In a quite extraordinary show of hubris, Liz Truss penned a 4,000 word essay in The Telegraph this weekend setting out why she believes she was not given a ‘realistic chance’ to enact her growth agenda by a ‘very powerful economic establishment’. Truss’ motivation for writing such an essay is curious. Truss is clearly not after forgiveness, essentially saying that if only she had been given more time her policies would have come good in the end. Her lack of contrition is what is most striking about the piece for there were very real reasons why the ‘economic establishment’, in essence Treasury orthodoxy, had reservations about her policy package.
Fiscal rectitude comes when the financial markets have confidence in projected inflation rates and fiscal deficits. In other words, the market has confidence so long as it can see that debt will fall in the long-term. Truss and Kwarteng’s Fiscal Statement on the 23rd of September was not accompanied by forecasts from the Office of Budget Responsibility, with Truss citing that due to the expected size of the energy package there was no time to consult with them. As a result, Truss mistook speed for haste.
The unprecedented events surrounding Covid and the War in Ukraine should have made Truss step carefully, instead she made the UK an outlier. There may be a case for low taxation to stimulate investment and economic growth, but when one has borrowed £400 billion to pay for Covid and needs to deliver a huge energy support package, unfunded tax cuts and a dismissive attitude to debt is frankly irresponsible. As Truss herself writes, the Fiscal Statement ‘rapidly became a market stability issue’ as bond (debt securities) prices fell sharply which risked the collapse of liability-driven investments that had a value of around 60% of the UK’s GDP.
Far from being humbled by her 49 days as Prime Minister, what permeates through Truss’ essay is blind self-confidence. This seems to stem from Truss simply seeking to enact Conservative economics of low taxation. What Truss seems to completely overlook, however, is that actually the Conservatives are traditionally a low tax Party second, and an economically competent Party first. The old adage that the Tories will lower taxes when they can was lost on Truss. In 1979, Margaret Thatcher increased VAT from 8% to 15%, providing an important source of revenue as she sought to balance the budget. It was only in 1989 after 10 years in power that Thatcher reduced the top rate of income tax from 60% to 40%.
Moreover, tax is at a record high for a reason. The NHS budget is now at £152 billion a year, £30 billion higher than pre-Covid levels (HM Treasury). Expenditure on the state pension hit £101 billion in 2020/21 (www.obr.uk/forecasts-in-depth) and is now set to rise by billions in line with inflation. Departmental budgets are still well below their 2010 levels and with inflation eroding them further, there is little left to cut which means the Government relies increasingly on taxation. With Interest payments on UK debt in December 2022 alone an eye watering £17 billion, high taxation is here to stay, particularly in a post-Covid world where the electorate is tired of austerity and wants properly funded public services.
Blinded by ideology, having lost the confidence of the financial markets she lost all political support. Conservative MPs moved to depose Truss after just 49 days as Prime Minister, giving her the ignominious title of shortest serving Prime Minister. As Truss left Downing Street she took the Conservative’s reputation for economic competence with her, leaving her party in a perilous state. In the darkest days of the Boris Johnson era, the Conservative Party continued to poll in the low 30s. Despite Rishi Sunak being able to calm the markets, and with the economic recession now set to be shorter and shallower than first envisaged, the Conservatives are still floundering in the polls at around 26-28%.
Truss has done untold damage to the Conservative Party which makes her foray into the public domain all the more puzzling. As Rishi Sunak attempts to grapple with the Country’s problems in the face of a resurgent Labour, Truss’ intervention is not only unwelcome but baffling. If the Conservatives go on to lose the next election, a key factor in that will be the failed Liz Truss experiment. Rather than try to justify herself, Truss should be owning her mistakes for the good of her Party. The line should be: I made mistakes but they are my mistakes; the grown ups are now in charge and you can trust them.
Truss thought she could do it all: enact Tory-socialism with a huge energy support package, whilst presiding over tax-cuts at a time of rampant inflation and rising interest rates. She had no plan to bring debt down other than a blind hope that her growth agenda would increase tax revenues. Even if her growth agenda saw the economy go gangbusters, the reality is in a post-Brexit world where the electorate is tired of austerity the additional revenue would go on day-to-day spending, capital projects, or debt interest payments. Truss may have been the darling of the Tory grass roots but she was always out of step with the wider country. Unless she wants to drag her party down still further, she would be well advised to disappear completely.
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