Liz Truss’s great economic U-turn on Friday followed a well-trodden path to humiliation.
Downing Street spokesmen and cabinet ministers had earlier lined up to declare that any move to abandon her unfunded tax cuts was unthinkable and capitulation unimaginable. The markets responded by selling the pound and dumping gilts. No. 10 riposted that her chancellor was doing an “excellent job,” had “her full confidence,” etc. Markets pummeled leading UK indicators again. Soon enough, the game was up.
On Friday, the prime minister duly performed her screeching U-turn but refused to resign. Instead, she threw her chancellor and ideological soul mate, Kwasi Kwarteng, to the wolves and picked a steady old hand from the Conservative party’s political center, Jeremy Hunt, to replace him.
The situation is dire, but is it hopeless? The prime minister is now surrendering the major planks of her libertarian program. She says her “vision remains,” but survival must come first. The only man who can save her now is Hunt. As so often in the past, the relationship between No. 10 and No. 11 Downing Street will be crucial.
In recent decades, there have been few disputes between these government neighbors that have boiled over into sackings or resignations. Tony Blair and Gordon Brown may have been rivals, but their’s was a long and fruitful partnership before it turned into a simmering cold war. David Cameron and George Osborne kept any differences secret, except for the decision to call a referendum on European Union membership. However, in a return to the bad old days of the 1950s to the early 1990s, Boris Johnson contrived to lose two chancellors in succession. The resignation of his second, Rishi Sunak, precipitated the former prime minister’s downfall earlier this summer.
If history is anything to go by, Hunt as chancellor could yet save Truss’s skin.
Harold Wilson, the UK’s most economically literate prime minister since World War II, for instance, wasted enormous political capital defending the value of the pound. Then, in 1967, he devalued sterling, announcing that, “this will not affect the pound in your pocket.” He shuffled his chancellor aside and put in a fiscally conservative replacement, Roy Jenkins, and survived in office for another three years — even if he was always nervously looking over his shoulder at his ambitious new neighbor in the Treasury.
In 1992, it was the turn of a Conservative prime minister, John Major, to defend the value of sterling in the European exchange rate mechanism (ERM). Major burned billions propping up the pound but lost his bet against the markets. His eurosceptic chancellor Norman Lamont unwisely let it be known that he was “singing in the bath” after the U-turn and was shunted aside. Major’s personal authority was shot but his government staggered on to complete a full term. Meanwhile his rumbustious new chancellor, Ken Clarke, kept the show on the road by stabilizing the economy.
Yet Truss’s plight is more perilous than any of her U-turning predecessors’, even though her party commands a notional 70-seat majority in the House of Commons.
Unlike Wilson and Major, who had earlier triumphed at the polls, this prime minister has no electoral mandate for her libertarian prospectus. She won the support of a majority of party members, not of Conservative MPs, to become leader. Truss has been in the top job for just about 40 days, and her chancellor’s far-from-“mini” budget of unfunded tax cuts has bombed in the markets and opinion polls.
The government has a maximum of two years before its allotted time is up, but the prime minister may struggle to survive her MPs’ displeasure until next month. Even one of her most vociferous newspaper supporters, the Daily Mail, began its lead editorial on Friday with the observation that Truss could soon have the dubious distinction of being the shortest-serving PM ever, undercutting George Canning’s record of 119 days.
Many Conservative MPs dream of crowning Truss’s closest rivals, Rishi Sunak and Penny Mordaunt, as prime minister and deputy prime minister (in either order) without a prolonged contest among the wider membership. Although another leadership putsch would install the fifth Tory prime minister in six years, fear of electoral oblivion is driving the parliamentary party to contemplate desperate measures.
Hunt will now cancel a number of big-ticket items before what’s left of Kwarteng’s mini-budget goes back for inspection to the Office for Budget Responsibility this month — including the £18 billion ($20.1 billion) plan to cancel scheduled corporation tax rises that were the centerpiece of his boss’s leadership campaign and indeed of his own bid for power in the same contest. The markets had already baked in surrender.
Truss declares herself a follower of Margaret Thatcher, but unlike the Iron Lady she is made of more flexible material. The prime minister will nod every concession through. She dropped the controversial proposal to lower income-tax bands for the better off only three days after Kwarteng announced it in the House of Commons. And now she has dropped Kwarteng too.
What remains of Truss’s mantra of “growth, growth, growth”? To deadly effect, Major was accused of being in office but not in power after the ERM debacle. Has the prime minister too become a figurehead?
Her fate now lies in her smooth-talking chancellor’s hands. Although he is a free-marketeer by conviction, a big plus point for Hunt is that he gets the importance of empathy. I watched him as Health Secretary show immense concern for the families of victims of medical malpractice and poor maternity care. Contrast that with Truss’s failure to acknowledge the cost to homeowners of the soaring mortgage bills that followed the mini-budget.
Hunt will command some respect among his parliamentary colleagues for his seniority and experience, but they are fractious and divided. The chancellor voted for the UK to remain in Europe in the referendum (as did his born-again eurosceptic boss), so the right of the party will be suspicious.
Hunt has mere days in which to make his mark. It’s not mission impossible, but unless he calms the storm, his own term of office could prove as truncated as that of Truss.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Martin Ivens is the editor of the Times Literary Supplement. Previously, he was editor of the Sunday Times of London and its chief political commentator.
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