between militants and civilians in its count.
We’ve seen this many times before.
Highly anticipated talks and meetings with America, Israel’s closest ally and the one country with the power to pressure Israeli Prime Minister Benjamin Netanyahu to change course, then nothing changes.
We need to give Steve Witkoff time to report his assessments back to the White House before we can give a complete verdict on this visit but what we’ve seen and heard so far has offered little hope.
The pressure on Donald Trump to stop the humanitarian catastrophe in Gaza is mounting after a small but vocal contingent of his base expressed outrage.
Even one of his biggest supporters in Congress, Marjorie Taylor Green, has referred to it as a genocide.
It was little coincidence Mr Witkoff was dispatched to the region for the first time in three months to speak to people on both sides and “learn the truth” to quote US ambassador to Israel, Mike Huckabee, who accompanied him to an aid site in Gaza.
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Gaza nurse: ‘We’re rationing care’
The pair spent five hours in Gaza speaking to people at a Gaza Humanitarian Foundation centre and it’s understood saw nothing of the large crowd of Palestinians gathering a mile away waiting for food.
Their sanitised tour of Gaza did not include a visit to a hospital where medics are receiving casualties by the dozen from deadly incidents at aid sites, and where they’re treating children for malnutrition and hunger.
A critical trauma nurse at Nasser hospital told us a 13-year-old boy was among the people shot while Mr Witkoff was in the enclave.
An American paediatrician at the same hospital who had publicly extended an invitation to meet with Mr Witkoff heard nothing from the US delegation.
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Dr Tom Adamkiewicz described people “being shot like rabbits” and “a new level of barbarity that I don’t think the world has seen”.
The US delegation was defensive of the controversial GHF aid distribution that was launched by America and Israel in May, hailing its delivery of a million meals a day.
But if their new system of feeding Gaza is truly working, why are we seeing images of starved children and hearing deaths every day of people in search of food?
The backdrop of this trip is very different to the last time Mr Witkoff was here.
In May, life was a struggle for Palestinians in Gaza, people were dying in Israeli bombings but, for the most part, people weren’t dying due to a lack of food or getting killed trying to reach aid.
Mr Netanyahu’s easing of humanitarian conditions a week ago, allowing foreign aid to drop from the sky, was an indirect admission of failure by the GHF.
Yet, for now, the US is standing by this highly criticised way of delivering aid.
A UN source tells me more aid is getting through than it was a week ago – around 30 lorries are due to enter today compared to around five that were getting in each day before.
Still nowhere near enough and it’s a complex process of clearances and coordination with the IDF through areas of conflict.
Lorries are regularly refused entry without explanation.
Then there was Mr Witkoff’s meeting with hostage families a day later where we began to get a sense of America’s new plan for Gaza.
The US issued no public statement but family members shared conversations they’d had with Mr Trump’s envoy: bring all the hostages home in one deal, disarm Hamas and end the war. Easier to propose than to put into practice.
Within hours of those comments being reported in the Israeli media, Hamas released a video of hostage Evyatar David looking emaciated in an underground tunnel in Gaza.
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Video released of Israeli hostage
Now 24 years old, he was kidnapped from the Nova festival on 7 October and is one of 20 hostages understood to be still alive. The release of the video was timed for maximum impact.
Hamas also poured water on any hopes of a deal in a statement, refusing to disarm unless an independent Palestinian state is established.
Hamas has perhaps become more emboldened in this demand after key Israeli allies, including the UK, announced plans for formal recognition in the last week.
It’s hard to see a way forward. The current Israeli government has, in effect, abandoned the idea of a two-state solution.
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The Trump administration’s recent boycott of international conferences on the matter suggests America is taking a similar line, breaking with its long-standing position.
Arab nations could now be key in what happens next.
In an unprecedented move, Saudi Arabia, Qatar and Egypt joined a resolution calling for Hamas to disarm and surrender control of Gaza following a UN conference earlier this week.
This is hugely significant – highly influential powers in its own backyard have not applied this sort of pressure before.
For all the US delegation’s good intentions, it’s still political deadlock. Israeli hostages and Palestinians in Gaza left to starve and suffer the consequences.
Tens of thousands of Sydney residents marched across the city’s iconic Harbour Bridge to support Palestinians in Gaza and call for an end to the war.
The decision to centre the protest on such an iconic landmark was controversial. The bridge is considered a symbol of unity in the city.
However, the Israel-Hamas war has been deeply divisive in Australia and increased tension between the country’s Jewish and Muslim communities.
Protesters walk across the Sydney Harbour Bridge. Pic: AAP/Dean Lewins/Reuters
On Sunday there were pro-Palestinian demonstrations in Melbourne, Adelaide and Sydney.
In Sydney organisers hoped 50,000 people would attend, despite heavy rain.
In the end, the bridge and the central business district were so packed – and the weather so bad – that police and organisers called the march off mid-way, fearing there would be a crush in the crowd.
Protest in Sydney. Pic: @emafranklin via Storyful
Police said the crowd numbers in the Sydney Harbour Bridge march were “far greater” than expected, creating the risk of a crowd crush.
“It was perilous,” said senior officer Peter McKenna, adding his force was “very lucky the crowd was well-behaved”.
The final figures for the number of people who attended haven’t been released. But it was an impressive turnout in the tens of thousands.
Some of those attending the march, called by its organisers the March for Humanity, carried pots and pans as symbols of the hunger in the besieged enclave of Gaza.
Julian Assange joined protesters. Pic: AAP/Dean Lewins/Reuters
There was also a surprise guest, Wikileaks founder Julian Assange.
He has largely kept a low profile since his release from a British prison last year. He didn’t speak to the crowd, but he was among those leading the march.
However, the demonstration almost didn’t happen after New South Wales police tried to stop it from taking place on the Harbour Bridge.
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On Saturday, the country’s Supreme Court ruled it could go ahead.
Despite the rain, there were families with children and seniors as well. It was a true cross-section of Australian society.
One of the protesters, Sarah, drove up from the Blue Mountains outside Sydney to attend.
She said, “enough is enough” and the Australian government should take “stronger action”.
Pro-Palestine protesters on Sydney Harbour Bridge
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Sarah also said Australians want people to know they care about what’s happening in the world.
Australia has not joined France, the UK and Canada is announcing plans to recognise a Palestinian state in September.
The government here says recognition is a matter of “when not if”. But it has not committed to any timeline.
Public pressure is growing on Prime Minister Anthony Albanese to take a stronger stand against the war. So far, he has largely resisted that pressure.
But the government’s language towards Israel is becoming more critical.
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