The curious case of Liz Truss

Written By: - Date published: 6:57 am, January 17th, 2023 - 34 comments
Categories: Austerity, Brexit, Financial markets, uk politics - Tags: , , , , ,

Originally published on Nick Kelly’s blog The premiership of Liz Truss will be remembered for many years to come. She will be remembered as being the shortest-serving former UK prime minister (for now), resigning after seven weeks. It will be remembered that only two days after going to Balmoral to meet the monarch, Queen Elizabeth II passed away having served 70 years on the throne, making Truss her 15th and final PM. People will also remember the Truss premiership for plunging already bad Conservative Party polling numbers down to record lows, giving the opposition Labour Party an unprecedented 30% lead. But the main thing her seven weeks as Prime Minister will be remembered for – destroying the longstanding myth that the Conservative Party are good at managing the economy.

As outlined in a post earlier this year in a global economic crisis, governments, in the short term at least, are limited in what they can do to remedy the situation. However, the one thing governments can certainly do is not make the situation worse. In this Liz Truss and former Chancellor Kwasi Kwarteng failed spectacularly.

The now infamous ‘mini budget’ or “Growth Plan” of 23 September 2022 caused the pound to hit an all-time low against the US dollar, and force the Bank of England to intervene to prevent chaotic drops in gilts prices from stinging pension funds and threatening financial stability. How on did the UK’s natural party of government, the party of sound money and fiscal responsibility manage to get it all so badly wrong? And so quickly?

Since 2008, as pointed out in my last blog post, right-of-centre governments have stepped back from full Thatcherite free market policies due to the fact that these policies directly resulted in the crisis of the last decade. Whilst free market and trickle-down economics may no longer be electorally viable, there remain many true believers in the small government crusade.

The decline and fall of Boris Johnson as PM was entirely of his own making and had been on the cards for some time. During the period, the disquiet within the Conservative Party was not so much over “Party-Gate” but the increase in taxes, namely National Insurance, to keep their manifesto commitment to fund social care, a policy area where previous governments have failed to grasp the nettle. Tory Party members were furious that a Conservative Government had raised taxes, and former Chancellor Rishi Sunak was in their eyes to blame. Enter Liz Truss.

Truss, on becoming Foreign Secretary in early 2022, began doing these strange photos where she was imitating former Tory Prime Minister Margaret Thatcher. This Thatcher cosplay was matched by sound-bite rhetoric about free markets and individualism. This really played to the home crowd with supporters in the Tory Party claiming “in Liz we Truss.”

Warnings from former Chancellor Sunak that the programme announced by Liz Truss when running for leader would make the economic situation worse were ignored by the party membership. In Liz they Trussed, in early September she became Conservative Party leader and Prime Minister.

A decade before coming to power, a group of right-leaning Tory MPs authored a book titled Britannia Unchained, a treatise, arguing that Britain should adopt a different and radical approach to business and economics or risk “an inevitable slide into mediocrity.” These MPs belonged to the Conservative Party ‘Free Enterprise’ group and included Liz Truss and the person a decade later she was to appoint as Chancellor, Kwasi Kwarteng.

In a later attempt to shift the blame to former Prime Minister Liz Truss for what happened, claiming he warned her the government were moving too fast. Kwarteng has not yet apologised for his mini budget on 23 September or the catastrophic fallout. In fact, his frustration seems more with the fact that Truss ended up sacking him, not long before being forced to resign herself. The truth is, the throwing caution to the wind approach of slashing taxes, removing restrictions on banker bonuses, and slashing other regulations such as IR35 were all consistent with what he and Truss had argued in Britannia Unchained a decade earlier. And these ideas found favour with the Conservative Party membership – with the idealised view of Thatcher’s vision of small government, deregulation and low taxation. For the general public, this was not so much ‘Britannia Unchained’ as ‘Libertarians Unhinged.’

Where this mini-budget really hit the rocks, especially with the financial markets, was the unfunded tax cuts and spending increases. The Tories, having implemented austerity policies during their first term in office with the Lib Dems, found out the hard way that underfunding the Police or the NHS was simply not an option. The 2017 election where they lost their overall majority, and Corbyn’s Labour had an unexpected surge in support largely due to increased turnout by young voters, was largely due to an anti-austerity backlash. In Kwarteng’s mini-budget, the solution was that the government borrow to pay for tax cuts and spending increases. The former Chancellor argued that cutting taxes and red tape this would stimulate economic growth meaning the government would soon be able to repay the debt.

Many were surprised to see financial markets react to a right-wing Tory budget in this way. Threats of capital withdrawal and other measures are not uncommon when centre-left governments try to implement their agenda. Yet here we had a right-wing budget and the market responded badly. One issue was that Truss and Kwarteng completely ignored the Office for Budget Responsibility before preparing the mini-budget. This office was set up by former Conservative Chancellor George Osborne, in response to his claims that Labour had acted financially irresponsibly when in power. This office was designed to be a check and balance for the left, yet it was the right who fell foul of it. One of Britain’s key selling points is that is a rules-based economy. By not consulting the OBR before the mini-budget, Truss and Kwarteng damaged Britain’s brand.

Cutting taxes at a time of high inflation is not a terribly smart move as it will drive up inflation further. Borrowing money to cut taxes and increase spending is what the Government in Greece did prior to the 2008 financial crash, with devastating consequences. Add both of these to a world economy struggling in the wake of the pandemic and the Russian invasion of Ukraine, it is no surprise that the markets reacted as they did.

Within days, Truss was forced to sack Kwarteng and announce a U-turn on the mini-budget, to much tormenting that “the lady is for turning” with reference to Margaret Thatcher’s famous quote. Within 44 days of becoming Prime Minister, Truss announced her resignation, having days earlier replaced her friend Kwazi Kwarteng with Jeremy Hunt as Chancellor and almost all measures in the mini-budget had to be reversed.

It was would easy to blame Truss and Kwarteng for this specular failure. Many have cited her shocking performances in the media as why ultimately she resigned and question how someone got to the highest level of public office when so clearly unable to perform. Leadership qualities play a significant role, and in modern politics media presentation is critical. But this was not a problem of style and presentation alone, as abysmal as this was under the Truss premiership.

The initial reaction to the Mini Budget in September was very positive from many in the Conservative Party and their cheerleaders in the tabloid media.

Front page of The Daily Mail in response to Kwazi Kwarteng’s mini-budget

For Tory Party members and Daily Mail readers, this was the budget they had been waiting for. Far from being a surprise, the mini-budget was implementing not just the promises of Truss’s leadership campaign, but the wishes of many rank-and-file Conservatives. After enduring Sunak’s National Insurance increase the free market wing of the party finally had their way, at last, a true Tory budget. Never mind Britannia Unchained, this was Conservative Party unleashed.

The ‘get Brexit done/anti-Jeremy Corbyn’ coalition that won the Conservatives the 2019 election now finds itself in tatters. Not only were so-called red wall voters from the North East of England put off by the return of trickle-down economics, but polls show that large swaths of traditionally Conservative voting south of England were also in despair. Within the Conservative Party, those who still subscribed to Edmund Burke’s view that no “generation should be arrogant enough as to only think of themselves” and that borrowing for tax cuts would harm future generations, found themselves in the minority. In fact, the enduring influence of one-nation conservatism made popular by Benjamin Disraeli, of pragmatism and paternalism was replaced with an unwavering belief in small government and the market.

That Conservative MPs managed to avoid another membership ballot and Rishi Sunak replacing Liz Trus is the topic of the next blog post. Needless to say Conservative MPs, many from Constituencies once considered save tory, are now terrified by recent polls. Allowing the party membership a say risked a further dose of trickle-down right-wing economics, making the Tories unelectable for a long time. It was the party members who supported Truss, while in the first round, only 50 backed Truss for leader, though other candidates who had MP backing early on also espoused not dissimilar economic views.

Some who supported Truss may now have reflected on what happened and perhaps realise that these policies not only do not work, but electorally they are poison. But many on the right will blame it on Truss, her leadership style and the speed with which she tried to implement the reforms. In many ways, the fact that the mini-budget changes were done quickly and communicated poorly was a good thing, as it meant these policies were reversed quickly. A more media-savvy and gradual implementation would have done more harm in the long term. It is no accident that since 2008, free market trickle-down economics has been out of fashion. The Truss premiership has been a timely reminder that these policies do not work and should not be tried again.

34 comments on “The curious case of Liz Truss ”

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  1. Tony Veitch 1
    17 January 2023 at 7:33 am

    there remain many true believers in the small government crusade.

    Christopher Luxon and David Seymour, to name two local examples.

    Plus all exploiters of other (bottom-feeders) people both here and elsewhere.

    Small government means few regulations and lax enforcement – an exploiters wet dream.

    • Bearded Git 1.1
      17 January 2023 at 8:03 am

      With the Granny Herald doing a passable imitation of the Daily Mail.

      • tc 1.1.1
        17 January 2023 at 11:45 am

        Stuff must be feeling left out but with Damien grant, brook Sabin, Pagani, Dunne, prebble etc I'm sure they'll be competitive in this election year of spin.

        • Mike the Lefty 1.1.1.1
          17 January 2023 at 8:10 pm

          While the election campaign is running Stuff will probably be running critically important stories about which politicians own poodles, and how difficult it is to look after your poodle when you are a busy politician.

    • Gosman 1.2
      17 January 2023 at 10:58 am

      Liz Truss didn't support small government. She was going to impose a price cap on energy payments that would have cost 150 billion pounds. She promised NOT to cut government spending.

      https://www.cnbc.com/2022/10/12/uk-pm-truss-says-she-will-not-cut-public-spending-to-fund-tax-cuts.html

    • tinderdry6 1.3
      17 January 2023 at 1:35 pm

      I am deeply suspicious of 'big government'. It seems to me the larger a share of GDP is consumed by the public sector, the less efficient it becomes. And there are a number of studies that support that view.

      "Small government means few regulations and lax enforcement – an exploiters wet dream."

      Do you have any evidence for this?

      • Tony Veitch 1.3.1
        17 January 2023 at 1:41 pm

        Just off the top of my head – leaky house debacle of the 1990s (Nat government).

        Pike River mining disaster, courtesy of Nat governments.

        RSA workers exploited by unscrupulous horticulturalists.

        I'm sure a 5 minute Google search will confirm all of the above, and others.

        • tinderdry6 1.3.1.1
          17 January 2023 at 3:52 pm

          There are a number of problems with your response.

          Leaky home crisis:

          1. The leaky homes crisis incorporated houses built before the 1991 Building Act, some as early as 1988. The causes of these are well documented here, and happened prior to the 1991 Act,

          2. The 1991 Act introduced a system of self regulation that relied heavily on Council issued and monitored building consents. The leaky homes crisis was a failure of government implementation as much as regulation.

          Pike River

          The regulations governing the operation of Pike River date to 1992, but the drift wasn't constructed until 2007. A closer look at the disaster shows just how culpable government departments were, along with poor company management and an overly compliant union.

          The Pike River mine permit was approved by the Ministry of Economic Development in 1997.

          Some quotes:

          "MED approved the issue of Pike’s mining permit in 1997. Its focus was the economic benefits to New Zealand. MED did not fully apply the criteria set out in its coal policy programme, which included requirements to check the experience of the applicant and its proposed mining methods, and to ensure that these represented good mining practice. In terms of the coal programme, health and safety, which is intrinsic to good mining practice, was not MED’s concern. MED did not consult DOL so no one looked at the health and safety implications of the proposed mine."

          And:

          "Because Pike was assumed to be a ‘best practice’ and ‘compliant’ employer the inspectors adopted a low-level compliance approach. This proved ineffective, as was most evident regarding the need to provide two emergency exits from the mine. In mid-2009 the main ventilation shaft was designated the second means of egress out of the mine. To use it involved a 110m ladder climb that was physically exhausting in normal conditions, but probably impossible in an emergency. In April 2010 an inspector told the mine manager that the shaft, although technically compliant, was not a suitable emergency escapeway. In August DOL advised Pike by letter that a new egress was required ‘as soon as possible’.[8] In November 2010 Pike said a new egress would be established by mid-2011. DOL considered this unsatisfactory, but took no further action before the explosion."

          This is a failure of government oversight. Not exactly inspiring examples in favour of bigger government.

        • Thinker 1.3.1.2
          17 January 2023 at 9:59 pm

          How quickly Tinderdry forgets the mobilisation of the public sector from the first covid crisis.

          The private sector would be just finalising their alliances and submitting their RFPs about now…

          • tinderdry6 1.3.1.2.1
            17 January 2023 at 11:21 pm

            Ah but I'm not arguing against public services, per se. In fact, I am a supporter of a mixed economy with government intervention, particularly in long term planning and in regulating the excesses of the market. However, my argument, supported by studies I referred to, is simply that "the larger a share of GDP is consumed by the public sector, the less efficient it becomes."

      • Drowsy M. Kram 1.3.2
        17 January 2023 at 10:05 pm

        "Small government means few regulations and lax enforcement – an exploiters wet dream."

        Do you have any evidence for this?

        Just an opinion (we all have 'em): You'd have to be a fool not to 'follow the money.'

        Small government costs

        The SEC [Securities and Exchange Commission] during the Bush II administration operated on a bare bones budget and was staffed by incompetent bureaucrats and political hacks. As a result, Wall Street collapsed and the stock market crashed because of weak regulations and lax enforcement of rules.

        Does a $700 billion bailout of Wall Street by President Bush ring a bell? Of course, this was followed by an $800 billion stimulus by President Obama that saved the economy from falling into a deep depression. Both actions increased the national debt considerably.

        • tinderdry6 1.3.2.1
          17 January 2023 at 11:06 pm

          "…and was staffed by incompetent bureaucrats and political hacks."

          There's your problem. Not small government. Incompetent bureaucrats and political hacks inhabit governments of all sizes. Unfortunately.

          • Drowsy M. Kram 1.3.2.1.1
            17 January 2023 at 11:24 pm

            There's your problem.

            There's our problem – that and selective quoting wink

            The SEC [Securities and Exchange Commission] during the Bush II administration operated on a bare bones budget and was staffed by incompetent bureaucrats and political hacks.

            We see what we wanr to see – what serves our interests. Follow the money.

            https://en.wikipedia.org/wiki/OpenSecrets

            • tinderdry6 1.3.2.1.1.1
              17 January 2023 at 11:27 pm

              So were the subsequent problems caused by the bare bones budget or the incompetent bureaucrats and political hacks?

              • Drowsy M. Kram …
                17 January 2023 at 11:39 pm

                Would be a bit of both, don't you think – that small government "bare bones budget" could have contributed to the staffing issues, imho.

                Might have been other forces at work to ensure the SEC was staffed by “incompetent bureaucrats and political hacks” – it was the Bush II presidency.

                https://en.wikipedia.org/wiki/U.S._Securities_and_Exchange_Commission#Commission_members

                • tinderdry6 …
                  18 January 2023 at 9:11 am

                  "that small government "bare bones budget" could have contributed to the staffing issues, imho."

                  Perhaps the expression 'bare bones' simply means lean and efficient. Perhaps it means considering a lesson we learn in the private sector that by employing the best people, you actually often require less people.

                  • Drowsy M. Kram …
                    18 January 2023 at 9:21 am

                    Perhaps the expression 'bare bones' simply means lean and efficient.

                    Another lesson we might learn is that when an opinion piece is titled "Small government costs", the expression "bare bones budget" simply doesn’t mean what you want it to mean – context, my dear boy, context.

                    This is an impressive crowd. The haves and the have mores. Some people call you the elite. I call you my base. – Bush II (in waiting)

                    • Incognito …
                      18 January 2023 at 10:00 am

                      We all know that only private schools, for example, hire only the best teachers because they can best teach bigger and more classes than the mediocre ones who work at public schools teaching boring mediocre kids of mediocre parents with mediocre jobs – often in the public sector, of course – living in mediocre houses in average suburbs. Only the best are good enough to rise to the top of success, which is the lesson they teach & learn so well at private schools and in the private sector, if you are good enough to get a foot in the door, that is – having contacts aka relationships is just a lucky coincidence. In fact, this absurd yet addictively compelling (self-)belief and that you are someone special, with all the self-righteous entitlement associated with it, is almost a requirement for a successful career in the private sector. \sarc

    • Thinker 1.4
      17 January 2023 at 9:55 pm

      Small government ought to come with fewer MPs. But, you never see National or ACT pushing for that.

      • tinderdry6 1.4.1
        17 January 2023 at 11:22 pm

        Totally agree. In fact fewer MP's would be a good idea even if we didn't agree on the size of government overall!

      • Gosman 1.4.2
        18 January 2023 at 11:47 am

        You are mistaking Parliament for Government. They are too different things. You can have smaller Government with either a smaller or larger Parliament but on balance Parliamentary oversight on government is a good thing and therefore you want sufficient MP's to do that.

  2. Gosman 2
    17 January 2023 at 10:54 am

    Again you misunderstand the cause of the failure of Liz Truss's policies. The issue was not the cutting of taxes or regulations. It was that these were also accompanied by increased government spending. The Market's rejected such a fiscally irresponsible approach and the UK government suddenly had to pay higher rates on it's borrowing.

    She could either have raised taxes to fund her spending committments OR cut spending to afford to give a tax cut but she couldn't do both. She tried to and paid the price.

    • bwaghorn 2.1
      17 January 2023 at 11:52 am

      So the person that he right-wing of the UK thought was their best and brightest, was economically illiterate?

      • Gosman 2.1.1
        17 January 2023 at 1:00 pm

        This is a good article from the Right leaning Spectator magazine about here policies written just before she resigned.

        "This is all a fatal combination of miscalculation and hubris. Truss and her Chancellor Kwasi Kwarteng clearly thought the markets would speak their language and fund their tax cuts. They thought their confrontational attitude towards the UK’s financial institutions would go down a treat. They were wrong on both counts – but these were bad assumptions. Having spent my twenties working tirelessly to promote the nuances of free-enterprise, growth-maximising policies, I am horrified and infuriated to see the words ‘Growth Plan’ plastered across a economic plan that paid less lip service to fiscal discipline than a Gordon Brown Budget."

        https://www.spectator.co.uk/article/truss-is-hurting-the-free-market-cause/

    • Nic the NZer 2.2
      17 January 2023 at 12:31 pm

      Lol. How much did guilt yields rise? Who actually pulled the plug on the Truss govt?

      • Gosman 2.2.1
        17 January 2023 at 1:02 pm

        The markets killed the plug on her time as Prime Minister.

        "They say power corrupts. I think perhaps it gives you amnesia, because there was a time, not too long ago, when Truss was well versed in free-market policy and seemed to understand economic reality – that the markets don’t respond like an audience at Tory conference. Markets need – we all need – to know that there is a plan. For her to blame the caustic market reaction to her borrow-and-spend mini-Budget on left-wing whingeing is simply to be in denial."

        https://www.spectator.co.uk/article/truss-is-hurting-the-free-market-cause/

        • Nic the NZer 2.2.1.1
          17 January 2023 at 6:08 pm

          Such violence to the kings english. I'm sure the UK population will be assured that the markets can get a new PM when ever they choose.

    • adam 2.3
      17 January 2023 at 9:03 pm

      Good to see you arguing for the same shit show to happen here Gossy. Like the spin, impressive.

      At least you’re consistent.

      ACT a nightmare in the making – our economy is going to fall over if these muppets get their ideological shitfuckery into government.

      • Gosman 2.3.1
        18 January 2023 at 10:05 am

        We've already established that what did it in for Liz Truss was the fact she was fiscally irresponsible and that led to the Markets to reject her via ditching government debt and the Pound. ACT is not fiscally irresponsible because it is going to cut wasteful government spending alongside tax cuts.

        • Incognito 2.3.1.1
          18 January 2023 at 11:53 am

          It is very irresponsible to have a repeal razor gang starting a bonfire of regulations and cuts to the public sector that is there for (almost) everyone whilst proclaiming that it is pretty much guaranteed aka promised that the market will come to the rescue and do a better job. For the mythical market saviours and Knights of the Round Business Table to ride into town they will remove as many obstacles & objections and make the ride as easy & smooth (and pretty legal) as they can to pave the way with the heads of the great unwashed as cobblestones. The ones who pay no or very little net tax and have no or very little net wealth (e.g., assets) won’t be any better off and most likely worse off. Who are they again??

          • Gosman 2.3.1.1.1
            18 January 2023 at 12:08 pm

            Why would cutting the Ministries of Women and Culture cause any issues?

            • Incognito 2.3.1.1.1.1
              18 January 2023 at 6:52 pm

              Are you giving us the heads up on what ACT will be cutting when given the chance? It is always good to hear this from an insider and a reliable source such as you.

              What “issues” are you referring to? Life or death issues? Economic collapse issues? What criteria do you use to determine if it is an "issue"?

              I have no idea how you’d cut Culture out of the Ministry of Arts, Culture and Heritage and can only assume ACT and you will cut the whole lot because you deem it ‘wasteful’. Does this mean we won’t see David again on DWTS?

              As to cutting the Ministry of Women, do you think the job is done or that it is done close enough?

              For example:

              In 2022, the national gender pay gap – the gap between men’s and women’s median hourly pay – was 9.2 percent.

              https://women.govt.nz/gpg

              Are you a woman, Gosman, or a sealion?

              Would cutting your commenting privileges here cause any issues for you?

              • Gosman …
                19 January 2023 at 9:36 am

                Having a dedicated ministry does not guarantee nor preclude something happening if it did not exist.

  3. tWiggle 3
    17 January 2023 at 8:17 pm

    This Led By Donkeys clip is a good backgrounder on the input of economic think-tanks to the disastrous economic strategy of Liz Truss's government.

    https://youtu.be/IRDLIOME47c

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