Liz Truss goes from triumph to trouble in six weeks

LONDON (AP):

When Liz Truss was running to lead Britain this summer, an ally predicted her first weeks in office would be turbulent.

But few were prepared for the scale of the sound and fury – least of all Truss herself. In just six weeks, the prime minister’s libertarian economic policies have triggered a financial crisis, emergency central bank intervention, multiple U-turns, and the firing of her Treasury chief.

Now, Truss faces a mutiny inside the governing Conservative Party that leaves her leadership hanging by a thread.

Conservative lawmaker Robert Halfon fumed that the last few weeks had brought “one horror story after another”.

“The government has looked like libertarian jihadists and treated the whole country as a kind of laboratory mice on which to carry out ultra, ultra-free-market experiments,” he told Sky News.

It’s not as if the party wasn’t warned. During the summertime contest to lead the Conservatives, Truss called herself a disruptor who would challenge economic “orthodoxy”. She promised she would cut taxes and slash red tape, and would spur Britain’s sluggish economy to grow.

Her rival, former Treasury chief Rishi Sunak, argued that immediate tax cuts would be reckless amid the economic shock waves from the coronavirus pandemic and the war in Ukraine.

Truss’ first days in office were overshadowed by a period of national mourning for the Queen. Then on September 23, Treasury chief Kwasi Kwarteng announced the economic plan he and Truss had drawn up. It included £45 billion ($50 billion) in tax cuts – including an income tax reduction for the highest earners — without an accompanying assessment of how the government would pay for them.

DOING WHAT SHE SAID

Truss was doing what she and allies said she would. Libertarian think tank chief Mark Littlewood predicted during the summer there would be “fireworks” as the new prime minister pushed for economic reform at “absolutely breakneck speed”.

Still, the scale of the announcement took financial markets, and political experts, by surprise.

“Many of us, wrongly, expected her to pivot after she won the leadership contest in the way many presidents do after winning the primaries,” said Tim Bale, professor of politics at Queen Mary University of London. “But she didn’t do that. She actually meant what she said.”

The pound plunged to a record low against the US dollar and the cost of government borrowing soared. The Bank of England was forced to step in to buy government bonds and prevent the financial crisis from spreading to the wider economy. The central bank also warned that interest rates will have to rise even faster than expected to curb inflation that is running at around 10 per cent, leaving millions of homeowners facing big increases in mortgage payments.

Jill Rutter, a senior fellow at the Institute for Government think tank, said Truss and Kwarteng made a series of “unforced errors” with their economic package.

As the negative reaction grew, Truss began to abandon bits of the package in a bid to reassure her party and the markets. The tax cut for top earners was ditched in the middle of the Conservative Party’s annual conference in early October as the party rebelled.

It wasn’t enough. On Friday, Truss fired Kwarteng and replaced her longtime friend and ally with Jeremy Hunt, who served as health secretary and foreign secretary in the Conservative governments of David Cameron and Theresa May.

Truss is still prime minister in name, but power in government has shifted to Hunt, who has signalled he plans to rip up much of her remaining economic plan when he makes a medium-term budget statement on October 31. He has said tax increases and public spending cuts will be needed to restore the government’s fiscal credibility.