In the hyperbole-fuelled theatre of Westminster, where breathless rhetoric and implausible spin are so often the defining qualities, few events can truly be said to live up to a big billing. Yet when allies of the chancellor, Kwasi Kwarteng, promised a “game-changing” address in the run-up to Friday’s economic announcement, for once the performance matched the promise.
In fact, officials who had been billing the announcement as a mere “fiscal event” or “mini-budget” had been engaging in a rare piece of political understatement. What emerged was a package so large, bracingly expensive and unapologetically ideological that it looks certain to set the terms not just of the next election, but the country’s economic fortunes for years.
The surprise abolition of the top rate of tax – saving those earning more than £150,000 an average of £10,000 each a year – was merely the coup de grâce in a statement that pledged more than £400bn of extra borrowing over the coming years to fund the biggest giveaway in half a century, on top of the removal of the bankers’ bonus cap installed to tackle the City’s excesses. Promises of deregulation and the end of a fracking ban were mere footnotes in an economic pitch that was described as “shock and awe” by insiders.
Earlier in the week, those observing the prime minister as she flew home from the UN general assembly in New York had been taken aback by her ostentatious confidence in telling reporters: “Lower taxes lead to economic growth, there is no doubt in my mind about that.” Kwarteng was equally strident in that belief, even as the pound tanked to its lowest level against the dollar since 1985 following his announcement.
Among many Conservative MPs, however, confidence is the scarcest of qualities this weekend. Stunned shock was the most common reaction – even among Westminster veterans.
“I sat and watched in amazement,” said Charles Walker, a senior Tory backbencher who represents Broxbourne. “Three words. It is extraordinary. We’ve tried to grow the economy in a number of ways to get a trend rate of about 2.5%. It is legitimate to try and find the secret sauce to get it back again. Whether it works well, remains to be seen. I certainly hope it does for the sake of my constituents and the general welfare of the country.”
That sense of trepidation was the common theme among Liz Truss’s own MPs on Friday. Several spoke of a government now engaged in a nationwide “experiment” – a quest to show that slashing taxes, especially for the well-off, could kickstart an economy that has suffered from anaemic growth for years.
“Either it will be a stroke of genius that saves the country, or it will blow up the economy,” said one MP. Another stated: “There’s a 10-15% chance it’s genius. There’s a 10-15% chance she’ll get lucky somehow. And there’s a 70-80% chance it’s a disaster.” A third was more frank. “This whole thing boils down to infectious childlike optimism in Downing Street. It would almost be endearing if it wasn’t so completely and utterly fucking mad.”
The seismic shift away from the David Cameron and George Osborne rhetoric of fiscal responsibility – an approach even Boris Johnson’s chancellor Rishi Sunak espoused – has astounded those from earlier political generations. “Not a single revenue-raising measure in that budget statement, not one,” said the former shadow chancellor Ed Balls. “Every announcement a spending commitment and entirely paid for by tens of billions of extra public borrowing year on year – in that sense we are definitely in a new era.”
The theory that the government is now engaged in a huge, low-tax ideological test is fuelled by the background of Truss and her close team. Several MPs point to its roots in libertarian political pamphlets – both Kwarteng and Truss co-authored the free-market tract Britannia Unchained in 2012, while Kwarteng is a former chair of the Bow Group, a rightwing thinktank. Meanwhile, Matthew Sinclair, Truss’s economic adviser, is a former chief executive of the small-state pressure group, the TaxPayers’ Alliance.
Yet even Tory opponents of Truss are hesitant to say with any certainty that her tax-cutting drive won’t earn her a boost in support big enough to navigate a general election. Truss’s allies also point out that she and Kwarteng are only doing what they pledged to do – end “Treasury orthodoxy” and slash tax to boost growth. Kwarteng had shown his intentions by sacking the Treasury permanent secretary Tom Scholar as one of his first acts. Many Treasury figures are now waiting for political ideology to meet economic reality.
“It’s an extraordinary gamble, the likes of which we haven’t seen since the glory days of Edward Heath and Anthony Barber,” said the former Treasury permanent secretary Nick Macpherson, referring to Barber’s 1972 budget that slashed taxes and created a short-term boom – before sparking an inflation and currency crisis. “What the budget does reveal is that we are on a totally different course, in macroeconomic terms, than any other government. Now, it may be that these people have found the holy grail and this time it will be different – tax cuts really will generate growth. But at the moment the markets, populated by the people who are the beneficiaries of these tax cuts, are voting with no confidence in the policy.
“That may change. Markets move around a lot. But the interesting thing is that the more the pound falls, and the higher the cost of borrowing goes up, the more unsustainable the government’s policy becomes – not least because that interest bill is going to go up and up and up. It’s quite an interesting time,” Lord Macpherson said.
There has also been an intake of breath among Truss’s natural allies. Fraser Nelson, the editor of the Spectator magazine, said that he should be among those welcoming the package. Instead, he said he felt “nervous” over a lack of work done to prepare the markets.
Some in the Tory party fear the Bank of England will order an emergency increase in interest rates in response. Many in Whitehall and the Commons also believe big spending cuts will have to be announced soon – but with hospitals and schools already under pressure, there are few easy cuts. Welfare could be targeted, but the bulk of that cash goes towards pensioners, many of whom backed the Tories in the past.
Then there is the other lingering question – what is the political plan? Attempting to decipher a strategy, some MPs and economists believe the historic spending spree pointed to an early election. Downing Street insiders insisted there was “no way” that was going to happen, yet early projections on the package’s impact on growth suggest it will provide an uplift in the spring.
“This must mean they’re going for an early election,” said one former minister. “That’s what happened with Barber. It has the best chance of working in the short term. That probably gives them the best chance in May. I don’t think this will end well.” Others had a much simpler explanation – Truss knows she has a limited period to make an impression before an election, which has to take place before January 2025.
What is certain is that Boris Johnson’s political strategy is over. All talk of the “red wall”, that helped Johnson win a majority by uniting traditional Tories with working-class voters in former Labour areas, has evaporated.
“Abandoning a voter coalition that won us a majority of 80 in pursuit of trying to win all seven libertarian voters in the country is certainly a bold move,” said one despairing Tory MP.
While MPs have been willing to give Truss time, a whirlwind week that included an end to the fracking ban, new NHS plans and the huge economic package has seen early and ominous cracks appear in Conservative party unity.
Julian Smith, the MP for Skipton and Ripon and a former chief whip, broke cover to criticise the top-rate tax cut. Former health secretary Jeremy Hunt responded to the health plans by saying: “It’s not more targets the NHS needs but more doctors.” On BBC One’s Question Time on Thursday, the Cabinet office minister Brendan Clarke-Smith conceded he was “fairly neutral” on fracking, adding: “I want to see more evidence.”
These early notes of dissent point to one of the big problems that faced Truss even before she and her chancellor went for broke with their mega-budget. “She only secured the vote of 50 MPs in the first round of voting in the leadership,” said one MP. “She doesn’t have a base. And when you see the people being made ministers, even those of us who didn’t want a job end up being offended.”
What’s more, one of her key advisers has already put a few Conservative noses out of joint. In a meeting with Tory MPs on Thursday night, her chief of staff Mark Fullbrook warned them that he was “always on broadcast mode – never receive mode”. Some took the clear message – No 10 isn’t listening. Tory MPs also reported that a tough line was being taken by Truss’s whips. “People are being told ‘You’ll lose the whip if you don’t get in line’, which isn’t helping,” one said.
Her inner circle is already small and ideologically narrow. Four figures have emerged as central to her premiership - her ally and deputy prime minister Thérèse Coffey, Kwarteng, the levelling up secretary, Simon Clarke, and Jacob Rees-Mogg, a chief ally of Johnson and now the business secretary.
It all means that while many Tory MPs have worked hard to keep their counsel in the hours following Friday’s budget, there is little common purpose tying vast swathes of the party to their leader or her radical policy programme. None of her legislation has yet been tested in parliamentary votes.
“I’ve been telling people that she’s another Theresa May,” said a longstanding Conservative MP. “Perhaps even worse. May had no majority. Liz has an 80-seat majority, but she will face exactly the same problems – people will see she has the same personality flaws.”
So strange is the atmosphere among Tory MPs that some openly talk about Truss’s chances of even making it to an election should her programme hit severe turbulence early on. “I’ve already had people asking me about when I’ll put a letter [of no confidence] in,” said one MP.
When the Observer asked the most anti-Truss MPs about the prospect that she could be removed, there was resignation. “Even some of those most opposed to her think that we just can’t remove her for someone else,” said one. “It would just look like we’ve completely lost our senses.” Another said: “MPs know this is the PM they’re stuck with. Most are just going to keep their heads down and pray it somehow works.”
Yet the unshakable belief shown by Truss and Kwarteng has the doubters doubting themselves. “I have to ask myself, did we all get it wrong? Should we have taken a different path,” asked one recently departed minister. “We will have to see how it works out. She’s just going for it. She’s going for broke.”
