“Are you ashamed of what you’ve done?” This was just one of many barbed questions the Prime Minster had to face down yesterday in a painful round of regional BBC interviews. This was planned to persuade the country and allay fears. Instead, it was a car crash. Anxiety in the country spiked, as Liz Truss took to the airwaves belligerently defending her actions, blaming Putin, not the mini-budget, while refusing to reverse any of her “controversial decisions” to achieve growth. And showing a lack of empathy for the concern that she had caused. A YouGov Poll last night put Labour 33 points ahead.
There is despair in the Tory party at what Truss and her chancellor unleashed last Friday, gambling on the economy, and limiting their chances at the next election. Week three of her premiership, and without an election mandate, the Government’s mini-budget has caused market chaos, sterling to drop and borrowing costs to spiral, while anyone with a mortgage could face interest rates rising to seven per cent. Forty per cent of mortgage products have been taken off the market. Inflation alongside interest rates might wipe out the advantages of the energy bailout that is costing the taxpayer billions. The optics are terrible.
The humiliation didn’t stop there: the Bank of England had to step in to avert a meltdown in pension funds. A penny for the thoughts of Sir Tom Scholar, the experienced Treasury Permanent Secretary, who Truss allegedly asked Kwarteng to sack.
If she and her chancellor had stuck to the original plan as we knew it — halting the rise in corporation tax and reversing the National Insurance rise — the adverse market reaction would have been avoided. But springing more unfunded tax cuts, with further talk last weekend from the Chancellor of more tax cuts to come, caused financial markets to take fright and gilt yields to rise.
Tories are also privately bewildered at Kwasi Kwarteng stubbornly side-lining the Office for Budget Responsibility (they are meeting today, we now hear) because they wanted to “prioritise a speedy growth package”, ignoring their draft forecast. Even Truss’s favoured economist, Gerard Lyons, said he repeatedly warned them against the abolition of the 45p income tax rate. As one former Government advisor quietly fumed, “the reaction of the markets was entirely self-inflicted and predictable. They come across as a bunch of ideological think-tank wonks talking to themselves.”
Very few Tories question the objectives of the premier’s growth agenda — growth has been anaemic since the 2008 crash — but they cannot square the timing, or the method. It could prove “one of the costliest experiments of all time”, a former IMF advisor claimed yesterday.
“The one role a government has is to make people feel secure, that we will not crash the economy. The Tories over decades have built up a reputation for ‘sound money’, taking painful decisions to maintain that reputation, and she’s squandering it,” said a former Cabinet minister.
Moreover, the PM has boxed herself in. Sacking her chancellor would be political suicide. Reversing the top rate tax cut could mitigate the effects on the economy, but it is totemic, for her, so Truss has instead chosen to double down on her growth plan, despite risking a deeper recession.
Until that moment last Friday she had support, and had successfully switched our attention to focusing on growth. But now she must defend tax cuts for the rich, while the Government begins to introduce so-called “efficiencies” in public spending to try and calm the gilts market.
Where will those cuts land? Healthcare, pensions and education are all politically explosive for the Government. The PM’s agenda has become much harder to achieve: the mood is against her and could easily harden.
Maybe, just maybe, she will squeak through, if they can adjust the plan to meet fiscal rules, instead of turbo- charging forward, without restraint. There are those who share her convictions, but many MPs are openly betting when she could fall, though what that will achieve is unclear. For the rest of us, our new Prime Minister has increased the uncertainty we face — when it was high already. And we are exhausted, having lived through Brexit, a pandemic and now facing an energy crisis. Will voters forget? Probably not.
Exciting? Well, I wouldn’t put it quite like that myself
Many moons ago, when I was questioning where Liz Truss’s ideology came from, I was directed to her adoration of the Institute of Economic Affairs, a free market, Conservative think-tank. And to which Truss and her Chancellor are doubly devoted to.
Yesterday its director-general Mark Littlewood wrote in a national newspaper on how it was all going. “She has certainly already delivered a major break from a ‘steady as she goes’ economic approach”. Is he being sarcastic? Worryingly, I think not. “Lower taxes, combined with spending restraint and regulatory reform, is a disruptive but exciting strategy,” he finished his ruminating on the effect of her ‘mini-budget’. “Exciting”, he says. I’ll leave that one with you.
Iran’s brave women need all our support
There’s some good news from abroad: the feared morality police have retreated from Iranian streets after global condemnation and widespread protests. Demonstrations over the brutal killing of 22-year-old Mahsa Amini, allegedly beaten to death in Tehran, after being dragged away for “re-education” for wearing her headscarf in an improper manner, had spread to 80 cities across the country. Here, Nazanin Zaghari-Ratcliffe cut her own hair off in solidarity.
Let’s hope their retreat isn’t short-lived. President Raisi feels threatened now, the world’s eyes upon him. His morality police are fuelling serious unrest, young women are emboldened. But it is unlikely he will permanently pause his vice squad. We owe it to these brave women to keep watching, reporting and supporting.