October 2, 2022 - 10:30am
This morning, Liz Truss conceded to Laura Kuenssberg that she should have done more to ‘prepare the ground’ before her mini-budget last Friday. This may be too little, too late.
Ironically, off the back of a successful leadership pitch based around free-market policy, Liz Truss might just have killed off the free-market wing of the Conservative Party for a generation. Kwasi Kwarteng’s not-so-mini-budget has spooked markets, tanked the Tories’ already-pitiful polling, and delighted the Labour Party.
We all watched the pound sink further against the dollar and euro in real time, and this has naturally drawn comparisons with another source of Tory shame. Black Wednesday, which happened almost 30 years ago to the day, saw the UK forced to exit the European Exchange Rate Mechanism. This sealed the fate of the Major government, just five months after the Tories’ surprise win in the 1992 general election, and trashed the party’s reputation for economic competence for more than a decade.
Although the ERM debacle was terrible for the Conservatives, many argue that expulsion from the ERM set the course for the UK’s economic revival, which came to an end with the global financial crisis of 2008. To that end, Black Wednesday did not harbour the end of free-market thinking within the Conservative Party – in fact, it strengthened it.
The impact of the Truss government’s own Black Friday, however, is likely to be the reverse: the expulsion of free-market thinking to the fringes of the Conservative Party.
Firstly, Black Wednesday was not seen as the fault of a specific government decision, even if the subsequent attempt to try to prop up the currency was judged a foolish waste of money on the part of the Major ministry. Black Friday, on the other hand, is due to Truss and Kwarteng going too far too quickly. The mantra ‘move fast and break things’ might be fine for Silicon Valley start-ups, but our ministers need to be more careful when they’re running a country.
Secondly, after Black Wednesday there was still a strong cohort of Thatcherites, including Thatcher herself, who strongly believed in and pushed for free-market economics. The wets had largely been vanquished, or had given up trying, and there was no real source of ideological debate within the party. The picture could not be more different in today’s Conservative Party. There is no Thatcher-figure lurking in the background to push for free-market ideas.
Thirdly, many of the problems we have in the UK at the moment are not necessarily ripe for free-market solutions. Yes, there are areas of our tax code which could do with simplification, but the answer to the housing crisis isn’t a complete removal of planning restrictions, NHS backlogs are going to require a boatload of money to fix, and the private sector won’t fund HS3. What are the free-market answers to knife crime in London, ethnically-motivated violence in Leicester, or the collapse of our court systems?
Truss came to office promising a free-market revolution, only to see those very free-market policies being discredited by financial markets and voters, with polling putting the Conservatives 33 points behind Labour (to paraphrase Churchill: never in the history of the Conservative Party has so much been spent to please so few). If Tory MPs associate this aggressive free-market push with the party’s current low poll ratings (not unfairly, given the public broadly lean left-ish on economics and right-ish on culture) then the stage will be set for a resurgence of red Toryism.
Truss can, of course, power through for as long as MPs allow her, and perhaps things will all come good. But it’s worth remembering the experience of another former Conservative prime minister, Robert Peel, who pushed through free-market reforms which were unpopular with his own backbenchers and split the party. Peel ended up being replaced as leader by Edward Smith-Stanley, 14th Earl of Derby, a 40-something Oxford graduate based in the north and thought to be one of the richest MPs ever. I can’t think of a similar Tory MP currently on the backbenches with no love for Truss – can you?
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SubscribeI do think we need to wait and see what happens, although one thing this has proved beyond all doubt to anyone more than slightly perceptive is how biased our mainstream media is.
Yes, the pound collapsed to its lowest levels for half a century but when it recovered on Thursday to the point it was higher than it was prior to the mini-budget, there was silence. Ditto when other major currencies (Euro, Yen and Yuan for example) also plummeted at the same time. Then was also an interview on BBC Breakfast where a government minister was trying to emphasise that inflation isn’t just a UK only issue stating Germany currently has a higher rate of inflation than the UK does. How does the interviewer respond? “I don’t care about Germany’s rate of inflation, it doesn’t help pensioners over here” or something like that. A couple of interesting points there is that firstly, were it the other way around, I imagine she would be extremely interested in Germany’s inflation rate. The second point is that it shows the media is in no way interested in context, comparisons or anything that might genuinely inform the viewer about the wider situation.
That’s my main take away from this, if we have a media that is less biased and less doom mongering, then I doubt we’d actually have half the issues we currently have.
I’ve been saying for years that our media are worse than our politicians. These unaccountable media types seem to think they’re part of the solution – no they are a huge (perhaps major) part of the problem.
It could well be said they are THE problem.
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I for one welcome this snub to decades’ old orthodoxies by a people sick of unrestrained finance and an economy entirely reliant on property prices propped up by millions of foreigners being given free reign. The usual suspects on the progressive left were always going to moan but when you manage to turn me off, once the embodiment of a swotty Tory boy, it’s over. The future is social conservatism and economic reform – not dependence on global finance and a slave caste of lowly paid immigrants. Brexit should have been the wake up call, but the Tories took all the wrong lessons from it.
Nothing to enlighten me here. Wait and see. So far, just hysterical over-reaction from the media and MPs. And of course hedge funds trying to make money out of said hysteria (It’s their job)
Go to the sane article by Liam Halligan iin The Telegraph.
If governments do anything, however sensible, which conflicts with the globalist ESG D-E-I narrative they’ll be roasted by the compliant media and aligned ESG “investors”.
The use of language is also telling, always trying to put government on the back foot, as if they’re having to defend themselves.
Today for instance, on the BBC website: “Truss admits…” instead of “Truss accepts…” It’s a subtle difference, but over time becomes corrosive to the narrative in which politics is discussed. One can accept something has happened without necessarily taking a defensive position.
Some will see through it, but perhaps enough will take away the message that the government is in the wrong when of course, the reality is that change happens over time and without unpopular measures the chances of change ever happening for the better are diminished.
Similar miisreporting applies to Charles’s eminently sensible decision not to attend the climate summit.
( though curiously the San Francisco Chronicle made a pretty fair report on this)
But what Truss/Kwarteng was doing had very little to do with free markets. A free market is when the government is not intervening in the economy, except for the basics that are required for a market to function properly at all e.g. enforcing contract law, investigating fraud, trust busting. Merely cutting taxes is not “free market ideology”, you have to actually reduce the size of government as well – it has to intervene less for the market to actually be more free. Truss’ approach is to reduce taxes a bit, whilst printing money on a massive scale to mount an epic set of price controls on the energy markets, itself only required to cover up the disaster caused by even more market interventions (sanctions).
That’s why the markets revolted – not due to tax cuts which are barely relevant on the scales we’re talking about here, nor because of “free market ideology” being discredited, but because Truss just signed a blank cheque in the form of covering unbounded potential energy costs. It’s the ending of the free market that they reacted to, yet here it’s spun as the opposite.
This sort of repetitive misunderstanding of the basics of market economies is just rampant in the media and amongst the public especially in Britain. It’s really quite something. Instead of understanding what free market capitalism is actually about, pundits assume that whatever the Tories are doing at the moment must be it if one of them has mentioned Thatcher at some point.
I’d agree with much of that.
I’m not sure the market reaction had much to do with “covering unbounded potential costs” though, since the consumer subsidy was established well before Kwarteng’s budget and in fact the costs of energy had already started to fall, reducing the potential government subsidy from as much as £100b to significantly less than that.
Still, your points about what constitutes a free market are well made.
Presumably markets expected the energy price cap and lockdown hole to be covered with tax rises rather than tax cuts. But divining what market participants think is always pretty tough.
Since Liz Truss had campaigned for the leadership of her party on the basis of tax cuts, the markets can’t have expected anything else once she was elected: nor should her colleagues who supported Sunak.
The budget left something to be desired by way of presentation without an accompanying OBR forecast, but anyone surprised by it shouldn’t be in a position to influence a game of tiddlywinks.
Sterling to euro is 1:14 same as it was 2 weeks ago. The markets going down has been the same across the EU as it has in the US.
Freeing the ‘Free market’ for many on the Right has always been this chimera just over the horizon which if we can just have the moral strength to get there will solve so many of our problems.
It is of course a false prospectus, sharing many psychological similarities with ardent Marxists. It provides a comfort blanket to those unprepared to think seriously about the many and varied problems we face and what we have learned from prior experience. Ideologists are often the least flexible of mind, the most easily self-persuaded, and the Truss/Kwarteng debacle just a recent example.
A little more self-doubt and humility makes for better public policy.
With this tax rate U-turn, Truss has shown that she is not in any way worthy of being compared to Mrs T.
Either the policy is right (which it was) so stick with it, or if it was wrong don’t introduce it in the first place.
Who can trust her now? She’s alienated both those who supported the cut and those who opposed it, all while plastering big grins on the face of Gordon Brown and the reptile Gove.
Pitiful way to run a country.