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Tribune News Service
Tribune News Service
World
Alex Wickham and Philip Aldrick

Liz Truss is on course for a collision with UK economic reality

LONDON — Liz Truss looks an increasingly strong favorite to overcome Rishi Sunak and replace Boris Johnson as the U.K.’s prime minister. Her next target will be the British civil service.

The 47-year-old foreign secretary has promised to start cutting taxes from day one if she turns her wide polling lead into a victory over Sunak when the governing Conservatives announce their next leader on Sept. 5.

Truss has brushed off concerns about surging inflation and public debt to pin the blame for Britain’s lackluster performance on the stale thinking of the economic establishment.

“We have had a consensus of the Treasury, of economists, with the Financial Times, with other outlets, peddling a particular type of economic policy for 20 years,” Truss said in an interview with the BBC. “It hasn’t delivered growth.”

Officials see the issue differently: Truss may be talking up a radical economic shift in the space of a few weeks, but her actual policy proposals are nowhere near what will be required to deal with the economic storm facing Britain.

The real collision, one official said, won’t be with the Treasury, but with reality.

Truss and her team recognize they would be facing a race against time to implement her tax cuts and cost-of-living measures before bills soar and families go under.

New leaders often talk about having 100 days to make their mark. If she does take office in early September, Truss might have as little as three weeks, one ally said.

By the end of the month, energy bills are set to jump by at least 60%, just as households start switching on the heating. Inflation will be in double digits with interest rates rising fast and the economy flat-lining at best.

On top of that, public sector unions are likely to be balloting members over industrial action that could result in nurses and teachers going on strike, while delays at ports could leave shops short of goods in the run up to Christmas.

Whitehall officials say it’s already too late to tackle waiting lists in the National Health Service and long waiting times for ambulances before the surge in winter diseases ramps up the pressure on hospitals.

The timeline is made even tighter because the new prime minister is schedules to be in New York for the United Nations General Assembly in mid-September before the annual Tory party conference begins on Oct. 2.

Conservative party lawmakers looking with trepidation at the economic outlook are bracing for comparisons with Britain’s economic nadir in the 1970s, when the country was battered by strikes and power shortages and was forced to go cap-in-hand to the IMF to borrow money.

Indeed, some MPs are suggesting that Truss could opt to call an early general election. The theory goes that she would be better off going to the country when she is a fresh face, rather than two years into the job when she has been tainted by crises.

That idea is rejected by the Truss camp, who say she would want to hold off an election as long as possible. One ally said she had no intention of being a caretaker prime minister, and that she wanted to stamp her ideological vision on the country.

Team Truss say their plan is centered on having a prime minister and Chancellor of the Exchequer who are completely aligned, in contrast to Johnson and Sunak, or their predecessors Theresa May and Philip Hammond.

Johnson and Sunak had tried to foster a symbiotic relationship with an ill-fated joint team of advisers that descended into acrimony with No. 10 accusing the Treasury of blocking its policies.

Business Secretary Kwasi Kwarteng is a strong favorite to lead the Treasury in a Truss government, according to one person with knowledge of the discussions.

The appointment of a chief secretary to the Treasury will be essential, as Truss wants to deliver a three-year spending review quickly after taking office. The job is seen as so important that the incumbent, Truss ally Simon Clarke, may remain in post. Therese Coffey, another close ally, is tipped as a potential deputy prime minister.

In a sign of potential tensions, some officials are skeptical over whether they can deliver a comprehensive review of the public finances in such a short time frame, especially when the economic situation is so volatile.

A new prime minister is unlikely to meet outright opposition from inside her Treasury, but she would be likely to hear repeated arguments for toning down some of her policy proposals while the Office for Budget Responsibility may publicly signal its concerns on debt.

The slow pace of bureaucracy is another possible cause of friction, since there are fears in Whitehall that the tax agency and the department for work and pensions could struggle to compute tax and benefit changes quickly enough.

Truss’s team insist they are not thinking about wider Cabinet roles — yet there is a debate about whether she should invite Sunak and his backers to join the Cabinet to promote party unity, or stuff her top team with supporters. One backer said they suspected she would go for the latter option.

Outside the circle of loyalists though, Truss would inherit a divided party that might make it difficult to stay the course on her more controversial plans. She won the backing of only a third of Tory MPs, and many of those who backed Sunak or centrist Penny Mordaunt actively dislike her.

That raises questions as to how far she could resist public pressure for further state intervention — Johnson caved in to public pressure when faced with the free school-meals campaign fronted by the footballer Marcus Rashford. Tory leadership contenders have tried to avoid discussing such tricky ideological issues in front of members, one Truss supporter observed, suggesting she would take a pragmatic case-by-case view on such interventions if she is in office this winter.

Of the policy plans that she has set out, first on the hit list will be green energy levies, which she has promised to scrap temporarily, saving every household £155 ($188).

The other moves will probably have to wait for her big set piece: the budget scheduled for September or October. That will be when she can deliver on her promises to reverse the 1.25% increase in national insurance, saving the typical household around £180 ($219) a year, and abolish a planned increase in corporation tax from 19% to 25%.

But those savings are likely to be swallowed up by surging energy bills in January when the average family is likely to be paying £500 ($608) a month to heat their homes once a new tariff kicks in, according to analysis from BFY Group Ltd. That’s three times what they were paying a year earlier.

Surging energy prices may also test her resolve over Ukraine.

A person familiar with her thinking said she was concerned that some other European leaders and even the US would soften their position on Russia as the energy crisis bites, and encourage Ukraine to agree a deal ceding territory. Truss rejects those arguments, but she will face the same domestic pressures as other leaders when voters are struggling to heat their homes and industry is squeezed by sky-high costs.

One veteran government official said they feared that optimism would soon come crashing down to earth.

Winning the battle of ideas with Tory members is one thing, they said. Implementing the Truss brand of mould-breaking reforms with limited political capital in the middle of an economic crisis is a much bigger challenge.

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