David Salmon | Lessons from the UK’s economic turmoil

Her rise was as spectacular as her fall. But if there is one thing that the end of the Liz Truss’ premiership has proven it is that the idea that the United Kingdom (UK) represents a mature, politically stable country has been resoundingly discredited.

It is important not to understate the significance of the political turmoil the UK now finds itself in. Within one year, the country would have had four Chancellors of the Exchequer and recently swore in its third prime minister in seven weeks.

Truss, who only entered Number 10 on the 6th of September, has been catapulted from power after only 45 days due to the announcement of a disastrous economic plan. To put this in perspective, Jamaica’s shortest serving Prime Minister Donald Sangster (February 22 - April 11, 1967) lasted longer. However, what the UK’s self-imposed economic turmoil demonstrates is that it is illusory to think that the British are the bastions of steadiness. Truss has shown that you cannot trust the British with sound management. There are several lessons Jamaicans can take away from the end of her premiership.

GOOD FINANCIAL MANAGEMENT MATTERS

While campaigning to succeed Boris Johnson, who himself was forced from office, Truss argued that the UK needed to provide a range of tax cuts to stimulate growth. From the bowels of this philosophy, her ‘mini budget’ was born. Her government announced a cut in the basic rate of income tax, cancellation of a rise in corporation tax, an elimination of the cap on bankers’ bonuses, and the removal of stamp duties for property buyers.

These stillborn proposals increased the UK’s annual budget deficit by an eye-watering £45 billion. To pay for these tax cuts, the government resorted to borrowing. Following the announcement, the cost of long-term borrowing increased sharply and the value of the pound plummeted.

Furthermore, the Bank of England intervened to avert a collapse in pension funds, and interest rates were increased in an effort to control inflation. This led to a spike in mortgage rates, further adding to the burden on existing and prospective homeowners. Imagine the British central bank had to intervene to compensate for decisions taken by the British government. Even the International Monetary Fund expressed concerns about the handling of the British economy. The irony should not be lost on anyone.

Jamaica should take note. In the past, successive administrations have demonstrated appalling fiscal management, characterised by deficit spending and borrowing. Finance Minister Dr Nigel Clarke and his predecessor, Dr Peter Phillips, have demonstrated commendable commitment to fiscal discipline. Although this trend is the exception rather than the norm. What the UK’s financial débâcle has shown is that good financial management matters and you cannot borrow your way to prosperity. Jamaica should continue its commitment of sound economic management, which has ensured stability over the last few years, even during the midst of uncertainty. Where financial matters are concerned, Jamaican policymakers have demonstrated that we can handle our own affairs using our own managers.

LISTEN TO THE EXPERTS

The current turbulence facing the UK has exemplified the need to trust the experts. Before the British economy was driven over the cliff, Truss sacked Tom Scholar, the permanent secretary to the Treasury. Scholar, who had been a civil servant for over 30 years, served as the Treasury’s permanent secretary since 2016. He became the casualty of Truss’ war on “Treasury orthodoxy”.

While campaigning, she rejected criticism that her plans would cause a rise in interest rates and increase inflation. Therefore, sacking the permanent secretary was done in order to find a civil servant amenable to her economic policies. Moreover, the mini budget was also not accompanied by its customary assessment from the government’s official spending watchdog, the Office for Budget Responsibility.

Throughout Jamaica’s history, permanent secretaries have come under significant criticism by political actors for ‘undermining’ their political agenda, or, more recently, according to Michael Lee-Chin, for retarding growth due to non-performance.

Nevertheless, a permanent secretary’s role is often understated. Rather than being an obstacle for growth, these individuals serve as a bulwark against populist demands from ministers, while also guaranteeing the seamless execution of policy.

In other words, an effective permanent secretary reduces opportunities for mismanagement. Given that political actors have previously attempted disastrous economic experiments, it is helpful to have an additional layer of scrutiny in the policy formulation process.

Experiments with taxpayers’ money should be avoided at all costs. Permanent secretaries help to protect the public from that occurrence. The six-week Truss premiership has demonstrated that you should not be too willing to discount experts’ views on the economy. Our political parties should take note.

IDEOLOGY SHOULD NOT DRIVE POLICY

If there is one major lesson we should all learn from the British, it is that ideology and political grandstanding should never be the basis of public policy. Rather, pragmatism should lead the way.

Truss assumed the premiership by pandering to the base of the Conservative Party, who largely agreed with her tax cut proposals. Despite the warnings from her rival and now successor Rishi Sunak, the majority of the membership supported Truss’ economic programme. This illustrates the need for prospective voters to make decisions based on sound reasoning rather than populism. Informed voters make informed decisions.

Jamaica’s experience with political ideology has led to reduced economic performance, increased polarisation, and poor policy formulation. Hopefully, with the new generation of political actors, we can bury promises of “truckloads of money” or “run with it” policymaking.

It is important that Jamaica takes lessons from the UK’s current débâcle as it pursues its development objectives. Jamaica can handle its own affairs. Let’s hope that we can finally disabuse ourselves of the belief that Britain represents a role model for sound financial management.

David Salmon is a public commentator and valedictorian for the 2022 UWI graduating class. Send feedback to columns@gleanerjm.com and davidsalmon@live.com or tweet him at DavidSalmonJA.