How Britain’s Prime Minister, Liz Truss, Provided Her Own Downfall Through Her Economic Agenda

Mary Ray

Prime Minister Liz Truss only held her office for about six weeks and during that short time, her misguided economic policies provoked blowback which ultimately pushed her to resign. Truss was the leader of the Conservative party in Britain. Her counterpart was Sir Keir Rodney Starmer of the Labour Party. When Truss was first appointed as Prime Minister, the Labour Party called for her to impose a new windfall profits tax on energy firms in Britain; Truss responded to these requests by stating “We cannot tax our way to growth.”  [1]

Then, two weeks ago, she disparaged Starmer for refusing the Conservative government’s plan for a two-year cap on energy prices, rejecting Starmer’s and the Labour Party’s proposal of a six-month cap. [1]  But the next week, Truss completely flipped her stance – she dropped her free-market agenda which was under pressure from the financial markets as well as rebels within her own party. Not only did she change her economic agenda, but she went a step further and fired her chancellor, Kwasi Kwarteng. [2]

It’s now been roughly six weeks since Truss had taken over the Conservative Party, projecting herself as a protector of free markets. She was a firm supporter of the six-month energy price cap and had made the way for a fresh windfall profits tax. She also abandoned the tax cut plan for high-earning people and is moving forward with an increase in corporate taxes – both of these measures favoured by the Labour Party, her supposed opposition.

So what does this clear shift in direction mean? There are a few takeaways from the legal cartwheels that the Conservative Party were doing while Truss was in office. The first issue here is timing. The initial idea of cutting taxes to tempt bankers back to Britain after Brexit is sound. But the mistake here was doing it while inflation is rising rapidly and the central bank is raising interest rates. Cutting taxes during the current climate just shows a lack of planning. [2]

Another issue was the lack of communication. Switching the way that Truss did is a delicate line to walk and requires clear communication. The exact opposite happened. Instead of following the typical method of teasing out major fiscal policy changes over a matter of months, keeping central bank officials appraised of the plans, and taking notes of market opinions, Kwarteng released a September mini-budget which took the markets by surprise. In a current attempt to do better, his replacement, Jeremy Hunt, embarked on a typical policy-explaining tour in U.K. media. [2]

One clear result of all this is that the Labour Party quickly gained ground. The Conservative Party had traditionally led Labour in terms of economic competency in the polls, but now the reverse is true. Conservatives are now trailing behind Labour in several other metrics with no sign of change in sight. In a failed attempt to gain favour, Truss adopted an economic agenda supported by Labour to attempt to reassure the markets after the severe pushback against her “budget-busting tax cuts.” [1] Ultimately, she was unable to convince both the markets and the public that she was on the right path and she could not claw her way back up in the polls.

Truss’s economic agenda prompted criticism from beyond the citizens and markets of the U.K. President Biden has called Truss’s original economic policies “a mistake” and stated that the outcry and turmoil which followed the September mini-budget was “predictable.” He specifically discouraged the idea behind the policies – that of “cutting taxes on the super-wealthy.” The U.K. has long been one of the U.S.’s closest allies, with Biden having familiarity with the country after his time as Vice President. President Biden’s comments are indicative of the widespread turmoil and overall bleak response caused by Truss’s economic agenda. [3]

Economic policy is a visceral way to show your public that you hear them. The policies advanced by the government party in charge might have some shortcomings, but they can be forgiven as long as the economic agenda is put forth as a coherent vision that seems at least to meet some worthwhile goals. However, giving the public a mess of policy that seems completely different from what was proposed less than two months ago will incur blowback. Great Britain has now seen four finance ministers in less than four months. And now it will see its third Prime Minister before New Year’s.

 

[1] Mark Landler and Stephen Castle, Liz Truss’s New Economic Agenda Looks a Lot Like the Opposition’s, N.Y. Times, (Oct., 18, 2022), https://www.nytimes.com/2022/10/18/world/europe/uk-liz-truss-economy-labour.html.

[2] Edward Price, Liz Truss broke the First Rule of Economic Fight Club, Barron’s, (Oct. 17, 2022), https://www.barrons.com/articles/liz-truss-economy-uk-jeremy-hunt-51666017147.

[3] James Landale, US President Biden Calls Truss’s Economic Policies ‘a mistake,’ BBC News, (Oct. 16, 2022), https://www.bbc.com/news/world-63276374.