Anyone who heard Liz Truss on her leadership election trail sensed the Tory party was going to make a mistake. Now we know. It is inconceivable that Britain would be where it is today had Rishi Sunak become prime minister. Even so, few could have imagined the scale of this disaster. A cabinet drunk on the billions it had spent fighting Covid thought it could spend the same again on a gratuitous political gesture of unfunded tax cuts.
Governments across Europe have been squirming against a rising tide of inflation and soaring interest rates. For Britain to indulge in a renewed spending splurge was beyond belief. It spooked markets, wrecked pension and mortgage schemes and enraged party supporters. This government came to power with a nation united after two weeks of monarchical self-glorification. It instantly destroyed any possible electoral honeymoon. Truss’s chancellor, Kwasi Kwarteng, finds himself assailed by demands for his resignation.
Truss made much during her campaign of a smirking antipathy to “Treasury orthodoxy”. To prove it, she sacked the Treasury’s permanent secretary, Sir Tom Scholar, on day one. She was then as good as her word. She gave away £45bn in tax cuts and even more in energy subsidies, without bothering to say how she would fund them. She insulted the public’s intelligence by saying she could find the money from a “growth plan” with “supply side reforms”, a plan Kwarteng refused to discuss with his own Office for Budget Responsibility. Spending predicated on unspecified future rates of growth is wholly unsafe. By this week, the markets had given their answer. The pound exchange rate plummeted. The whole project was revealed as childish in its absurdity.
Aside from Truss’s brief round of regional radio on Thursday, when journalists were given just five minutes to interview her, the prime minister and chancellor have dived for cover while treasuries have been consumed by volatility across Europe. They could offer no comfort to holders of government debt (indeed, Kwarteng even boasted there could be “more tax cuts” in the future). The nation was only rescued from imminent bankruptcy on Wednesday by the Bank of England, clearly acting independently. It blew an astonishing £65bn on stabilising markets. The IMF was reduced to comparing the UK to an “emerging” economy.
It is just conceivable that judicious financial management could hold inflation at about 10%, through cheaper energy, falling house prices and drastic curbs on public spending. What is not conceivable is that this will be assisted by tax-cuts driving growth through “supply side” reforms, whose impact on productivity has always been weak. For the present, no forecaster indicates that this is a plausible scenario. Trussonomics do not add up.
As for Trussopolitics the future is even bleaker. A recent poll for the Economist was unequivocal. British people are sceptical of being told to make sacrifices for vague promises of future gain. The majority opted for more spending on health and welfare and less on “infrastructure and science”. As if to ram this home, Labour’s poll lead has advanced to 17 points.
Truss seems to have a tin ear to the supporters who have just anointed her. She is ignoring the real advances made by Boris Johnson among voters in the north and poorer constituencies. She is threatening rural Tories with an end to countryside conservation and a barrage of onshore wind turbines. She refuses to tax the soaring profits of the energy companies. In sum, she seems wedded to a Toryism stuck in the pseudo-free market days of Margaret Thatcher and Keith Joseph, of turbo-capitalism and City slickers. But Thatcher’s libertarianism was always skin deep and never lost touch with economic reality, let alone responsibility.
It seems unimaginable that Truss would now sack her chancellor after just two weeks. But she and Kwarteng have hidden behind their Treasury chief secretary, Chris Philp, as they face what could be a nightmare party conference. He has been reduced to assuring the BBC of his iron grip on public spending to pay for his boss’s extravagance. With GPs, the care sector, schools, courts and the police all screaming for cash in the run-up to an election, this is the last thing Tory MPs want to hear.
A sensible way out of this mess would be a swift acknowledgment that Truss and Kwarteng have listened. After due consultation they could postpone the promised income and corporation tax cuts to more propitious times. Kwarteng could then target his growth incentives to low-cost deregulation, immigration and training, rather than costly old-fashioned “infrastructure projects”. He should also tell his prime minister to do absolutely everything to calm relations with the EU and ease trade.
The former governor of the Bank of England Mark Carney has savaged the prime minister, accusing her of undermining and “working at some cross purposes” with key institutions such as the Bank and, we assume, the Treasury. The British economy has passed through such crises before, most recently in 2008. But on each of these occasions, economic managers worked in tandem, monitoring, predicting and responding to market forces. Truss’s sacking of Scholar for “orthodoxy” left a crippled department seemingly unable to restrain Kwarteng.
Truss has had to be rescued by another orthodoxy, that of the Bank of England. She should now eat humble pie and stumble forward for two years of rescue government. Winning the next election looks unlikely, but she might at least try to leave her nation in better shape than the one to which she reduced it in September 2022.
Simon Jenkins is a Guardian columnist
