The late Queen’s last state act in seven decades of many state acts was to ask Liz Truss to (re)form a Conservative government. While Boris managed to have a high international profile (and not always for the right reasons), Liz is a relative unknown—despite having been a government minister for seven years, lastly as Foreign Secretary.
As Britain’s third femaie Prime Minister and with a third of her Cabinet women, the gender factor is not unusual. But being first PM not to have been educated at a private school. In contrast to Boris’ ebullience, Truss has a dead-pan delivery. Having first pursued a successful business career in both Shell and Cable & Wireless., her right-wing stance comes as no surprise. But her belief in a reincarnated Reaganomics—that the economy can be boosted by cutting taxes, so that a “trickle-down” effect would grow the economy and so aid the poor too—is extreme, even by the standards of the Tory party.
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Despite 12 years of Tory governments, in which she played a role, she portrays her administration as if it were an entirely different party taking power for the first time. As if to seal this image, a “mini-budget” by her new Chancellor Kwasi Kwarteng was in fact bigger and more radical than most full budgets.
It was radical, announcing a programme of support against soaring energy bills larger than the huge support given during Covid and applying £45bn in tax cuts to “stimulate the economy into 2.5% annual growth”. This may have gone down with tax-cutting advocate Brexiteers like Jacob Rees-Mogg and John Redwood. But the resulting furore blew the Truss/Kwarteng package off course within a week.
Though energy bill support and general lowering of taxes found broad support, three elements seem poorly considered as they have received pelters from even Tory ex-ministers. These are:
- Scrapping of the highest income bracket of 45% for income over £150,000. This went down like a lead balloon, even among the 600,000 taxpayers who would benefit. The furore of being “the party for the rich” grew so load, it was itself scrapped in the middle of the party conference.
- Removal of the cap on bankers’ bonuses, with the argument that the City’s financial centre was key to driving growth in wealth
- No indication, other than the implication of government borrowing—how the fiscal shortfall of £150 billion would be financed.
The first two points were a gift to opposition parties and media, who queued up to lambast Truss’ government as one for the rich. But more lasting and deeper damage to credibility was done by the last. Exacerbated by hints from Kwarteng over the following weekend that more was to come, Monday September 26th threw London markets into turmoil. Not only did the £ sterling dip to $1.03 from an already depressed £1.12, but bond prices sank, doubling yields past 5%, triggering margin calls on major pensions funds, which had to sell even more bonds to cover them. This depressed prices further in a fatal spiral that was only halted by intervention by the Bank of England investing over £60 billion and raising interest rates to 2.25% to steady the markets.