British Chancellor of the Exchequer shocks the markets

When Kwasi Kwarteng became British Minister for Economic Affairs under Boris Johnson, he had a white board with the letters “MSH” hung up in his office. The abbreviation stands for “Make Shit Happen” – a casual expression that Kwarteng used to signal that as a minister he didn’t just want to talk, but wanted to get things moving.

Kwasi Kwarteng is not only known as a lightning-fast doer. He’s also known for his high opinion of himself and his desire to stir up dust. He lived up to that reputation when he debuted as Chancellor of the Exchequer in Liz Truss’s new administration: the announcement of unfunded tax cuts rattled markets. Investors sent the pound on a rollercoaster ride, sending long-dated government bond rates skyrocketing, prompting the Bank of England to intervene.

An imposing figure

A meeting between the Prime Minister and the Chancellor of the Exchequer and representatives of the Office for Budget Responsibility (OBR), which normally independently reviews government budgets, provided some reassurance on Friday. However refused Kwarteng to bring forward an assessment of the OBR planned for the end of November. And he still thinks investors have misjudged the importance of his tax cuts and deregulations, which are intended to boost the country’s growth.

Kwasi Kwarteng is not a man of self-doubt. Rather, the 1m 95 tall father of a young daughter is an imposing figure both physically and intellectually. He speaks French, Italian, German and Greek, writes verse in Latin and has recently started learning Arabic. However, the 47-year-old is also extremely confident in himself and his talents. “Kwarteng looks down on his interlocutors from above and lets them feel that he thinks they are intellectually inferior,” says a conservative insider. The Chancellor of the Exchequer lacked the ability for self-criticism and political sensitivity.

comes to a similar conclusion “Times” in a portrait of the finance minister: “Kwarteng doesn’t care what people think of him or whether they like him.” According to the analysis, a Chancellor of the Exchequer must be able to make unpopular decisions. But it would be problematic if he had no sense of the mood in the population or in parliament.

Annoying checks and balances

An important reason for the market turbulence seems to have been Kwarteng’s idiosyncratic approach. Hardly in office, he dismissed the longtime chief official in the Ministry of Finance. In doing so, he signaled a break with the tradition of the authority, which had always paid attention to budgetary discipline. In the race to succeed Boris Johnson, Truss announced that he would break with fiscal orthodoxy.

Uncertainty was also caused by the fact that Kwarteng hastily announced the tax cuts and the abolition of the highest tax rate for high earners and deliberately did not give the OBR an opportunity for an independent assessment. This fed the impression that the Chancellor of the Exchequer considered the control of independent institutions to be disruptive.

But Kwarteng underestimated that conventions and institutional checks and balances are crucial for the credibility of government work. Suddenly, investors doubted that Kwarteng’s calculations would work out and that the country could afford the additional debt of around 161 billion pounds (175 billion Swiss francs) over the next five years.

After all, Kwarteng and Truss have now committed to working with the OBR. By the end of November, the government wants to present reforms ranging from agricultural to migration policy, which should also show where Truss and Kwarteng intend to make savings.

Sociable bon vivant

Akwasi Addo Alfred Kwarteng was born and grew up in London in 1975 as the only child of Ghanaian parents. The father worked for the Commonwealth Secretariat. The mother was a successful lawyer and admirer of Margaret Thatcher and instilled a strong work ethic in her son. At the age of eight, little Kwasi was sent to boarding school, where he thrived. He received a scholarship to the elite Eton school, which opened the door for him to study at Cambridge and Harvard.

At the university, Kwarteng stood out as a brilliant and hard-working intellectual. He holds a PhD in economic history and has written several books, including an intricate treatise on the legacy of the British Empire. But he is also considered a sociable bon vivant. He enjoys being part of the conservative establishment and frequents exclusive private clubs in London.

Because of his skills as an entertainer, he is sometimes compared to Boris Johnson or even as “Black Boris” designated. For himself, the color of his skin seems to be irrelevant. He certainly makes little fuss about being the first black politician to hold the second-highest government office in the country.

«Brain of the Government Truss»

It was clear early on that Truss would make Kwarteng her chancellor. The two were companions before serving together in Boris Johnson’s cabinet. Two years after the election to the House of Commons in 2010, you were among the authors of the Book «Britannia Unchained», which recommended a deregulation program for the UK. The ideological thrust of the book is now the basis of their reforms – even if the gigantic package for state capping of energy prices for all households diametrically contradicts the market economy credo.

Truss is loyal to Kwarteng, which is why she sticks to him despite all the criticism. The doubts as to whether Truss has the intellectual and communication skills for her new position have not diminished in the last week. The role of Kwarteng, whom insiders describe as the “brain of the Truss government”, is all the more important.

Communicative and political mistakes

Even Kwarteng’s ideological allies admit that the Chancellor of the Exchequer made communicative and political errors. Instead of announcing the biggest tax cuts in fifty years with a bang, a step-by-step approach would have seemed more serious and triggered fewer shock waves. The opposition immediately capitalized on the abolition of the highest tax rate for high earners. Labor also blames the Tories for rising mortgage interest rates, which have literally collapsed in the polls.

So the unrest is palpable even within the Conservatives. Rishi Sunak, Truss’ rival in the race for Johnson’s successor, has always argued that tax cuts should only be implemented once inflation has fallen – in order to avoid a conflict between monetary policy and tax policy. Now Sunak’s followers see themselves confirmed. It is questionable whether Truss and Kwarteng will be able to recover politically from the turbulence. Much will depend on Kculteng cultivating the ability to listen to critics and instill confidence instead of raising dust.