How the U.K. Finance Minister Came to Ignore Finance Experts


LONDON — With inflation surging, borrowing costs rising and Britain teetering on the verge of recession, many politicians would take all the expert advice on offer if handed the stewardship of the country’s economy.

But when Kwasi Kwarteng became Britain’s chancellor of the Exchequer last month, his first act was to fire the Treasury’s most senior official, Tom Scholar.

Just a few weeks later, it is Mr. Kwarteng’s job that is on the line, with critics calling for his resignation after his disastrous announcement of tax cuts sent markets into a tailspin.

After announcing unfunded tax cuts, bypassing a system of independent scrutiny for government economic plans, and brushing aside warnings, Mr. Kwarteng is being blamed for precipitating Britain’s biggest financial crisis in years.

Yet even after the pound plunged and his announcement had been nicknamed the “Kamikwasi budget,” he doubled down on his plan to cut taxes — including for the highest earners — telling the BBC that there was “more to come.”

After a week of being battered by economists, banks and the opposition Labour Party, he will be back in public defending the policies when he speaks on Monday at the Conservative Party conference in Birmingham.

On Sunday, the prime minister, Liz Truss, told the BBC that the government should have “laid the ground better” for the announcement, conceded that the cabinet was not consulted in advance on reducing tax for higher earners and described the cut as Mr. Kwarteng’s decision.

Struggling to explain the growing crisis, one of his lawmakers accused the government of “inept madness.” But analysts say the miscalculation reflects a legacy of a bitterness around Britain’s departure from the European Union, which left the policy’s libertarian supporters — like Mr. Kwarteng — deeply skeptical of advice from the political and economic establishment.

During the 2016 Brexit referendum, most business federations, many bankers and much of the civil service wanted to remain in the bloc. So did the prime minister and chancellor at the time. Instead, the leave side surged to victory.

In the years since, libertarian Brexit supporters say the establishment has stopped Britain from adopting the policies that, in their view, it needs to thrive outside the European Union — deregulating, cutting taxes and attracting jobs and investment from continental neighbors.

During her successful campaign to become prime minister, Liz Truss singled out the Treasury for criticism, accusing it of stifling growth in the pursuit of economic “orthodoxy.”

“It’s a combination of the ideological path that he and others were on as libertarian free marketeers — which told them they were right — and the fact that they felt frustrated by previous Conservative administrations not acting as ‘real Conservatives’ in terms of the economy and Brexit,” said Alistair Burt, a former Conservative lawmaker and colleague of Mr. Kwarteng, giving his explanation of the chancellor’s actions. Though Boris Johnson, Ms. Truss’s predecessor, strongly backed Brexit, his economic instincts were more interventionist.

“Now they are in charge, so they have the conviction that all they have been talking about can be put into effect and would have the impact they always believed they would,” Mr. Burt added.

Others were more blunt.

“I don’t know whether these people have convinced themselves that the experts were wrong about Brexit and so they are going to be wrong again,” said Anand Menon, a professor of European politics and foreign affairs at King’s College London. “That just strikes me as unconscionably stupid, but that doesn’t rule it out.”

Mr. Kwarteng, a supremely self-confident, polished performer and accomplished academic, has an impeccable résumé, but he sometimes appears detached (during the funeral service for Queen Elizabeth II, he was seen smiling to himself, unaware that cameras were on him).

He certainly shares a skepticism of conventional economic thinking.

In 2019, Professor Menon interviewed Mr. Kwarteng, then a rising star and middle-ranking minister, in an hourlong conversation about Brexit in which Mr. Kwarteng referenced a dizzying array of historical figures. He also defended Michael Gove, a former cabinet minister, who famously argued during the 2016 Brexit referendum that the British people had “had enough of experts.”

Mr. Gove had a point “about the pretensions of economics,” Mr. Kwarteng said, adding: “Some of the claims economists make about the subject, and some of the authority that it tries to bring to itself, is pretty spurious. You’ve got to take it with a pinch of salt.”

A tall, imposing figure with a booming voice, Mr. Kwarteng was born in 1975 in East London and raised by parents who had emigrated from Ghana to Britain as students in the 1960s and went on to become an economist and a barrister. At age 8 he went to a private school, then won financial aid to attend Eton College, Britain’s most famous high school, before moving on to Cambridge University.

Graduating with a top degree, Mr. Kwarteng had a spell at Harvard before he returned to Cambridge for a doctorate in economic history, during which he specialized — appropriately enough — in an earlier period of financial turbulence, the so-called “recoinage crisis” of 1695-1697.

After working as a journalist and a financial analyst, Mr. Kwarteng was elected to Parliament for the Conservatives in 2010 but maintained other interests, publishing several books, including one on the British Empire.

In 2012 he contributed to a more overtly political tract called “Britannia Unchained” — a paean of praise to free markets that described the British as “among the worst idlers in the world.” One of its co-authors was Ms. Truss.

By 2015, Mr. Kwarteng was already beginning his ascent through the ranks as an unpaid ministerial aide, and was making friends in high places, too.

In her diaries chronicling life as a wife of a Conservative lawmaker, Sasha Swire recounts an encounter early in 2016 at Dorneywood, the country residence of the chancellor, then George Osborne. “Kwasi is essentially an academic,” she wrote. “He is enthusiastic and bombastic and barely draws breath.”

Although once a supporter of the European Union, Mr. Kwarteng was fervently in favor of the Leave campaign by the time of the referendum later that year.

Another winning political call followed in 2019, when Theresa May resigned as prime minister and Mr. Kwarteng — by then a junior minister — supported Mr. Johnson to succeed her.

His reward was a move up the government ranks that led him to the cabinet in 2021 as business secretary. But it was his strong links with Ms. Truss that brought him his recent promotion to chancellor, the second most powerful political job in the country.

Mr. Kwarteng and Ms. Truss lived close to each other in Greenwich, southeast London, and the ideological bond they forged when writing “Britannia Unchained” blossomed.

So, while oddsmakers do not rate Mr. Kwarteng’s survival chances, losing him would be a huge blow for Ms. Truss because his announcement was the fulfillment of their joint project to ignite growth through tax cuts and deregulation.

Their idea was to shift policy away from the interventionist instincts of Mr. Johnson, who rode to a landslide election victory in 2019 promising to spread prosperity to poorer, overlooked areas in the north and center of the country.

Mr. Johnson’s free-spending policies were anathema to critics who favored small state, low-tax Conservatism. And with only about two years before an election must take place, Ms. Truss and Mr. Kwarteng apparently felt they had no time to lose.

Analysts believe that financial markets would have swallowed a version of their plans had they been given more warning, and had the financial watchdog, the Office for Budget Responsibility, been allowed to provide an independent assessment.

Even without Mr. Scholar, the former Treasury official, at the helm, it seems implausible that others in the Treasury did not urge caution. One of the chancellor’s allies, Gerard Lyons, said he gave private warnings.

“I did warn them quite explicitly about the need to be aware of the febrile state of the markets, how they needed to make sure the markets fully understood what they were doing,” Mr. Lyons told The Daily Telegraph.

Plowing on regardless was a surprisingly basic error for a chancellor of the Exchequer. But Professor Menon recalled one part of his conversation in 2019, when Mr. Kwarteng talked about Britain’s economic growth since 1800, arguing that over this time scale even seismic events like world wars barely interrupted the long-term trend.

“Maybe,” Professor Menon said, “he’s more of a historian than a politician.”





Source: https://www.nytimes.com/2022/10/02/world/europe/uk-kwasi-kwarteng-truss-economy.html