Inflation

The sharp policy U-turn by Liz Truss, Britain's prime minister, reveals the perils of taking the wrong path in the fight against scalding inflation.

“There were sclerotic high taxes and an overregulated economy, but not anymore.” Today, taxes in Britain are lower, and the economy is less regulated than the average member of the Organization for Economic Cooperation and Development, a club of 38 major economies. The richest countries that make up the Group of 7 are essentially part of the same “monetary and fiscal convoy,” said Will Hutton, president of the Academy of Social Sciences. “Public investment in research and skills are more important.” The result was a reduction in government revenue and a ballooning of Britain’s debt. By championing a Thatcher-era blend of steep tax cuts and deregulation, he said, the Truss government strayed too far from the rest of the flotilla and the economic mainstream. “Central banks printed every single dollar, euro and pound that governments spent” to support households and businesses because of the Covid crisis, Mr. “The situation in 1979 was very different,” Ms. Truss, instead of coming up with a way to pay for energy assistance, pushed to eliminate a corporate tax increase and cut income taxes for the wealthiest segment of the population. This year, the Fed has been swiftly raising interest rates in a bid to slow growth. Tension between the fiscal spending policies proposed by a government and the monetary policies controlled by central banks is not unusual. “Measures to help households hit hard by energy increases, by themselves, would not have created that much of a stir,” he said. Truss fired her top finance official, Kwasi Kwarteng, for creating precisely the package of unfunded tax cuts, billion-dollar spending programs and deregulation that she had asked for.