Quantitative Easing

The UK is at a perilous tipping point. But what does Truss plan to do about it? | Polly Toynbee

JThe gigantic scale of the impending economic shock is becoming clearer by the hour. Click – and Goldman Sachs predicts a 22% rise in inflation next year. Click again and Bloomberg reports that UK energy companies will make £170bn in excess profits over the next two years. If interest rates reach 4%, banks too will inject unearned mortgage money, as well as charges from money lent to the government. Fine profits will be drawn from the national misery.

Each dawning day reveals how everything, everywhere, is at a perilous tipping point. Martin Lewis is warning that lives will be lost to cold and hunger, amplified by Sir Michael Marmot’s warning yesterday about children in grave peril. Lewis is not “catastrophic”, he says: “It is a catastrophe, purely and simply unaffordable.” If only he were to be the new chancellor… carry on with your own dream team Jack Monroe and Marcus Rashford.

But next week we face the appointment of a silent leader who recognizes the enormity of the calamity to come, whose overriding policy of tax cuts is the perverse opposite of what is needed. In the Great Depression of 2008, Gordon Brown and Alistair Darling averted impending calamity with policies that were unimaginable to them a day earlier: nationalization of banks, bailouts and a windfall of quantitative easing. Anyone confident that Liz Truss and Kwasi Kwarteng will plan something like the scale required?

This week, Rishi Sunak addressing Conservative Party members in leafy Hertfordshire was not faced with a single question – not a single one – about the cost of living crisis. From this twilight zone of unreality emerges a leader unfit to face the worst crisis of our existence, with a typical 10% drop in disposable income expected by 2024, according to the Resolution Foundation, which would be worse than during the oil shock of the 1970s, the worst in a century.

New perils come every day. Local shops and pubs will close. Libraries and museums cannot be warm centers for cold people because they close to save on fuel bills. Schools, hospitals, nurseries and colleges cannot pay. Credit card borrowing will skyrocket and food banks are already running out of food.

Of course, people will strike wherever they have unions to organize them: their demands are already well below the latest predicted inflation figures. Their immediate employers cannot pay from the government’s restricted budgets: only the government can pay. The “restraint” is demanded by the Governor of the Bank of England without saying anything about the 39% rise in CEOs on the FTSE 100 this year, as reported by the High Pay Center. What is amazing is not that the unions are “militant” (they are not) but that they have been so compliant during the last decade of real wage cut austerity. Why? It takes exceptional outrage for union members to vote to strike, suffering a loss of pay with an uncertain outcome. This time, the pay cuts are too shocking to tolerate.

Faced with this unthinkable catastrophe, the only solutions are things once deemed politically unthinkable. The idea that a £30billion tax cut is the answer defies reason, especially when skewed to benefit the wealthy. Why would corporate tax cuts lead to “growth” when business investment was absent, even in better times? With six companies alone making £16billion in excess profits during the pandemic, what is needed are windfalls on profiteers, as the Labor Party is advocating.

It’s a wartime emergency, with the west resolute against Putin’s invasions. In a war paid for by Ukrainians with their lives, we are forced to pay with our money. But from whom? Everyone, but the most should come from those with the broadest shoulders. In times of war, the money is conscripted in the form of war bonds, solidarity tax and land taxes, since this is where most of the wealth resides. Public services must survive, civil servants cannot pay the price and neither can small businesses that are collapsing. Massive support, in the style of the Covid era, is a necessity for social survival. The most minimal immediate action requires universal free school meals to prevent any child from starving, and an instant inflation-matching increase in the already puny Universal Credit. But much more than that for many more households is essential if we are to avoid Marmot’s worst predictions.

Rowan Williams is among more than 500 clerics who are proposing a 1% wealth tax for those with £2m or more. Professor Arun Advani from the University of Warwick said a one-off 1% raid, to be paid over five years, would bring in £80billion. Invest that in renewable energy and insulation to move you towards near energy self-sufficiency, so the country can protect itself against future energy shocks.

Liz Truss, writing an endless stream of nonsense in The Sun yesterday, pledged as a ‘freedom-loving and tax-cut Tory’ to ‘lead the British people through the economic storm with my clear and truly conservative” with “bold actions such as tax cuts, breakthrough reforms and the cutting of senseless red tape”. who warned her: “Tax cuts and growth are vital as a direction of travel for his Tories – but they won’t stop the poorest from freezing in December.” And that tells him not to “protect Shell and BP billions through misguided ideology”.

But in its latest rushes this week, it promised no windfalls, no new taxes, no energy rationing (and maybe no speed limits either). No one alive has witnessed such an economic cataclysm – and this is his unthinkable response.