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30 September 2022

Faced with economic reality, Liz Truss insists it’s everyone else who is wrong

If only markets understood the very clever pro-growth plan, none of this would have happened.

By Rachel Cunliffe

There’s a Simpsons meme that crops up on social media with predictable regularity. “Am I out of touch?” wonders the uncharacteristically pensive Principal Skinner, before reassuring himself, “No, it’s the children who are wrong.” It tends to do the rounds every time a politician or organisation gets into hot water and decides to double down, blaming the people complaining rather than accepting any responsibility for whatever the scandal is.

Liz Truss and her team are facing more than a run-of-the-mill scandal. The “mini-Budget” announced on 23 September has triggered economic calamity: financial markets balked at billions of unfunded tax cuts, the pound promptly plummeted to a record low against the dollar, and gilt yields – which determine the cost of servicing government debt – rose as global investors lost confidence in the UK economy. Mortgage providers also faced a sharp rise in the cost of borrowing which led them to hike their rates and withdraw products altogether, threatening another housing crisis in the near future. As investors rushed to offload UK gilts, pension funds scrambled for liquidity and the Bank of England was forced to step in with a £65bn bond-buying programme. 

Voters are similarly disenchanted. Three polls in quick succession have shown Labour 17 points ahead of the Tories – the most recent, with the field work done on 29 September, puts it at 33. That’s the largest lead by any party since the 1990s.

A reaction half as dramatic as this would normally result in a hasty government U-turn – think the ill-fated “pasty tax” of David Cameron and George Osborne in 2012, Theresa May’s “dementia tax” reversal, or Boris Johnson hurriedly changing his mind on preventing hungry pupils from having free meals during school holidays. The aim is usually to make the unpopular policy go away as quickly as possible and pretend it was never really policy at all.

Truss has done the opposite. Faced with the reality that businesses and voters both think the free-market medicine she and Kwasi Kwarteng are ramming down the country’s throat is economic insanity, they are doubling down. The culprit of this week’s meltdown, they insist, is not the £45bn tax-cutting package that, along with the energy bill bailout, will see UK borrowing balloon to unprecedented levels. Maybe, some Truss allies are arguing hopefully, the economic turmoil has nothing to do with the mini-Budget at all, and is instead the result of global forces or even (however deranged it may sound) of markets being spooked by the apparently terrifying prospect of a Labour government. And for those who can’t ignore the fact that the chaos coincidentally started immediately after last Friday’s fiscal statement, the issue is not the policy but the communication of it. If only “markets fully understood” the very clever pro-growth plan, none of this would have happened.

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[See also: Underestimate local radio at your peril, Liz Truss]

In other words: Truss and Kwarteng are definitely not out of touch in their desire to hand out tax cuts to the very richest at a time of rising inflation, and when spending on benefits and public services is being slashed in real terms; it’s the markets that are wrong. And because it’s not their fault, there will be no U-turn – no matter how low sterling drops or what the International Monetary Fund warns or whether the Bank of England has to intervene, and (presumably) irrespective of how voters feel.

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We’ve seen this kind of bunker mentality before, from those pushing a very different political project. When Jeremy Corbyn was leading Labour, he and his team were just as ideologically committed to their plan for a state-led overhaul of the British economy as Truss is to her free-market dogma. Where Truss has focused her uncosted spending splurge on tax cuts and shrinking the state, Corbyn promised a programme of mass renationalisation and state intervention based on figures that few mainstream economists found plausible. The individual polices might have polled well, but the overall package was widely discredited. Yet criticisms were brushed aside on the basis that they came from a hostile media or those too invested in the status quo to understand the genius of the plans on offer; attempts within Labour to move the party onto slightly more credible ground were characterised as attacks and betrayals.

The Corbyn project ended in December 2019 with Labour’s worst defeat in nearly a century. The weekend after the election, the Labour leader wrote an article in the Guardian with a headline beginning, “We won the argument,” continuing: “There is no doubt that our policies are popular.” He wasn’t out of touch; it was the voters who had been wrong.

The delusions of Corbyn and his team that their economic course was the right one, regardless of what businesses warned or how voters felt, ultimately only hurt the Labour Party. Right now, the delusions of Truss and Kwarteng – who never had to win an election to enact their fiscal fantasies – are damaging the entire country. The tax cuts for the 1 per cent may not kick in until April, but already homeowners are facing higher mortgage rates that will cancel out the energy bill support; imports will be a lot more expensive thanks to the sinking pound; and the UK’s economic credibility in global markets has been comprehensively trashed – all against a backdrop of spiralling inflation that will hurt wages, public services and benefits alike. Even if the markets did misunderstand the clever growth plan being put into action, the reality is that life for the vast majority of people in this country is about to get worse.

A prime minister who cannot see that, who insists her government has the intellectual high ground yet has no answers when asked basic questions on borrowing or mortgage rates, has no place being prime minister at all.

There’s another meme that goes around Twitter even more often than the Simpsons one: a smiling dog sitting in a house that’s on fire, blithely insisting “this is fine”. Political commentators use it so frequently it’s become a bit of a cliché. But looking at the smouldering embers of the UK economy a week after Trussonomics was launched, it’s hard to think of a more apt illustration of where we are now.

[See also: Can Liz Truss survive?]

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