No, Liz Truss Did Not Crash The Economy

[Borg Refinery]

That was on a podcast called "Politics Without the Boring Bits", the boring bits presumably being things that are true. Liz Truss crashed the Conservative Party's poll ratings and she temporarily crashed the pound. She did not crash the economy and mortgage rates today have nothing to do with her or her mini-budget.

There is no technical definition of "crashing the economy" but using GDP as the best measure of the economy, it has conspicuously crashed twice since 2007, including the worst nosedive in 300 years. In neither case was Liz Truss in charge.

Not only did she not crash the economy, she had no means by which to do so. Hardly anything she announced in the mini-budget was ever enacted. The big exceptions were the Energy Price Guarantee and the abolition of the Health and Social Care Levy (effectively an extra 1.25 per cent on National Insurance). Between them they were by far the more expensive policies in the mini-budget but they are rarely mentioned today because they had cross-party support and most people thought they were a jolly good thing. It is inarguable that both of these policies led to more government borrowing but they did not crash the economy and the economy did not crash.

The more controversial parts of the mini-budget — freezing Corporation Tax and abolishing the 45p rate of income tax — did not crash the economy for the simple reason that they never happened.

What did happen is that bond markets became alarmed by a debt-financed dash for growth that was likely to be inflationary at a time when inflation was already at 10 per cent. Interest rates had been rising steadily since December 2021 as the Bank of England slowly woke up to the inflationary threat, but the fear of steeper rate hikes in response to the mini-budget led to a spike in bond yields and mortgage rates, both of which had also been rising for some time in Britain and around the world. But the spike in bond yields lasted less than a month (30 year bond yields in the UK and USA are shown below) and the spike in mortgage rates did not last much longer.

Related:

Liz Truss: I was never given realistic chance to enact tax cuts

https://www.bbc.com/news/uk-64527252