Shortly before the chancellor of the exchequer, Kwasi Kwarteng, announced a massive £45bn programme of unfunded tax cuts 10 days ago, Labour’s Northern Ireland spokesman, Peter Kyle, received a message on his phone from a former Conservative cabinet minister. Kyle, like every other MP at Westminster, knew that all was far from well in the Tory party, but the content of the text stunned him nonetheless. “Make sure you win the next election,” it said. “I am a patriot.”
That day, Kyle and the rest of the Labour party had half their minds on their upcoming party conference in Liverpool. Speeches had to be written and media interviews prepared for. But what unfolded over the coming hours and days changed everything. In the course of an extraordinary week that followed, the political initiative was to switch decisively to Keir Starmer’s party as the Conservatives’ reputation for economic competence – and guardians of the nation’s finances – went up in smoke.
While Kwarteng was delivering his mini-budget, prime minister Liz Truss and levelling-up secretary Simon Clarke spent much of the time grinning at Labour across the dispatch box, as if they had found the magic formula to kickstart growth that had eluded every previous government. Today they find themselves in freefall in the polls, with the financial markets in turmoil, and their own MPs in despair. “The vast majority of the party is watching on in silent horror,” a former cabinet minister said on Saturday, “with little idea what we can do in the face of this utter catastrophe.”
Unease about Kwarteng’s fiscal plans and the messages they sent about Tory commitment to reduce inequality and deliver on levelling up had been growing in Tory ranks even before he got to his feet – as witnessed by the message to Kyle. For a fortnight or so a small number of Tory MPs had been saying in private that it might be best for their party to lose the next election, so deep had their divisions become.
But the detail of the chancellor’s statement went way beyond what any Tory MPs had expected. With a hoarse voice but full of breezy confidence, Kwarteng not only confirmed that he would reverse April’s rise in national insurance contributions and cancel plans to put up corporation tax next year – both promised by Truss during her campaign for the leadership – but he also pulled more tax-cutting rabbits out of his hat one after another, They may have cheered a hard core, but left a majority of his own MPs dumbfounded.
Each measure was a bombshell, and a giant risk in itself, at a time of rising inflation. The 45p income tax rate for higher earners would be abolished. Stamp duty would be slashed. The basic rate of income tax would be cut next year, 12 months earlier than previously stated. And the cap on bankers’ bonuses would be lifted.
It was an unashamed budget for the rich, aimed at stimulating enterprise but doing little for those on the lowest incomes, or in the “red wall”. Tory MPs who had won red-wall seats in 2019 feared cuts would now be inevitable to infrastructure projects in their areas, meaning the end of levelling up.
And it all required a mindblowing £400bn of extra borrowing over several years to fund what amounted to the biggest giveaway since Anthony Barber’s disastrous budget of 1972.
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By Friday evening, Labour began to sense the size of the political opportunity that was opening up. Shadow chancellor Rachel Reeves and Starmer condemned the entire package as “casino economics”. Within hours of Kwarteng sitting down, the pound had fallen below $1.09 for the first time since 1985 as investors took fright, while the cost of UK government borrowing rose by the most in a single day for at least a decade. The giant risk of the mini-budget was bombing on the markets, and Tory MPs were privately descending into ever-greater despair. This weekend there is even talk of imminent defections from Tory to Labour as the political pendulum swings amid the financial instability.
As the first Labour delegates turned up in Liverpool on Saturday, there were rumours that the Bank of England would have to call an emergency meeting to put up interest rates. Mortgage lenders were discussing pulling fixed-rate offers. Truss had said on becoming PM that her mission was to encourage “aspiration”. But what now for aspiring first-time buyers and homeowners with mortgages who were already struggling with the cost of living crisis?
Over the course of last weekend, Labour shadow cabinet ministers stopped working on their party conference speeches and waited to see what the market fallout would be on Monday morning. “There was no point,” said one. “Normally I would have worked on it all weekend. But this was so big. We had to wait to see where we were when the markets reopened on Monday.”
When Labour began its conference on Sunday with the singing of the national anthem, and a minute’s silence to mark the death of the Queen, it signalled a profound change from the days of Jeremy Corbyn’s leadership. “We are the patriotic party now!” said a shadow cabinet member triumphantly.
But it was the economy and financial management, traditionally a weakness for Labour, that had suddenly become its strength. Labour had gone into the conference feeling upbeat about an ambitious green growth plan and a massive switch to renewables that would deliver cheaper energy for the long term. Its plans to fund energy-price freezes with a windfall tax on oil and gas company profits offered a dividing line with the Tories.
But now the dividing lines were everywhere. The Tories were toxic on the economy. Angela Rayner, the deputy leader, drew on her own experience as a child to paint the Conservative as heartless. “When I was a young mum, I remember the sick feeling in my stomach. All it takes is one break, one accident, one mishap and you can’t get by. If your kids have holes in their shoes, their feet get wet on the way to school. If your fridge breaks, you can’t feed your family. That is not a vision of a modern Britain. It is the result of years of Tory decisions. Families up and down the country this winter – many for the first time in their lives – are now living on the edge.”
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By chance, Monday morning – when Kwarteng was filmed going to his office and refusing to comment on the market meltdown – was the day of Labour’s economic debate. On the conference floor, shadow ministers found jokes and punchlines were writing themselves. Everything was falling suddenly into place. Leftwing interventions from the floor came and went but made little impression. In the bars and restaurants, MPs and shadow ministers proclaimed themselves as having been longstanding “Starmer loyalists” even when in some cases they had their doubts only months ago. The mood of conference had been transformed utterly from last year when Starmer had been involved in bitter rows with the unions. “It is a different party. We have got our party back,” said one former MP who lost in 2019, but is now planning to stand again.
A balance had to be struck between attacking the Tories and gloating. During Monday’s debate Ed Miliband was cheered to the rafters when he declared above the noise that “the Tories believe in the markets but the markets no longer believe in the Tories!” Jonathan Reynolds, the shadow business secretary, joked: “When the Tories find out who has been running the economy for the last 12 years they are going to be furious.” In perhaps the most striking moment, Reeves received a long standing ovation when she declared that Labour – not the Tories – was now the party of “fiscal responsibility”. The only people in the hall who did not rise to their feet were from the unions. When Starmer spoke on Tuesday he declared that Labour’s time was approaching. “As in 1945, 1964, 1997, this is a Labour moment,” he said, declaring that the Conservatives had “lost control of the British economy”.
For Truss and Kwarteng, the blows to their credibility came daily. On Tuesday the International Monetary Fund issued a stinging attack on the UK’s tax-cutting plans and called on Truss’s government to reconsider them to prevent stoking inequality. On Wednesday, the Bank of England was forced to take emergency action to halt a run on pension funds by setting aside £65bn to buy bonds.
That morning, Kwarteng met financiers including Citi’s UK boss David Livingston, Deutsche Bank’s Tina Lee, Bank of America’s Bernard Mensah and JP Morgan’s Viswas Raghavan, to discuss the government’s budget plans. They arrived expecting to hear how the chancellor planned to restore order after a tense 48 hours. But Kwarteng and his officials instead turned to the guests for answers. What could the government do to calm markets, he asked. One source with knowledge of the meeting said Kwarteng seemed “genuinely surprised” by the market reaction to his budget, and was confused why his spending plans – which he believed were reasonable – had caused panic.
City bosses are understood to have told the chancellor to bring forward his next budget – and to publish a report from the Office for Budget Responsibility – from 23 November to forestall further turmoil.
“Two months is a lifetime for markets,” one of the bankers told Kwarteng. The message to the chancellor was that he could not wait that long without running the risk of another run on the pound.
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After the Bank of England had acted, Kwarteng also began attempts to reach out to Tory backbenchers. Accounts suggest he was met with largely stoney silence.
Later that afternoon, as the few supporters of the Kwarteng approach began to attack the Bank of England and the IMF for political bias in their interventions, Tory MPs began to mock the defences, sharing a poster declaring: “The red menace is real! Report all suspected communist activity!”
By the end of the day, MPs were making another historical comparison. “In the words of Norman Lamont on Black Wednesday: ‘today has been a very difficult day’,” said Simon Hoare, Tory chair of the Northern Ireland select committee. “These are not circumstances beyond the control of Govt/Treasury. They were authored there. This inept madness cannot go on.”
By now, Truss’s absence from the airwaves was beginning to trouble MPs. She was spotted entering Downing Street with aide Jason Stein, who had been key in improving her performances during the Tory leadership election, but was now hunkering down in No 10.
The tragicomedy of the crisis was exacerbated when it emerged that insiders had dubbed Truss’s tax-cutting drive Operation Rolling Thunder – now rebranded Operation Rolling Blunder by MPs. Such was the speed with which Truss’s MPs lost confidence in her that even by Wednesday evening, some were openly contemplating dispatching a letter of no confidence.
When the PM did re-emerge, it was to give a series of stilted interviews to local radio stations in which she focused on the energy price intervention and blamed the crisis on Putin’s invasion of Ukraine. The anger among MPs swelled as the constituency mail began to roll in and all the talk was of soaring mortgage costs. “It is hard to know what to say to constituents who are emailing me about the budget. ‘They really fucked it up’ isn’t the most collegiate response, so I am going with ‘I am hoping the market’s reaction over some of the announcements, including the uncalled-for cut to 45p income tax, calms sooner rather than later,’” said one.
Yet the mood was turning even darker. One MP with no history of rebelling said he had moved to wanting Truss out. A gleeful Lib Dem said the party was beginning to wonder “if we need to launch a Save Liz Truss campaign”.
Initial fury within the party started to lead to calmer planning. By Thursday afternoon, a series of Tories were in touch with Labour over how the Truss/Kwarteng plan could be taken on. Some simply wanted the immediate release of OBR forecasts that were due to be kept secret for weeks after they arrived on Kwarteng’s desk. There are easily enough numbers to overturn the Tory majority for that – and significant support for blocking large parts of Kwarteng’s budget.
With many MPs already trying to think through the realities of what their new leader was planning, Thursday evening brought another bombshell. If MPs were in any doubt of the severity of their party’s predicament, a YouGov poll showing a 33-point Labour lead – the biggest it had ever recorded – concentrated a few more minds. “If there was ever any truth in the ‘more Tory MPs thinking of defecting’ story, they’ll surely defect now,” said another. “[The poll] definitely matches what I’ve had on the doors.”
Another said that what made them angry was that there was simply no support within the party for the libertarian route being taken. “These clowns on the libertarian right have been smugly insisting for decades that they held all the answers. Give them a chance and their policies hold the key to economic nirvana and universal popularity. They’ve been in power two weeks and they’ve destroyed the economy and the Conservative party.”
By Friday, MPs had demanded to know the rules on removing a new leader and were told by Graham Brady, chair of the backbench 1922 Committee, that Truss is protected for a year. Those rules could be suspended – but neither Theresa May nor Boris Johnson were removed with a no-confidence vote. May was simply told by Brady that MPs had lost confidence in her, while Johnson eventually gave up his premiership after a mass walkout of ministers. “She has to go,” said one former minister. “Bring back Boris.”
Such widespread willingness to take on Truss among her own MPs has been exacerbated by her decision to sack supporters of her leadership rival Rishi Sunak, as well as to appoint close acolytes to top posts. Meanwhile, several MPs said her inexperienced chief whip Wendy Morton had already lost control of the party. Another MP on the verge of submitting a no-confidence letter said Truss must not be allowed to use Kwarteng as the sacrificial lamb.
“I suspect that Truss may want to distance herself from Kwasi and Kwasi may have to fall on his sword,” said the former cabinet minister. “However, this isn’t just a Kwasi problem. This is very much a Liz Truss-Kwasi Kwarteng problem, because they have made it absolutely clear that they are tied at the hip in terms of their economic outlook and beliefs.”
This weekend the Tories begin their party conference in Birmingham. It should have been an occasion for Truss to celebrate her victory in the leadership contest. Instead, incredibly, she is fighting for her own survival after just a month as prime minister.
