What is the point of Liz Truss now? This is not intended as an insult but as a serious question. The British prime minister won the party leadership on a radical economic agenda which she has now had to ditch. Aside from those negative votes cast against her opponent, it was this low-tax, smaller-state platform which clinched victory. If that is gone — and it is — what is the purpose of a Truss government?
There is still deregulation. She still hopes to see planning reform. She restated her desire to reduce the size of the state but will struggle to convince MPs to accept unpopular spending cuts. Truss has some foreign policy positions; she is a committed China hawk. Her growth agenda leaves her open to liberalising immigration.
But whatever the merits of these other ideas, Truss has lost all authority, not least in her own parliamentary party. By abandoning her plans to hold down corporation tax, she has now been forced to adopt the key plank of her rival Rishi Sunak’s economic strategy — one she utterly denounced just weeks ago. She did not mention other possible reverses, on the reduction of the main rate of income tax for example, and it remains to be seen if she has done enough to convince markets. She did not resile from her core views. Nor tellingly, did she apologise.
It is hard to see this reset working because her MPs no longer trust her judgment. In a mutinous and divided party this is perhaps the only unifying fact. This means she will struggle to do anything difficult or unpopular. In record time she has become a zombie prime minister.
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The scale of her defeat is even greater when one considers the position of those economic institutions Truss and her allies rubbished. The organs of economic orthodoxy, the Bank of England, the Office for Budget Responsibility and the Treasury, which she meant to bend to her will, have now been strengthened. Having sacked the permanent secretary to bring in someone less conventionally focused on fiscal orthodoxy, Truss was forced to replace him with a near Treasury lifer. The OBR, shut out from the “mini” Budget, is now enshrined as arbiter of discipline. It is very hard to imagine any government riding roughshod over it again.
And this is without mentioning the economic fear, most obviously the impact on mortgages. It is hard to think of a recent budget that has proved a greater act of political and economic self-harm. And even with this retreat, there is still work to do to fill the £60bn hole identified by the Institute for Fiscal Studies.
The U-turn itself had become increasingly inevitable but should be welcomed nonetheless. There was only pain for the government and, more important, the country in continuing to resist. Truss at least can be thanked for not fighting further.
She had no choice but to sack her friend and chancellor, Kwasi Kwarteng, though it is hard to think of a more disastrous start to a premiership. A U-turn of this scale would not be taken seriously with him remaining as chancellor. When you are humbled by the markets, very visible penitence is demanded. But everyone knows that he was only the co-author of this farce.
What next? The first job of new chancellor Jeremy Hunt is to restore faith in the UK economy and ease Britain back from the place where bond markets treat it as an outlier among leading western economies. Truss has to back this totally. This means he is effectively more powerful than she is.
This is also in Tory interests. The party has been shattered. Their current opinion poll standings suggest electoral wipeout awaits. Happily the country’s interests and their own now align in demanding sensible, fiscally prudent government. The thought that Hunt (a recognised grown-up and Sunak-backer) is in the driving seat may soothe nerves, although he has never served in an economic ministry. And there is also the possibility of instability if No 10 and 11 feud down the line.
It is probably too late to rescue the party’s reputation for economic competence — it certainly should be — but two years is a long time. At this stage turning a general election rout into mere defeat would be a political achievement.
As for Truss herself, it seems unimaginable that she can recover. The country and her MPs have had a look and seem unlikely to change their minds. She is a poor communicator, her strategy is in cinders and she has shown terrible judgment. Even if she were replaced, the electorate is entitled to form a view about a party that chose her.
Sacrificing Kwarteng may buy her some time (though not necessarily) but it is very hard to see her MPs letting her lead them into the next election. Her press conference performance was very weak and left many questions unanswered. The plotting continues, though the complexities both of ousting her and of ensuring the right person takes over may well slow the process.
But unless she can rapidly find an answer to what she brings to the table, Truss will not last. The timing may be unclear but the ending looks inevitable. — Copyright The Financial Times Limited 2022
