Liz Truss entered office with the most unashamed ideological agenda of any prime minister in recent history. For decades, she complained, politicians had obsessed over income distribution at the expense of wealth creation. Ms Truss vowed to unleash the latter through radical tax cuts and deregulation. Critics were contemptuously dismissed as part of an “anti-growth coalition”.
The Prime Minister was not alone in her delusions. Kwasi Kwarteng’s mini-Budget was rapturously received by the right-wing press and libertarian commentators as the best statement a Tory chancellor had ever delivered. But others – long before financial markets revolted – were more sceptical. In a leader published the week Ms Truss became prime minister, we warned that her proposed tax cuts represented “a solution in search of a problem” and that she was “temperamentally ill-suited to these times”.
And so it proved. In recent Western history, there is no major economic experiment that has imploded so swiftly as Ms Truss’s. Faced with a revolt by the markets, voters and her own MPs, she has been forced to discard most of the measures included in the mini-Budget. Jeremy Hunt, a purveyor of what Ms Truss derided as “Treasury orthodoxy”, is now not only chancellor but prime minister in all but name. The Conservative Party, an intellectually and politically exhausted outfit, has begun the search for its fourth leader in six years. It has had four chancellors since July.
[See also: A bonfire of delusions]
It is tempting to ascribe much of the blame to Ms Truss. She is a comically poor communicator who appointed a mediocre and ideologically narrow cabinet. But Ms Truss was merely the useful idiot of greater forces. For decades, a phalanx of free-market commentators and think tanks – the Institute of Economic Affairs, the Centre for Policy Studies, the Adam Smith Institute – have relentlessly advocated libertarian policies as the cure for the UK’s ills. For them, the election of Ms Truss, buttressed by a 72-seat Tory majority, was a moment of ideological triumph.
But it took mere weeks for their fantasies to collide with reality. There is no desire among the public, as we have long noted, for a free-market revolution. The day before Mr Kwarteng’s mini-Budget, the British Social Attitudes survey revealed that a mere 6 per cent of voters favour a combination of tax cuts and spending cuts. In a new era of permanent crisis, the public want an active state that protects them against economic shocks.
It was similarly unsurprising that the markets took fright at Ms Truss’s programme. Though she insisted that her unfunded tax cuts would be paid for through higher economic growth, there was never any reason to believe this would be the case. Recent tax reductions, such as the cut in corporation tax from 28 per cent to 19 per cent, have not triggered a wave of investment. The markets rightly feared that Ms Truss’s £45bn tax cuts would cause higher inflation – and higher interest rates – without the consolation of higher growth.
[See also: The death of global Britain]
Libertarians are seeking to rewrite the narrative by complaining, in the manner of communists, that their ideas have never been properly tried. Ms Truss’s error, they now say, was not to announce a new programme of spending cuts alongside her tax cuts. Yet this only confirms their detachment from reality.
After a decade of austerity, there are few politically or morally palatable cuts left to make. In its annual review of the major public services, published on 17 October, the Institute for Government warned: “There is no meaningful ‘fat’ to trim from public service budgets.” Proposed cuts, such as refusing to uprate benefits in line with inflation (which would reduce out-of-work support to its lowest real-terms level since 1983-84), have been rejected by prominent Tory MPs such as Michael Gove and Robert Halfon. Higher taxation of the wealthy and of profitable companies is a far more progressive and sustainable means of deficit reduction.
Rather than the new era of growth promised by Ms Truss, the UK now faces stagnation and a return to austerity. Just as the 1976 International Monetary Fund bailout represented the defeat of postwar Keynesianism, so this moment should be remembered as a bonfire of free-market delusions. True ideologues never retreat – but those who follow Ms Truss deserve to be haunted by the memory of this abject humiliation.
[See also: A bonfire of delusions]
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This article appears in the 19 Oct 2022 issue of the New Statesman, State of Emergency