THE Tories, by the time sterling hit an all-time low of $1.0327 on Monday, had from their political driving seat seen a fall of nearly one-third in the pound’s value against the greenback since June 23, 2016.

Of course, currencies are in normal times often affected far more by factors other than political decisions, including central banks’ interest-rate moves and guidance as well as relative economic fortunes driven by other causes.

However, in the case of sterling in the last six years or so, political decisions by the ruling Conservatives have surely had a huge bearing on the value of the pound.

It has been a dizzying decline, and the Tories should be embarrassed about it.

Plummeting pound

June 23, 2016 was, of course, the date of the referendum on whether the UK should remain a member of the European Union.

Financial markets had factored in a Remain vote and, as the first results started to come in late that night and into the early hours of the next morning, sterling plummeted.

And the currency’s woes intensified over coming months, as the pound sank further.

This was followed by a period of ups and downs, with fears of a no-deal Brexit hampering the pound severely from time to time as the Conservatives seemed to delight in sabre-rattling at the European Union.

Sterling regained the $1.40 mark for a while in the early part of 2021 but then started dropping very sharply again, and, by late summer this year, it had become mired below $1.20.

Of course, Chancellor Kwasi Kwarteng’s mini-Budget has taken sterling’s woes to a whole new level.

Sterling was at 5pm last Thursday night, the eve of Mr Kwarteng’s statement, trading around $1.1323.

Last Friday, it plummeted to one fresh 37-year low after another, going below $1.09. Then it slumped to $1.0327 in Asian trading on Monday morning – its lowest since decimalisation in 1971.

The pound has since seen a very modest recovery from these depths. However, with sterling trading at $1.0670 around 6pm yesterday, the near-$1.50 levels before the grim Brexit vote result emerged seem like the most distant of memories, not to mention the long periods in the past when sterling tended to trade above $1.60. The pound has at times in recent decades traded above $2, including for a spell in 2007, but these periods were a departure from the norm.

The reaction of sterling to Mr Kwarteng’s mini-Budget was truly spectacular. With such fiscal events, to use the description emanating from the Tories for the latest one, the pound would normally either record a gain or loss that was slightly greater than the usual daily movement or not really show any much reaction to what a chancellor had said in a business-as-usual trading session.

Sterling’s precipitous plunge in the wake of last Friday morning’s policy measures from the Conservatives was therefore highly unusual. So was the 140-point-plus or 2% drop in the UK’s FTSE-100 index of leading shares, especially given a weaker pound can boost the share prices of major multinationals listed in London which have large amounts of overseas earnings.

However, given the content of the mini-Budget, the plunges in sterling and the FTSE-100 were not at all surprising, even if they were highly unusual.

As well as the huge package to support households and businesses faced with soaring energy prices, which is entirely essential for the economy and society, we had a completely unnecessary scrapping of the previous move by former chancellor Rishi Sunak to raise the main rate of corporation tax from 19% to 25% from next April. This will deprive the Treasury of around £17 billion of revenues a year.

And history would indicate the Tory corporation tax U-turn is likely to do very little indeed to boost growth.

An incredible disregard for fiscal stability

Mr Kwarteng’s mini-Budget speech was dubbed the “Growth Plan”. And the Tories made much of their belief it would somehow bring a remarkable boost in annual trend growth in the UK to 2.5%.

However, the Tony Blair Institute for Global Change think-tank (TBI) said: “Returning the tax system broadly to where it was in 2021 is not going to stimulate long-term growth if it wasn’t succeeding before.”

And, referencing the Tories’ decision that the independent Office for Budget Responsibility should not publish forecasts last Friday incorporating the effects of the Liz Truss administration’s mini-Budget measures, the TBI added: “Had it been allowed to make an assessment, based on its past pronouncements, it is likely the OBR would have foreseen a long-run boost to the economy of well below 0.5% from the corporation tax cut.”

It observed: “Past utterances from the OBR [have] given clues as to how it would have assessed the long-term growth benefits of [the] decision not to raise corporation tax back to 25%.

“Those suggest that without any monetary policy response, [the] effective tax cut might raise the size of the economy by around half a percentage point by the late 2020s. But we’re in a very different economic climate today. And with the [Bank of England] Governor telegraphing the Bank’s intention to offset the Government’s fiscal loosening with higher interest rates, the growth effect of this centrepiece measure of the plan for growth is unlikely even to achieve that scale.”

As the Truss administration pulled out all the stops with what looked like an incredible disregard for fiscal stability, we also had the abolition of the 45p top rate of income tax.

And the national insurance rises for staff and employers introduced in April were scrapped. The national insurance move could be viewed as something that might help support economic activity. It would certainly seem far, far more likely to do so than the ideological move on corporation tax, which will have a significantly bigger detrimental effect on the public finances. However, the national insurance move is also expensive, and some are concerned that it will benefit most those on higher incomes at a time when the UK finds itself stuck in a grim cost-of-living crisis.

It seemed the refusal to let the OBR publish forecasts added to already huge dismay around the mini-Budget.

Mr Kwarteng told Parliament last Friday: “In due course, we will publish a medium-term fiscal plan, setting out our responsible fiscal approach more fully – including how we plan to reduce debt as a percentage of GDP (gross domestic product) over the medium term.

“And the OBR will publish a full economic and fiscal forecast before the end of the year, with a second to follow in the new year.”

On Monday, amid huge financial market turmoil and speculation about an emergency rise in interest rates from the Bank of England which did not come, Mr Kwarteng said this “medium-term fiscal plan” and the OBR forecasts would be published on November 23.

Mr Kwarteng also declared last Friday: “Fiscal responsibility remains essential for economic confidence, and it is a path we remain committed to.”

To put it mildly, it looks like financial markets are taking this claim with a truckload of salt.

Ms Truss and Mr Kwarteng seem to be trying to shrug off the huge market reaction. If they are interested in the health of the UK economy and the living standards of millions of people, they should not.

Read more by Ian McConnell:

Emergency mini-Budget: The good, the bad and the ideologically ugly

Jacob Rees-Mogg moves on from unnecessary role in fascinating appointment by Truss

Tories’ utter failure to land US trade deal shines light on fantasy world of Brexiters