Winter is coming. Nothing happened this summer; and that matters a lot. By nothing, I mean the Conservative leadership contest. No disrespect to the various organisations and individuals who hosted hustings, but really. It was perfectly obvious as the Commons broke up in July that Liz Truss would beat Rishi Sunak.
Since then, there have been a lot of fruity words involving wounded stoats, fantasy economics and much else. Meanwhile, we’ve had a paralysed, absent-without-leave government, with no evident new thinking or policy – and a Truss lead that hasn’t moved. (I’m writing this, of course, before the result is in. Should Sunak in fact win, then I, like all other commentators, may not be available to apologise next week: I will be lying flat on my back laughing too hard to do any work.)
The nothing of the contest mattered because of what was happening in the real world outside it – the vaulting, dizzying news on energy bills and the inflation tearing through the economy. Truss and Sunak were talking to a tiny, wildly unrepresentative group of people about tax cuts and the beastliness of foreigners. Most of us were experiencing quite intense anxiety about the condition of this parched and crumbling archipelago.
Small wonder that slightly over half of the electorate want a general election this year, as soon as the new prime minister is in place, according to the pollster Ipsos. There are big choices to be made, and they should be made democratically. Fat chance.
The result is that we now have a political paradox that will define the next two-and-a-bit years: one of the most right-wing governments in a century – expected to comprise free-market ideologues and staunch Brexiteers – at a time when the mood of the country is moving sharply left.
Why do I call it the “most right-wing”? Truss’s insistence that she will prioritise tax cuts ahead of “hand-outs” is a brutal and, I think, unsustainable choice. Sunak’s team calls it regressive and flawed, with little or no help for lower-income families. Writing in last week’s New Statesman, Duncan Weldon pointed out that the cut in National Insurance would give a monthly benefit of just 76p to the poorest.
Unless Truss is deliberately misleading the Tory membership, that’s where we are heading. There is a kind of bleak honesty about it. Truss says her tax-cutting policies will not be inflationary, nor damage services. Well, soon enough, we’ll see. She thinks they’ll produce a growth spurt, which will ease the crisis quickly – even as tens of thousands of small businesses face bankruptcy by energy bill. Well, again, let’s see.
But the politics, unless there is a U-turn, is profoundly dangerous. Whether it’s the National Insurance cut, income tax basic rate or thresholds, the planned emergency Budget so far seems to leave out the people most in need and provide too little for the rest. Paul Johnson, who runs the Institute for Fiscal Studies, has said Truss’s plans would “completely crash the public finances”. Others disagree. Of course, we are all against politicians lying. But in this case, I hope Truss will not be true to her word.
Clearly, she is quite right that we need more growth. In the medium term, fiscal policy is a perfectly reasonable tool to achieve it – though it is only one of many. But Britain faces an emergency – a social and political emergency, as well as an economic one. And unless you accept that for everyone to refuse to pay their bills is a form of “deregulation” (I suppose, literally, it is), then what’s the tax-cutting, deregulatory, free-market answer to an emergency that hits the poor first and hardest? There isn’t one.
But this time, of course, it isn’t just the poor. Relatively affluent voters are going to have to cut discretionary spending dramatically to pay their energy bills. Nadhim Zahawi, the current Chancellor, has said that middle earners such as senior nurses or teachers on £45,000 a year will find it hard to pay their bills. Middle Britain will notice all the local businesses going under. Pub owners have been particularly vocal as they are asked to pay huge up-front bills. There’s been a lot of talk about “energy intensive” businesses but in the modern economy it’s quite hard to think of ones that aren’t. Growers of tomatoes, poultry farmers, breweries, swimming pools, steel manufacturers, producers of electric batteries, cement-makers, engineering firms… This, my friends, is a one-crisis-fits-all moment.
Is it shifting the mood, however, to the extent that the country is moving leftwards? A subjective judgement, of course. But there is a fair amount of evidence to back it up: polls show half of Tory voters (and three-quarters of Labour ones) are in favour of the nationalisation of energy companies; almost half the country supports striking rail workers; and Labour leads by up to 15 per cent. Politically, the weather has changed.
[See also: Is Keir Starmer ready to take on Liz Truss?]
There are other forces at play. The pandemic reminded us of the value of a strong state. War in Europe rams it home. So do failures in privatised natural monopolies such as water. But the ideological battle ahead is going to be ferocious. The real battle, and the only battle we will notice, now happens in the Treasury. Both Iain Duncan Smith, the former Tory leader, and John Redwood are tipped for jobs there. Both are hardcore: both have argued in the past for the state to be shrunk. Both are passionate critics of the Bank of England and its failure to get a grip on inflation earlier. (Though it will be interesting to learn how many Conservatives will cheer the rising interest rates necessary to do that.)
Let me sum up. Unless Liz Truss reneges on her core promises, we should prepare for a sensational political confrontation involving a tax-cutting, small-state, free-market government at a time of economic meltdown.
Looking at the price rises ahead – and the effect on millions of Britons and a swathe of economic activity – it has become obvious that a radical emergency approach is the only one that might succeed. That means, as Labour demands, capping energy prices. Better still, base this on a social tariff to help those on low incomes, as the Resolution Foundation has suggested.
Further, it means tearing up the present regulatory system, which makes soaring gas prices the benchmark for electricity generally, even though nuclear, wind and hydro are much cheaper. This radical intervention in the market is recommended by leftish economists such as Richard Murphy, who founded the Tax Justice Network. It would be loathed by the energy companies who are touting a system under which taxpayers would subsidise their profits in the longer term, but whose economic model is effectively now broken. A similar radical market intervention is being actively discussed across the European Union – which, come to think of it, probably rules it out as a runner in any Truss government.
The emergency approach means confronting the big corporate players and another huge round of state borrowing. Here is where the Treasury could lean on the Bank of England for support – except, of course, the new prime minister and her allies have gone out of their way to make an enemy of the Bank, alongside the BBC, the French president and many others.
But what is so dangerous that it’s worth going so far down an emergency politics road? In short, social breakdown. The British are a famously phlegmatic people. They moan but they don’t riot. They pay their bills, shuffle along in queues cheerfully enough, willingly work long hours and resolve the worst challenges with a cup of tea rather than a Molotov cocktail. But we may be about to discover that even the British can be pushed too far.
We remember the late 1970s now for the unsettling inflation, rolling strikes and the piled-up, rat-infested rubbish. (Would-be time-tourists are cordially invited to visit Edinburgh, or other Scottish cities where refuse workers are striking, right now. For those among us of a certain age, the smells are very nostalgic.) But more than that, the late 1970s became politically notorious for the sense that civilised conduct was teetering on a window-ledge; that a national breakdown in behaviour was drawing near.
Many people feel the same right now. A condition of pallid, spotty goth gloom is as unappealing in columnists as anyone else. And as somebody who has spent the summer observing friendly, peaceable people enjoying themselves in parks and pubs, and who has even swum repeatedly in the Devon sea without a glimpse of a turd, I’m reluctant to be what a previous prime minister – can’t remember his name – would call a gloomster.
All of which said, those numbers are horrible. People who can’t eat properly and can’t keep themselves warm are liable to do unpredictable things. Paul Goodman, the former Tory MP and editor of ConservativeHome, says Liz Truss is “about to vanish into an economic blizzard”. The financial journalist Martin Lewis predicts a “portentous national cataclysm”. Stephen Crabb, the Welsh Tory MP and former cabinet minister, fears that there will be “a social and economic catastrophe” over the next few months.
And so, finally, cards on the table. I would expect Prime Minister Truss – leading a divided party, with no national mandate of her own, and surrounded by evidence of a breakdown more multifaceted and harder to resolve than the one following the financial crisis in 2008 – to drastically reduce her promised tax-cut agenda and to go for a wide and generous programme of emergency support for families and businesses.
It would be ridiculous to imagine that a right-wing Conservative government would take advice from the New Statesman. But if she does something like this, Truss gives her administration a fighting chance. If she doesn’t, they are charging towards political disaster (absolutely fine) while dragging the rest of us down too (not absolutely fine). Is it “talking the country down” to mention once more, very gently, that winter is coming?
This article appears in the 31 Aug 2022 issue of the New Statesman, The Liz Truss Doctrine