Why Liz Truss’ ‘Growing the Economy Plan’ is destined to fail.

Why Liz Truss’ ‘Growing the Economy Plan’ is destined to fail.

As we all know by now, Liz Truss and Kwazi Kwarteng launched a Fiscal event which, in their words, was designed to supercharge the UK economy and provide ?us all with ?‘a bigger piece of the pie.’

What was the effect of this fiscal event?

UK sterling tanked and the cost of borrowing immediately increased by about 4% as the banks needed to hedge against the effects of the ‘event’.

Truss and The Chancellor bestowed Tax cuts on the super- rich while also promising deregulation to signal the UK as a low tax economy, therefore, according to their strategy, attracting outside investment. I will outline here, why from a personal point of view, I am convinced this will not happen, and will in fact, have the exact opposite effect.

Firstly, restarting fracking – ostensibly to ensure energy security and to get better pricing on fuel.

·????????Fracking will take more than 6 months to show any results

·????????The quantity of gas gained from fracking is not even one percent of our fuel needs

·????????The gas derived from it will be sold at the global prices in dollars. This means any benefit will not be passed to consumers while the government will end up subsiding the energy companies

The only people that will benefit from fracking are the companies doing the drilling.

Secondly, the unfunded tax cuts using government borrowing. This has caused the cost of borrowing to spike. My wife and I own several companies which we have spent the last 20 years developing. We are supposedly the type of people that the Tories are trying to encourage. However, limiting the rise of corporation tax to 26% and keeping it at 19% has little or no impact, compared to the interest rates of borrowing going up.

We own a trading estate in Poole, and we have a 50% mortgage on that trading estate. We used to have a 25% mortgage on the trading estate but we took out an extra loan, using this land as collateral, so we could fund opening Sharkeys (a new sports bar) in Southampton. Our commercial mortgage is on a 4% above base tracker as you cannot get fixed price mortgages on commercial premises. Currently our monthly payments are ￡8000 per month. If the Bank of England puts up the base rate to 6% (we would have an APR of 10%) our monthly payments will become ￡12000 per month. This is just affordable but what it means is we will not have any spare money to invest in the property or to expand it.

Next year we were planning to build another nine warehouses: the build costs were estimated at around ￡600k. This project would have employed builders and contractors for the 12 months to complete the works. That is all on hold until we can figure out what is going to happen next. So that growth and those jobs are now in jeopardy, directly because of the Governments’ fiscal event.?How is this promoting growth?

Thirdly, we have lent money to Sharkeys for its building and opening.?Costs for this money will?increase by ￡40k a year just to cover our increased borrowing. This means that Sharkeys is going to make ￡40k less per year. ?Again, this is probably, affordable, but we had plans to start looking at expanding the Sharkeys Franchise next year to Reading, Bristol, and Brighton with all the extra jobs and revenue this would entail to help grow the economy. With borrowing likely to be in the regions of 15% per annum, it makes borrowing for expansion unaffordable. Using money from our savings accounts would slow the progress and development. Another consequence of this supposed plan to grow the economy. Combine the above, with the increased costs and a Bournemouth size Sharkeys Sports Bar (which would have cost 500-600K) will now cost 800-900k, possibly more. ?Any expansion plan is now uncertain and will probably have to wait several years.

Instead, we will now spend the next year cutting down all our costs and paying down our commercial mortgage as quickly as possible to get rid of the debt. We will also not take on any more debt. I know a number of property developers who are also doing this and putting all projects on hold until 2024. This could trigger a housing market collapse which could take years to recover.

We are cutting down on spending and saving money wherever we can. One of the UKs strengths previously has been how easy it is for someone who is an entrepreneur to start a company, which if successful and with hard work, they can develop and grow, employing and helping the local community as they do so.

The direction of the fiscal policies of the Tories at present, means we have to think long and hard if we want to invest in the immediate or medium -term future. Our small group of companies represent a few million-sterling lost to the economy next year, along with probably 50-100 jobs. If this is multiplied by all the other small and medium businesses around the country there will be a big problem with investment and growth, followed by a loss of confidence in the economy.

I am not sure who these outside investors are, but surely it makes more sense to get investment from our own businesses and entrepreneurs rather than trying to court hedge- fund managers and the super-rich people, who do not invest or spend money in this country. Ultimately, if the UK continues down this path, we will have to move country, as there will be no point in trying to sustain a business here.?From a purely economic standpoint it does not make any logical sense if the people who create jobs and start businesses are seriously considering leaving.

Finally, cutting the welfare state and giving tax cuts to the super rich. The super-rich do not spend money in the UK. It is the lower to middle and middle high-income people who do. They are not spending now, and this will have another drag on the economy. Lack of consumer confidence will certainly not help grow the pie.

My conclusion on this blog post is that to supercharge the economy it is important to keep interest rates as low as possible and put-up taxes for corporations; it may not help savers but that is irrelevant if people have no money to save.??However, if encouraged to invest your money to get a decent return, then that is what will happen, and if I can borrow money to fuel growth for my business at a cheap enough rate then that is what I will do.?

The actions of this government over the last week have shown me we need to have a general election as soon as possible and we need to get these out of touch Tories out of power. ?Not only are they wrong but they are incompetent.?The only conclusion I can come to is that the Tories have gone from being the party of business and enterprise to the party of the elite and the super-rich.

Maybe that is what they were all along they just hid it well.

Since writing this blog post yesterday the Government has U-turned on scraping the 45% tax cut for the rich. They haven’t apologised for it and they still think it is the correct thing to do which shows how out of touch they are. However this still doesn’t change the fundamentals of the low tax growth plan which I don’t believe will work.