Truss can’t neglect Tory jitters after mini-budget

It is said that the Conservative Party only has two modes — triumph and panic. Under Liz Truss, the new prime minister, the party has gone from the first to the second in record-breaking time (with a strange interregnum for Queen Elizabeth’s funeral).
Chancellor of the Exchequer Kwasi Kwarteng’s mini-budget, or “fiscal event” as he termed it, was the worst-received financial statement the Tories have made since taking office in 2010, quickly being christened the “kamikaze budget.” The overwhelming judgment, of both the markets and the voters, is the proposal was neither prudent nor fair. UK markets so far have lost as much as $500 billion since Liz Truss assumed her position, Bloomberg News reported, largely due to the budget.
Only 19% of the respondents to a YouGov poll believe the mini-budget was fair, while 57% of Britons think it was unfair. (The comparable figures for former Chancellor George Osborne’s “omnishambles” budget in 2012 was 32%, compared with 48%.) Only 15% of voters in general, and 28% of Tory voters, think it will improve growth rates. The latest YouGov poll gives the Labour Party a 17-point lead over the Tories, the biggest lead since the pollster entered the business in 2000.
This has shaken average Tory MPs to their cores. “Jittery,” “shell-shocked” and “panicky” are a few of the words being used to describe the mood, with alarm extending to the government itself as well as to the backbenches. Kwarteng has been holding meetings with MPs to calm their nerves. But his charm offensive was hardly helped by the International Monetary Fund’s statement on Tuesday chastising the government for its “large and untargeted fiscal packages” and warning that the moves could worsen the cost-of-living crisis. This is the sort of missive normally directed at emerging-market countries with dodgy governments, not the homeland of economist John Maynard Keynes, who had the idea for the IMF in the first place.
The Tory Party depends overwhelmingly on its reputation for economic competence. Now, Labour leader Keir Starmer isn’t only trying to steal their clothes, making economic competence the main theme of the party’s conference in Liverpool this week, but Kwarteng is giving him a helping hand. The Tories also like to think of themselves as the party of the homeowner.
But the mortgage market is in turmoil, with interest rates rising and lenders withdrawing their products from the market. First-time buyers will have to wait even longer before getting on the housing ladder; people on variable mortgages face steep rises in their repayments; and those on fixed-rate mortgages that run out soon will find it hard, if not impossible, to refinance.
Tory governments can afford to risk unpopular policies if they are cheered by the market, and they can even afford to annoy the markets if they are implementing popular policies, but Kwarteng has produced a rare double of policies, upsetting both the public and the markets.
MPs aren’t only worried by the basic conceit at the heart of the mini-budget — cutting taxes while also raising spending and therefore making yourself vulnerable to a rise in the cost of borrowing — but also by the cack-handed way it has been handled. The government failed to “roll the pitch” for a radical budget by laying out an intellectual case and a detailed plan of action. All it appeared to do was compile a bucket list of policies from free-market think tanks, shove them together in a single speech and unleash them on the world, with Kwarteng relying on swash and buckle to push the policy through and Truss on grit and determination. Uncapping bankers’ bonuses could have been buried under a pile of announcements about unleashing small businesses on Tyneside in the northeast; instead, the payouts looked like the centerpiece of the policy.
Truss loyalists like to argue that Margaret Thatcher and her Chancellor Nigel Lawson delivered a revolutionary tax-cutting and growth-boosting budget in 1986 and reaped generous political benefits. True, but this followed a long period of belt-tightening in which inflation was brought under control, government spending moderated, radicalism was tamed, structural reform was put in place and government coffers filled with the proceeds of privatization. Kwarteng’s dash for growth is occurring at a time of high inflation, unstable energy markets, tight labor conditions and a looming global recession.
Thatcher may have been difficult to deal with, but she surrounded herself with experienced colleagues and formidable civil servants. Truss is running a talent-light administration in the middle of one of the most serious economic crises in decades: She has consigned the two most impressive members of the last Cabinet, Rishi Sunak and Michael Gove, to the back benches and sacked the one senior Treasury official with experience of dealing with the 2008 financial crisis, Tom Scholar.
MPs are worried that worse is to come. The only way to restore fiscal discipline and market confidence will be to cut public spending soonish. (Kwarteng is already promising a zero-spending round, which, at a time of inflation, means the same thing.) Perhaps a spurt of growth will create well-paying jobs and fill the government’s coffers. But with the NHS already struggling and food banks busier than ever, MPs — particularly those in “red wall” seats in former Labour strongholds — are terrified that they will have to sell another round of austerity to their voters.

—Bloomberg

Adrian Wooldridge is the global business columnist for Bloomberg Opinion. A former writer at the Economist, he is author, most recently, of “The Aristocracy of Talent: How Meritocracy Made the Modern World.”

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