Fortune favours the rich when it comes to Trussonomics
It’s been an unusual time to take over as prime minister, what with the Queen dying, the country going into mourning and pretty much anything that resembled normality being thrown out the window.
Liz Truss has still managed to make her mark, though, with her weird curtsies, wooden Bible readings and plans to give super-rich bankers a big old pay reward catching more than a few eyes.
That’s right, at a time when her government has chosen to saddle the taxpayer with enormous amounts of debt so the majority of us can afford to put the heating on this winter, Truss this week signalled her willingness to scrap the cap on bankers’ bonuses so that, rather than being limited to doubling their pay, banks can offer their top staff as much as they so desire.
In the mini-budget he delivered today, her chancellor Kwasi Kwarteng has followed through on that promise.
Designed to curb the risk-taking that caused the financial crash, the bonus cap had, City bigwigs claim, dented the competitiveness of the UK’s banking sector by driving the money-making talent to other financial centres.
Enabling banks to offer unlimited pay deals will ensure the greediest – sorry, brightest and best – will return to a country whose at-any-cost exit from the European Union gave the distinct impression it wasn’t really that bothered about having them here anyway.
Better still, Trussonomics goes, giving those super-high earners both a pay rise and a tax cut will get them spend, spend, spending and that will be good for all of us because – despite most people living in fear of soaring inflation and energy bills that will remain unmanageable in spite of the PM’s freshly delivered but still too-late freeze – it will somehow line the poor’s pockets and get them spending too.
Let the economy be saved and the good times roll. It’s the trickle-down effect, innit.
Only trickle-down economics does not have many friends in high places. Indeed, the SNP were quick to make hay out of the fact US President Joe Biden is no fan, this week sending out a press release after he tweeted that he’s “sick and tired” of the policy because “it has never worked”.
The IMF, too, was wholly unequivocal when it wrote in a 2015 report that “increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 per cent results in lower growth – that is, when the rich get richer, benefits do not trickle down”.
Yet while it’s clear that trickle-down economics will be a hard sell, there is something of a rationale for removing the cap on bankers’ bonuses: if the bonus part of a pay deal is allowed to soar then the fixed element can come down, making it easier to cap annual pay in leaner times and, presumably, preventing employers gunning for lowlier employees in the inevitable bid to cut costs.
Yeah, eye-roll. It doesn’t make the plan much easier to swallow when it was the Tories who made the City less competitive by leaving the EU, and it’s certainly a bitter pill at a time when food bank use is soaring and even the supposedly okay-off in society are struggling.
But so long as other safeguards designed to prevent pre-2007 style risk-taking remain in place, if removing the cap means banks can reduce sky-high pay deals rather than cut cleaning and clerical jobs when times are tough then it might just – grudgingly – be a good thing.
But as it hasn't come hand-in-hand with similar pick-me-ups for those at the other end of the socio-economic spectrum – those whose taxes are for decades to come going to pay off the borrowing being used to fund the energy-price freeze – then it is nothing more than a move designed to ensure the rich get richer while everyone else is left to fester.
The unwealthy cannot, after all, pay their bills with a trickle-down that never trickles down.
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