Jeremy Hunt did his best to deploy a reassuring bedside manner. But the Conservative party’s surgeon came bearing bad news. He had seen the X-rays, and it all had to come out. Not just the obviously gangrenous parts of Liz Truss and Kwasi Kwarteng’s budget, like her corporation rate tax cut or the abolition of the 45p tax rate, but pretty much everything still within reach of his scalpel. Goodbye indefinitely, proposed penny off basic income tax; farewell, IR35 reforms to benefit self-employed contractors. Even Truss’s energy bill bailout – the one thing that was still popular when everything else had turned sour – will be universal only until next spring, after which it will be capped and targeted towards the most vulnerable.
More painful for the country, however, may be the news that this emergency surgery is just the start. There would be hard decisions on tax and spending to come in his full statement on 31 October, Hunt warned. In March 2020, Rishi Sunak promised to do “whatever it takes” to get us through Covid, which meant spending billions. Now Hunt is promising grimly to do whatever is necessary to restore market confidence, which means very much the opposite.
The new chancellor’s friends insist he isn’t after Truss’s job, even though he ran for it in the summer and is pretty much now doing it in all but name. Watching this statement, that seemed for a moment believable, for this was not the fiscal package of someone out to court popularity. By next April, middle-class traditional Tory voters will be facing soaring mortgages – spring will see peak numbers of borrowers coming off cheap fixed deals – just as their protection against soaring fuel bills ends, and they’re unlikely to reward the man who did it to them. But then again, perhaps Hunt is past caring about popularity with actual voters, since that’s arguably no longer the route to power in Britain.
Wake up, roll over, check the bond markets. This never used to be the morning routine for Westminster watchers but gilt yields are becoming a more accurate predictor of what’s about to happen than chuntering backbenchers. Politics now is just noise, the frantic buzz of flies battering themselves against a window, as Tory MPs argue about how to dispatch another broken leader. But economics is the signal, steady and clear, regardless of whether Truss stays or goes or who replaces her. The guiding purpose of British politics over the next five years, whether under Labour or Conservative rule, will be filling the £72bn black hole she blew in the public finances and restoring credibility with international lenders. Had she not sacked Kwarteng, an anonymous aide helpfully informed the Sunday papers, Truss would have faced the kind of Monday-morning rout on the bond markets that risked turning Britain into a “third world country”.
We are now the kind of country whose prime minister and chancellor are chosen to placate the markets – which as any Greek or Italian knows, means the kind of government forced to worry at least as much about their international creditors as their electorates, and prone to creating dangerously angry democratic deficits as a result. Truss was only ever elected prime minister by a handful of Tory members, and even they no longer have what they voted for.
But that’s tomorrow’s problem. Today’s was whether the sacrifice of Kwarteng would appease the gods and so far, at the time of writing, so good: pound up, bond yields down, message received and understood. Trussonomics is dead and there will be no more lurching changes of direction from Hunt, a naturally consensual operator willing to listen to the City and to his own civil servants at the Treasury, who is also capable of going on the telly without inadvertently precipitating some calamity that adds several hundred quid to your mortgage. The way he kept repeating the word “stability”, meanwhile, suggests that whatever Tory MPs or indeed a deeply humiliated Truss herself may want, Hunt and the circle of Sunak-backers around him think she has to stay on for now, if only to avoid the immediate chaos of a leadership contest or general election that may well fail to deliver a mandate for such bitter economic medicine.
Although austerity has effectively been imposed on this government, it still has a choice as to whether the belt-tightening is done primarily via spending cuts or tax rises. Hunt has hinted that he won’t repeat the Cameron/Osborne variant, in which spending cuts primarily affecting the poor did the heavy lifting. But he’s no Tory wet, and his final package is likely to include a lot of painful real-terms cuts to public services on which the most vulnerable rely, unconvincingly rebranded as “efficiency savings”. Years of grind lie ahead as Britain is called out not just for the madness of making Truss prime minister but before that the madness of Brexit, and perhaps also a more longstanding sense of decline.
For a good decade now, Britain has been behaving like an economic superpower without quite having the receipts to show for it. Other G7 countries emerging from an expensive pandemic have similarly unhealthy-looking debts, but the collapse in market confidence reflects deeper doubts about Britain’s political ability to get itself out of a hole, or even perhaps to grasp that it’s in one. A painful readjustment looms not just of the public finances, but of Britain’s idea of itself. This, as the doctor didn’t quite say, is going to hurt.
Gaby Hinsliff is a Guardian columnist
