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.
To register your interest and share your story, please email TheGreatDebate@sky.uk
World
Body pulled from mine after police cut off supplies to ‘smoke out’ thousands of illegal miners
A body has been recovered from a South African mine after police cut off basic supplies in an effort to force around 4,000 illegal miners to resurface.
The body has emerged from the closed gold mine in the northwest town of Stilfontein a day after South Africa’s government said it would not help the illegal miners.
Around 20 people have surfaced from the mineshaft this week as police wait nearby to arrest all those appearing from underground.
It comes a day after a cabinet minister said the government was trying to “smoke them [the miners] out”.
The move is part of the police’s “Close the Hole” operation, whereby officers cut off supplies of food, water and other basic necessities to get those who have entered illegally to come out.
Local reports suggest the supply routes were cut off at the mine around two months ago, with relatives of the miners seen in the area as the stand-off continues.
Relatives of miners and community members wait at the mine shaft. Pic: AP
A decomposed body was brought up on Thursday, with pathologists on the scene, police spokesperson Athlenda Mathe said.
It comes after South African cabinet minister Khumbudzo Ntshavheni told reporters on Wednesday that the government would not send any help to the illegal miners, known in the country as zama zamas, because they are involved in a criminal act.
“We are not sending help to criminals. We are going to smoke them out. They will come out. Criminals are not to be helped; criminals are to be prosecuted. We didn’t send them there,” Ms Ntshavheni said.
An aerial view of a mineshaft. Pic: AP
Senior police and defence officials are expected to visit the area on Friday to “reinforce the government’s commitment to bringing this operation to a safe and lawful conclusion”, according to a media advisory from the police.
In the last few weeks, over 1,000 miners have surfaced at various mines in South Africa’s North West province, where police have cut off supplies.
Many of the miners were reported to be weak, hungry and sickly after going for weeks without basic supplies.
Illegal mining remains common in South Africa’s old gold-mining areas, with miners going into closed shafts to dig for any possible remaining deposits.
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Relatives of miners and community members wait near the mine shaft. Pic: AP
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The illegal miners are often from neighbouring countries, and police say the illegal operations involve larger syndicates that employ the miners.
Their presence in closed mines has also created problems with nearby communities, which complain that the illegal miners commit crimes ranging from robberies to rape.
Illegal mining groups are known to be heavily armed and disputes between rival groups sometimes result in fatal confrontations.
World
Ukrainian frontline commander warns: ‘The world is scared of Russia and losing is not only our problem’
In the courtyard of a farmhouse now home to soldiers of the Ukrainian army’s 47th mechanised brigade, I’m introduced to a weary-looking unit by their commander Captain Oleksandr “Sasha” Shyrshyn.
We are about 10km from the border with Russia, and beyond it lies the Kursk region Ukraine invaded in the summer – and where this battalion is now fighting.
The 47th is a crack fighting assault unit.
They’ve been brought to this area from the fierce battles in the country’s eastern Donbas region to bolster Ukrainian forces already here.
War latest: Russia ready to carry out ‘massive attack’
The captain known by his men as ‘Genius’
In the summer, Ukraine launched an incursion into Russian territory, in Kursk
Captain Shyrshyn explains that among the many shortages the military has to deal with, the lack of infantry is becoming a critical problem.
Sasha is just 30 years old, but he is worldly-wise. He used to run an organisation helping children in the country’s east before donning his uniform and going to war.
He is famous in Ukraine and is regarded as one of the country’s top field commanders, who isn’t afraid to express his views on the war and how it’s being waged.
His nom de guerre is ‘Genius’, a nickname given to him by his men.
Captain Sasha Shyrshyn and Sky News chief correspondent Stuart Ramsay
‘Don’t worry, it’s not a minefield’
Sasha invited me to see one of the American Bradley fighting vehicles his unit uses.
We walk down a muddy lane before he says it’s best to go cross-country.
“We can go that way, don’t worry it’s not a minefield,” he jokes.
He leads us across a muddy field and into a forest where the vehicle is hidden from Russian surveillance drones that try to hunt both American vehicles and commanders.
Sasha shows me a picture of the house they had been staying in only days before – it was now completely destroyed after a missile strike.
Fortunately, neither he, nor any of his men, were there at the time.
“They target commanders,” he says with a smirk.
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‘The world is scared of Russia’
It takes me a moment or two to realise we are only a few steps away from the Bradley, dug in and well hidden beneath the trees.
The disguised American Bradley vehicle hidden in the forest
Sasha tells me the Bradley is the finest vehicle he has ever used.
A vehicle so good, he says, it’s keeping the Ukrainian army going in the face of Russia’s overwhelming numbers of soldiers.
He explains: “Almost all our work on the battlefield is cooperation infantry with the Bradley. So we use it for evacuations, for moving people from one place to another, as well as for fire-covering.
“This vehicle is very safe and has very good characteristics.”
The American Bradley fighting vehicle that Ukrainian soldiers have found vital in their efforts
Billions of dollars in military aid has been given to Ukraine by the United States, and this vehicle is one of the most valuable assets the US has provided.
Ukraine is running low on men to fight, and the weaponry it has is not enough, especially if it can’t fire long-range missiles into Russia itself – which it is currently not allowed to do.
If President-elect Donald Trump cuts the supply of military aid, the Ukrainians will lose – it’s that simple.
US President-elect Donald Trump has been clear he intends to change his nation’s policy on the war in Ukraine. Pic: Reuters
Sasha says: “We have a lack of weapons, we have a lack of artillery, we have a lack of infantry, and as the world doesn’t care about justice, and they don’t want to finish the war by our win, they are afraid of Russia.
“I’m sorry but they’re scared, they’re scared, and it’s not the right way.”
Like pretty much everyone in Ukraine, Sasha is waiting to see what the US election result will mean for his country.
He is sceptical about a deal with Russia.
“Our enemy only understands the language of power. And you cannot finish the war in 24 hours, or during the year without hard decisions, without a fight, so it’s impossible. It’s just talking without results,” he tells me.
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‘Losing will be not only our problem’
These men expect the fierce battles inside Kursk to intensify in the coming days.
Indeed, alongside the main supply route into Kursk, workers are already building new defensive positions – unfurling miles of razor wire and digging bunkers for the Ukrainian army if it finds itself in retreat.
Barbed wire rolled out in the Sumy region ahead of expected fighting
Tank traps in the Sumy region
Sasha and his men are realistic about support fatigue from the outside world but will keep fighting to the last if they have to.
“I understand this is only our problem, it’s only our issue, and we have to fight this battle, like we have to defend ourselves, it’s our responsibility,” Sasha said.
But he points out everyone should realise just how critical this moment in time is.
“If we look at it widely, we have to understand that us losing will be not only our problem, but it will be for all the world.”
Stuart Ramsay reports from northeastern Ukraine with camera operator Toby Nash, and producers Dominique Van Heerden, Azad Safarov, and Nick Davenport.
A weather warning has been issued for parts of Spain, as the country counts the cost of recent flooding.
The orange warnings are in place for parts of southwestern Spain – the area around Seville down towards Gibraltar.
Up to 8cm (3ins) of rain could fall within 12 hours, but the weekend looks much more settled in the country.
The latest warnings come just two weeks after flash flooding in Valencia and other parts of the country killed more than 200 people.
Malaga saw 14.2cm (5.6ins) of rainfall on Wednesday – Spain’s highest of the day – most of which fell in six hours.
All train services were halted in Malaga. Some flights have now resumed after the initial disruption.
Pic: Jamie Marchant
Emergency services in the province have moved 3,000 people from homes at risk of flooding close to the Guadalhorce River in the west of the city.
Jamie Marchant, 29, from Caerphilly in South Wales travelled to Malaga last Wednesday.
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He told Sky News that “debris” had been left behind by the recent rainfall in the region.
“Everyone is pitching in to clean up and some shops are opening as usual,” he added.
Orange warnings for the Valencia region in eastern Spain expired earlier on Thursday.
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The adverse weather could lead to total insured losses of more than €4bn (£3.33bn), according to credit rating agency Morningstar DBRS.
Much of the claims are expected to be covered by the Spanish government’s insurance pool, the agency said, but insurance premiums are likely to increase.
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