Dead on arrival: The Truss and Trussonomics experiment is almost over
Things have been turbulent in the UK since the 2016 “Brexit” vote to leave the European Union – but the upheaval of the last six weeks may be among the most volatile episodes in modern British politics.
A recap. Newly installed Conservative PM Liz Truss introduced a tax cut plan last month – aka Trussonomics – to try to stimulate Britain’s inflation-ridden economy through a trickle-down effect by pushing for £45 billion ($50 billion) of tax cuts. But she failed to convince voters, markets, and even her own party that it could be paid for or succeed in addressing the cost-of-living crisis. Market turmoil and widespread criticism ensued.
In response, Truss backtracked on the corporate tax cuts and then, on Friday, sacrificed longtime ally and political soulmate, UK Chancellor Kwasi Kwarteng. She replaced him with Jeremy Hunt, a Conservative centrist who is the fourth person to take on this role since July. Importantly, on Monday, Hunt scrapped nearly all of Truss's mini-budget that sparked the recent chaos, causing the pound to rise slightly against the US dollar.
While the opposition smells blood and Conservative support is plummeting, the chaos has also invited international criticism. US President Joe Biden openly called Truss’s plan a mistake on Sunday. The UK is also becoming the butt of jokes cracked publicly by world leaders.
Indeed, Truss’s go-it-alone policy-making – she failed to consult the independent watchdog that scrutinizes fiscal plans – and sloppy u-turns have triggered the beginnings of a mutiny in the Conservative benches. Less than two months into a tenure that started with the removal of former PM Boris Johnson, the days of Truss’s prime ministership appear to be numbered.
Goodwill Hunting. While Truss and the Conservative Party hemorrhage support, the new chancellor of the exchequer, Jeremy Hunt, said he supported Truss's premiership despite some policy differences. But his reversal of nearly all of her planned tax cuts (excluding those already put into place) and ditching of her scheme to cap energy prices for a full two years, is indeed a humiliating development for the new PM.
Hunt is in the hot seat. While some have praised the moderate, anti-Brexit “remainer” now running the exchequer from No. 11 Downing Street, critics point out that Hunt didn’t do well during the last Tory leadership contest. Also, while he eventually endorsed Rishi Sunak in that race, Hunt himself had supported higher corporate tax cuts than Truss. As the former health secretary, his performance in getting the UK pandemic-ready also fell short.
Money moves. Hunt seems to be quickly moving towards orthodoxy. Within 48 hours of assuming office, he warned that taxes could rise and that government spending would shrink. But he also referred to a “compassionate” Conservative government that wouldn’t implement the type of austerity measures seen back in 2010.
Though Goldman Sachs downgraded its economic growth outlook for the UK on Sunday, yields on long-dated gilts (UK government bonds) fell during Hunt's address Monday, while the pound rose 0.9% against the US dollar. Markets seemed to respond positively to his announcement that the universal cap on energy prices, set to cost £80bn ($90 bn), would be lifted in April and would only target poor Britons thereafter.
Can Truss hang on? Letters of no confidence are reportedly already being filed against Truss by MPs. But Mujtaba Rahman, Eurasia Group’s lead Europe analyst, says removing Truss will be difficult. “Although MPs are openly talking about finding a way of replacing Truss without again involving the 160,000-strong party membership [for intra-party elections], this will not be easy,” he says.
Like last summer, there is likely to be disagreement on who should take the helm. “Some Truss supporters, and allies of Boris Johnson, will try to block a return to power by Rishi Sunak,” Rahman explains.
Some MPs, Rahman says, think Truss will be forced out before the end of the month. The consensus is that her performance will now accelerate the talks among senior Tories for agreement on a “unity candidate.” But the party rules for choosing a PM would have to be rewritten to raise the threshold a candidate would need to reach to be in the running. Likely candidates, Rahman says, are Rishi Sunak, the former Chancellor, and Penny Mordaunt, the Commons leader.
While many fear that appointing yet another Tory leader will make the party look ridiculous, “the growing view at Westminster,” says Rahman, “is that that might be a better alternative to holding on to a Prime Minister who has palpably failed to achieve the ‘mission’ on which she set out.”
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