Liz Truss, the third woman prime minister of the United Kingdom, credited herself with two rare achievements, in the shortest span, ever in the parliamentary history of Britain. Firstly, she was in the office for merely 44 days; never before 10 Downing Street, had looked an extension of Airbnb, before this event. Secondly, for the first time in over 75 years, she became the only prime minister to have engaged with two Monarchs; presented her government to Queen Elizabeth II and handed her resignation to King Charles III.
Despite the fact that age is on her side and she can always stage a comeback, but for now, her political demise and the epitaph on it reads, “she conspired, she came, and she saw, she won, she failed and she surrendered”.
What led to her equally meteoric downfall as her rise on the political horizon of the United Kingdom is the subject of this piece.
Following Boris Johnson’s waywardness during the pandemic and subsequent removal due to several indiscretions wilfully indulged into, Truss, who patiently was waiting in the wings found favour with the 1922 committee and got nominated to lead the Conservatives. She became the prime minister by default, not by way of being elected by the electorate. That was the beginning. She then attempted to be different and embarked on political adventurism.
She started fiddling with the economy. Politicians unfortunately never give due estimate to the markets that cannot be controlled, except by the market forces. Administrative actions against the economic fundamentals resulted in more chaos and fiasco. We as Pakistanis realise how friendly we have been with the true British parliamentary democracy…our government is also a game of musical chairs and the economic managers are moving against the market sentiments, leading the nation into more economic morass.
In this economic adventure, she tasked the unfortunate Chancellor of the Exchequer Kwasi Kwarteng to find ways and means to fill in a gaping fiscal hole of over £60 billion.
The “Mini-budget” conceived by Truss but owned and presented by the chancellor in the last week of September, sent tremors across the mother markets, with the government’s cost of borrowing heading northwards and a sudden decline in polls ratings of the premier.
The unfunded tax cuts of £43 billion were both an economic impossibility to achieve and suicidal at the very start; because it implied quite clearly that the stage was set for cutting and significantly reducing spending.
In response to the negative reaction to unfunded tax cuts, Truss initiated a 45 per cent top rate of income tax that would have brought down the hole to £43 billion but very speedily abandoned the idea. Her pursuance with the cabinet to go on with growth plan was thwarted with a resounding, no. She got deep into the mire of her mini-budget.
Food inflation rose to 13.9 per cent, the highest since 2008. The headline inflation rose to 10.2 per cent. These fundamentals foretold that the economy would stagnate, due to the twin menace of monetary tightening and high cost of borrowing.
We are faced with similar situation but we do not have in numbers the economic resilience to take the hit of this downstream of numbers of this magnitude.
Rishi Sunak, her successor, as the chancellor had cut the budget aid in 2020, which was a flagrant violation of the party’s manifesto. He was of the view that once the underlying debt of the government would reduce by 2024, the GDP spending of 0.7 per cent would be restored. This objective never looked achievable.
Amongst the G-7 countries, inflation in the UK is likely to be the highest by December 2023, predict the economic pundits. IMF Chief Economist Pierre-Olivier Gourinchas made the following comment, post the tax cuts of Truss: The markets are looking at these elevated debt levels, they are seeing interest rates rising, they are thinking, well it is going to be harder to sustain elevated debt levels and debt should be coming down.
This comment has to be seen in the overall context of the IMF’s averseness to the Liz Truss tax cut proposals.
Truss like a true politician, first tried to salvage her position by taking a U-turn on the mini-budget; she fired the chancellor, who had authored the budget that was devised by her. She abandoned both the chancellor and the spending, plus the proposed deregulation. The increase in the corporate tax, she use to resist, was taken to 25 per cent from 19 per cent.
A Tory stalwart Stuart Rose, a week before Truss, resigned, in conversation with Financial Times, had this to say, about her, “As the PM, you have to have the confidence of business, investors, the electorate and the colleagues in the party. She has none of these.” So the writing on the wall was obvious and stark. “The game is up”, had said Crispin Blunt, a minister in her own cabinet.
By initiating the mini-budget, she had placed herself on a powder keg, that she knew well would eventually blow up — she trapped herself comprehensively. The U-turn did not help. Initially, she tried to counter the criticism of her proposal by jettisoning, Kwasi Kwarteng and appointing in his place Jeremy Hunt as the chancellor but her detractors saw the move as a complete failure to reassure the markets.
The last minute changes to the “mini-budget by Jeremy Hunt couldn’t save Truss from the inevitable. Despite the majority of Tories who thought there was no obvious successor, the fall happened. Sunak, in my view is a stop gap arrangement; the mess the Tories have landed themselves in, will give optimism to prevail in the rank and file of the Labour. The country will have to go to the electorate.
A few weeks before her fall, The Economist had this to say, about the opinion of Tory members: ….MPs who never much rated her; homeowners whose expected mortgage rates have jumped appreciably; and, the scariest of all, the bond market investors who might have once trusted British policymakers to get on with things and now do not.” Now these were the same Tory members who had elected her as the party leader. In speed the government lost its credibility and the economy only worsened further, exacerbating, her removal.
To further compound the problems, in comparison to other central banks of the west, The Fed, acted more aggressively, in tightening the belts; this obviously will lead to exporting of inflation to all economies of the world. This will impact Britain significantly.
The inter-connectedness of the economies is going to be predominantly visible in the days ahead, as the financial turmoil of the UK and the US, starts to simmer and overflow upon the already boiling point of the developing economies.
Most countries are finding it difficult to grapple with the need towards keeping the fiscal and monetary policies in alignment. We, in Pakistan, have been for decades handling these structural flaws.
Politics is dirty and ruthless. They (members) to save the party ganged up and crucified Truss. Even the notional protection she had under the rules of 1922 committee was dispensed — earlier both Boris Johnson and Theresa May were removed with total disregard to the rules. While many considered it a lunatic approach to have a new leader installed without going through a general election, the fact is Sunak is the third prime minister, to have moved into 10 Downing Street, without the support of the general electorate.
Sounds so familiar to conditions here; we have truly followed all the flaws of the British parliamentary system. Just as seen locally, there have been demands for early elections, instead of the musical chairs being played out by the Tories. The opposition is still looking at the possibility of snap elections, if the economic and financial stability were to be desired.
Many polls suggest that the Labour Party has better handled the economy. In most areas of the socioeconomic sectors, the Tories are trailing by significant margins.
A rise and fall movie/biopic on Truss can fetch good money — the takers, if any, in Hollywood could title it, “44 days at Downing Street”. She made the curtsy very elegantly, is an aspect, I admire her for. Liked because, here the occupants to office have to be shoved out… They love to leave unceremoniously.
With the fingers crossed, let’s see if the Diwali lamps at the 10 Downing Street will be enough to light up the economy of Britain. While, in the wait, people will face energy shortages, come December.
(The writer is a senior banker and freelance columnist)