26 September 2022

Liz Truss Gambles on Thatcherism, But Reality Bites as the Pound Plummets

Lizz Truss’ first set-piece event demonstrated a seismic shift in the direction of a Conservative Party that had lost much of its identity over the previous decade. Now, tax cuts for the rich signal a new era of Thatcherism and the end of political empathy, writes Simon Benson.

It’s been a seismic couple of weeks in British politics. In a couple of days, the UK saw a new prime minister and a new head of state, followed by a mourning period for the late Queen Elizabeth II. Since the country has returned to politics, as usual, we have a clearer idea of the size of the political shift occurring under Prime Minister Liz Truss and her administration.

Under the previous three prime ministers, the Conservative Party had overseen a political patchwork of policies and ideas sown together according to immediate economic and political need, with some added zeitgeist thrown in for good measure. David Cameron removed the perception of the party as uncaring (a pre-PM Theresa May had lamented it as “the nasty party”). He introduced a raft of feel-good green initiatives ideally in tune with the times, unusual for a Westminster village that is often behind the public curve. He and Theresa May were austerity prime ministers, taking great care to promote drastic spending cuts as old-fashioned Tory thrift and sensible economic house-keeping. 

However, Cameron May and her successor Boris Johnson also presided over tax rises for the middle class with minimal redistribution to the working poor. The pandemic further exacerbated this. Taxes went up again under former Chancellor Rishi Sunak, along with spending rises that had not been seen in decades. George Osborne’s best friend – austerity – was thrown into the political dumper truck, with billions of pounds of money being plucked from the ether to fund the recovery, with no serious attempts at informing the public of where it would come from or how it will be repaid – precisely the sort of economic policy that Conservatives of old would attribute to the Labour Party.

Meanwhile, green initiatives, such as increasing the country’s renewable energy supply, continued to decline in importance after a perfect run of genuinely good policies. By the start of the summer, we had the extraordinary spectacle of a right-wing Conservative Party spending billions of uncosted taxpayers’ money on post-COVID recovery and supplies to Ukraine whilst hiking taxes that would hit their core vote – just as the energy crisis, inflation, interest rates and recession came galloping toward them like the four horsemen of the apocalypse.

Step into the fray, Liz Truss. Despite her apparent nerves and uncertainty when addressing the media, the new PM has not wasted any time showing an astonishingly confident and assertive divide between her and her predecessors. Instead of a patchwork of Tory party pieces from the years, she and her Chancellor have burnt the legacies of their predecessors to a crisp and presented an entirely new quilt, composed of hard-edged Thatcherism with trickle-down economics at their heart. The idea is that if you give the rich every opportunity possible, the wealth they generate will eventually reach the poor. In other words, no help for those that need it the most in society, but every bit of help the state can muster for those who already have everything.

At the centre of Chancellor Kwasi Kwarteng’s budget was a tax cut for those earning over £150,000 a year, as well as the scrapping of the rise in national insurance contributions (NICs), changes to stamp duty to make homeownership more affordable, and corporation tax rises. Opinions were extreme, with Martin Wolf from the FT writing: “it risks serious macroeconomic instability, the failure to ask the Office for Budget Responsibility to assess its impact is simply scandalous”; Larry Summers, former US Treasury Secretary, said: “Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time” and the left-wing Daily Mirror adding: “short of burning £50 notes in front of the poor, Kwarteng could not have delivered a more insulting budget”. Opinions were markedly different among Britain’s right-wing press, with Alex Bremner from the Daily Mail admiring its “boldness and courage” and Allister Heath from the Daily Telegraph saying: “this was the best budget I have ever heard. The tax cuts were so huge and bold, at times I had to pinch myself that I wasn’t dreaming”.

Interestingly, the FT’s Martin Wolf added, “This government may be indifferent to painful reality, but reality usually wins in the end”. On Monday, the new reality began to materialise, as the British pound collapsed in value as a response to the budget, briefly reaching its lowest ever value against the US dollar. Early market trading in Asia saw British assets dumped and the pound depreciates over fears that the government has essentially gambled the entire UK economy. The Labour Party while meeting for its annual conference, blamed the pound’s collapse on Truss and her team, but the government is sticking to its guns, saying the tax cuts will stimulate economic growth.

What more can we expect as we continue into this new era of nu-Thatcherism? On the economic front, it’s almost entirely likely that the Bank of England, facing the most overt political interference since it was made independent by Labour, will increase interest rates, thus making borrowing more expensive.

We know this won’t be a touchy-feely government that panders to interest groups from the left on the political front. Truss has set her tone as no-nonsense, challenging and disruptive. She’s also not afraid to be pragmatic, even when it means exposing her government to accusations of hypocrisy, especially concerning attracting back to the UK the migrant Labour left after Brexit. Her astonishing policy seems to be to risk everything for immediate economic gains whilst storing up numerous political problems for the future; the policy of coaxing back Eastern Europeans is likely to enrage hard Brexiteers whilst simultaneously upsetting remainers who blame perceptions about immigration as the main reason for losing the referendum, leaving both camps with the worst of all worlds and wondering what the point was.

Despite his high-spending reputation, Rishi Sunak, Truss’ eventual rival in the final round of the Conservative leadership election, was not precisely Karl Marx. Still, he did at least have the tone of someone who cared about ordinary working people and, to some extent, the policies to match it. Liz Truss is presenting herself as someone who would have fired Margaret Thatcher for being too weak and compassionate. She led the UK on a wild ride into the unknown and started its biggest economic gamble since the 1980s. The results will be either a staggeringly brave success or, as the FT put it, a “painful reality”. Whichever happens, judging by the tone of her government and the early policies we have seen, the wealthy stand to make even more money while the underclass poor have largely been forgotten.

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