LONDON — She’s the breed of prime minister the Tory right has long wanted and she’s aiming for a big bet to show hers is a winning formula.
After a heated summer leadership race dominated by a debate over tax cuts, Liz Truss’ new chancellor, Kwasi Kwarteng, will present an economic plan on Friday that is supposed to reverse a tax hike on workers and their employers and put a hike corporate tax on the ice. Truss’ mission, according to his team, is all about growth.
This so-called mini-budget is anything but mini, with the Bank of England warning on Thursday that the UK economy could already be in recession and voters are feeling the pinch of inflation, energy costs and the rise in interest rates.
Truss is betting his premiership on nice tax cuts. “Lower taxes lead to economic growth, there’s no doubt about that in my mind,” she told reporters as she traveled to New York earlier this week.
Truss supporters, such as John Redwood, argue that the £30-40billion tax cuts she advocated in her leadership campaign were “reasonable”, citing the need to “offset the very big blow to the real income that people have suffered because of inflation”. .”
But with a general election expected in 2024, Truss doesn’t have much time. Unlike her predecessor, Boris Johnson, she is not a proven election winner with a loyal fan base. More of her fellow MPs initially backed her main rival Rishi Sunak, her margin of victory among the rank and file was less than expected and she let her political rivals ramble on by largely appointing loyalists to the top posts. of his new government.
“I suspect many Tory MPs will be prepared to sack her immediately if the economy does not turn around quickly,” said a former cabinet minister, so far overlooked in the recent reshuffle.
While most Tories are willing to give their new leader a chance, many will see the markets as Truss’ premier barometer.
“[The market response] could go wrong very quickly. It’s the public who I think are most likely to limit what they do, rather than public opinion or Conservative parliamentary opinion,” says David Gauke, former chief secretary to the Treasury under Theresa May. .
There is some apprehension on the part of some conservatives about what they see as a “huge gamble” taken by Truss, Gauke said. But Truss is “probably able to take that gamble,” he added, pointing out that she had been pretty explicit about her plans and values during the leadership campaign.
He warned that a decision to exclude the Office of Budget Responsibility, the government’s budget watchdog, from the budget process could “undermine confidence”.
Others agreed that Truss’ window of opportunity to consolidate his position is small. “You are all-powerful at first, but the power can run out very quickly, and you can become a prisoner of your own benches very quickly,” a former government adviser warned.
It’s the economy, silly
The new Prime Minister will certainly face a lot of criticism.
His supporters’ insistence that “Treasury orthodoxy” is holding Britain back, underscored by the sacking of the Treasury’s top civil servant, Tom Scholar, has already turned the heat on. While this narrative may play well with right-wing Truss supporters, it risks spooking markets.
“[Markets] basically need to know that politicians feel constrained by the need to have a lasting position, and I’m sure [Kwarteng] will say that,” said Torsten Bell, chief executive of the Resolution Foundation, a center-left think tank.
“If we’re really arguing that our growth strategy is to borrow a lot more, then that will pay off, then they don’t believe that, and they’re right, and then they would start asking questions,” he said. declared. .
“You don’t want to be seen as the only country that everyone sees as a bad bet,” he added.
The OBR chief made it clear he had offered to provide a “less comprehensive” analysis of the economy in time for Friday’s snap announcement, but the Truss government refused. They insist the government will stick to the usual two forecasts, with a full budget due later this year.
Critics are also skeptical of Truss’ plans due to the UK’s wider economic prospects, including his departure from the European Union.
Former Sainsbury’s chief executive Justin King told ITV on Wednesday that the low levels of investment were due to the UK becoming “less attractive internationally for many reasons, including Brexit”.
However, others argue that voters can be more lenient.
“Economic conditions don’t need to be amazing, they just need to have a sense of improvement and then, importantly, a plan for the next phase,” said James Johnson, a former No.10 pollster. who now runs his own company JL Partners.
Friday’s statement will be “less about the ins and outs of specific details,” he said, and “more about movement and leadership.”
“Whether [No. 10] can come out of that feeling that they’ve shown she understands, not necessarily in terms of values, but in terms of “she’s taking action to do something and taking action to do what she thinks is right to resolve the crisis”, so I think voters will give them the benefit of the doubt,” he said.
But he warned voters were worried about where the money for the tax cuts would come from – a question Kwarteng will have to answer.
As another pessimistic MP put it: “Keeping people from losing more money will never be a way to win in the polls, but the bottom line is very, very far from where we are now.