by Peter Franklin
Monday, 3
October 2022
Debate
07:00

Liz Truss is on the horns of a trilemma

The PM must either sacrifice her party, her authority or the economy
by Peter Franklin
Pound for your thoughts? Credit: Getty

To survive, Liz Truss needs to do three things. 

Firstly, she must pull the Conservative Party out of its tailspin. Labour poll leads that start in the upper-teens and go a whole lot higher are not sustainable for a Tory leader. 

Secondly, Truss must retain her authority as Prime Minister. This is distinct from merely remaining in post. It is possible for a PM to be in office, but not in power, which would be the case if she U-turned on her flagship policies. 

Thirdly — and this one is really important — she mustn’t crash the economy again. It’s conceivable that Truss could recover from the events of the last week, but not if they’re repeated. Though the sudden collapse in Sterling has reversed itself, a second nosedive would sink this government for good. 

So, those are the essential requirements. However, while she might achieve any two of these must-haves, achieving all three is impossible.

Let’s start with not re-crashing the pound. If Truss wants to go through with her tax cuts, then the money markets will want to see spending cuts to pay for them — at least in part. That’s economically viable, but politically toxic. How does she expect her MPs to sell a combination of tax cuts for the rich and what looks like a plan to freeze benefits for the poor? Over the weekend, Michael Gove made his disquiet heard — and he’s leading the way for others.

Alternatively, the government could satisfy the markets by postponing the tax giveaway. What the rich would lose in their bank accounts, the Tories might regain in their poll ratings. The more dystopian parts of the deregulatory agenda could be dropped too. However, if Liz Truss cancels her libertarian policies, then what would be the point of her? She would lose her backers, her Chancellor and what remains of her authority. 

The final option is to go ahead with the tax cuts, but to finance them by taking on more debt instead of taking an axe to the welfare state. The mini-budget would be saved and the Tories could avoid annihilation at the next election. However, that brings us back to the economy — and the very real risk of another market meltdown, in which case it’s all over anyway. 

So, in short, this is Truss’s trilemma: she must either sacrifice her party or her authority or the economy. As things stand, she’s gone with the first option. That’s probably her best bet. A Tory tailspin isn’t exactly an ideal context for a Conservative party conference, but compared to the other two options it’s less immediately fatal.

A wipe-out in the local elections next year would be the end of her, but that’s several months in which something might turn up. If growth is higher than expected or the UK clearly outperforms the EU, enough voters could be won round to Trussonomics. 

However, long before that, she’s got to persuade her own MPs to vote for her cuts to tax and spending — which will be tricky because rebellion is afoot. According to Sam Freedman’s latest count, fifteen Tory MPs have spoken against the scrapping the top rate of income tax.

So while Liz Truss has bought herself some time, it’s still running out. 

8 am update: The Chancellor Kwasi Kwarteng has announced a U-turn on scrapping the top rate of income tax, which he said “has become a distraction from our overriding mission”. However, it was in fact emblematic of his government’s overriding mission — and thus the overnight decision represents the beginning of a shift from the first option (sacrificing the party) to the second (sacrificing the government’s authority). 

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Richard Abbot
Richard Abbot
2 months ago

The ability of elected governments to govern is now being stripped away before our very eyes. Only policies pre-approved by the Left-Progressive-Media-Whitehall industrial complex are deemed acceptable. Democracy is officially dead, just in case there was any remaining doubt about that.

chris Barton
chris Barton
2 months ago
Reply to  Richard Abbot

Absolutely, approved by the Blairites for short.

Jeremy Smith
Jeremy Smith
2 months ago
Reply to  Richard Abbot

Totally a risible comment.
UK GOV can govern as it pleases – don’t ask foreigners to pay for it.

Andrew McDonald
Andrew McDonald
2 months ago
Reply to  Richard Abbot

For’approved by L-P-M-W i c’ substitute ’…approved by the market that Karteng and Truss consider fundamental to their programme..’ and you are about right. In a free market economy the democratically elected government have to please the market as well as their electors. Or at least convince it.

Aden Wellsmith
Aden Wellsmith
2 months ago

No they don’t. Look at the borrowing. Who is lending?

  1. Poeple forced too. For example annuities, banking capital, insurance companies
  2. Other central banks.
  3. The APF. The APF holds 1 trillion of gilts.
Aden Wellsmith
Aden Wellsmith
2 months ago
Reply to  Richard Abbot

So what’s the solution? It’s actually surprisingly easy. A full external audit of the DWP and Public Sector pension debts. Currently they are hidden off the books.
Then you send everyone a statement with their share. Personally I would put icing on top, and tell people how much they would have had in a fund if their NI had been invested and not redistributed. The capitalist versus socialist comparison.
Then see what happens. Civil servants have covered up the debt. Let them explain the fraud. Section 2, 2006 fraud act if you want the offence.

Richard Abbot
Richard Abbot
2 months ago
Reply to  Aden Wellsmith

Agreed. But that would require will. So it won’t happen.

Douglas Proudfoot
Douglas Proudfoot
2 months ago
Reply to  Richard Abbot

Isn’t there a supply side in Britain? In the US, our experience has been dropping a top rate, as high as your 50% top rate, raised revenues. All this blarney about “paying” for a tax rate cut is pure welfare state propaganda. Sure, lefties would prefer to punish “the rich” with high rates, but they’re punishing the government at the same time with suboptimal revenues.

Is free speech as dead in the UK as it is in the US? Is there no voice to explain that the only way out of the quantitative easing mess is to encourage more productive investment?

polidori redux
polidori redux
2 months ago

I don’t claim any great understanding of finance but, in my simple way, I believe that a decade of zero interest rates and magic money would eventually deliver an almighty crash: The proximate cause would not be the real cause.
QE was introduced as a lifeboat measure to deal with a frozen financial system. Politicians transformed it into a scarcely disguised form of money printing: They behaved like snake-oil salesman brandishing their latest elexir of live. They convinced themselves, and many of us, that they could turn base metal into gold. Liz Truss is not the most signicant author of our current troubles, and commentators should wonder why they were not shouting from the rooftops a long time ago, pointing out, in the words of Captain Blackadder “The trouble was Baldrick, it was a load of bollux”.

Last edited 2 months ago by polidori redux
chris Barton
chris Barton
2 months ago
Reply to  polidori redux

Considering so many in this country particularly those on the Left bring up the 1930’s every time something doesn’t go their way you’d think people would remember the consequences of money printing *Facepalm*

Jeremy Smith
Jeremy Smith
2 months ago
Reply to  polidori redux

UK debt as % of GDP (consumer + gov + business)
1974 – 80% (banking deregulation begins)
1979 – 120% (Maggie comes to power)
1992/3 – 200% (ERM Crisis, house bubble)
2007/8 – 270% (GFC, house bubble)
2022 – 320%
Despite structural reforms, North Sea Oil/Gas, Big Bang, End of Cold War the driving force of UK economy has been an ever increasing pile of debt.
The problem with Truss (and the rest of the fools) is the belief that UK can replicate US financial debauchery without the global reserve currency. £ is $.

polidori redux
polidori redux
2 months ago
Reply to  Jeremy Smith

I do not read your posts, Jeremy.

Jeremy Smith
Jeremy Smith
2 months ago
Reply to  polidori redux

I am sorry I invaded your safe space. it will not happen again.

Aden Wellsmith
Aden Wellsmith
2 months ago
Reply to  Jeremy Smith

UK debt …
Sorry mate, you’ve been conned. There’s £16 trillion of state pension debts with zero assets.
Socialism has created the mess. All those contributions redistributed and zero capital. You can’t blame capitalism

Aden Wellsmith
Aden Wellsmith
2 months ago
Reply to  polidori redux

QE was designed to lend to the state. See the accounts of the APF.

Jeff Andrews
Jeff Andrews
2 months ago
Reply to  polidori redux

Eloquently put. I think a lot of us have been saying this for over 10 years, but there you go. I was even asking how the initial QE to unfreeze the banking system as you rightly put it ended up costing us as much as the Americans. And why they even called it ‘baling out the banks’ when your expression sounded so much more benevolent to everyone.
And QE still isn’t over,,,£65 billion in one morning for the gilt buying to save the pensions and it’s nowhere near enough.

Matt M
Matt M
2 months ago

Shoulda gone for Kemi!

Stephen Follows
Stephen Follows
2 months ago
Reply to  Matt M

They will after the next election.

Matt M
Matt M
2 months ago

Probably before that – in the next leadership election.
No way Truss can maintain control of the party now. She has u-turned on a policy that her cabinet has been sent out to defend and her cabinet are at loggerheads over immigration controls!
Letters to the 1921 are bound to flood in. I’d be surprised if they haven’t started already. MPs will know that they will lose the next election with her as PM so won’t be afraid to have a gamble.
I suspect Kemi, Sunak and Gove will form a dream ticket and try to go for the coronation without a drawn-out campaign. Kemi for the charisma and anti-woke creds, Rishi for the market calming reputation and Gove to pull it all together and take on the deputy PM role to assist the novice PM.

Last edited 2 months ago by Matt M
Kevin Kehoe
Kevin Kehoe
2 months ago

Hopefuly before then. If not the UK might well soon have it’s own fascist party on the rise.

Kevin Kehoe
Kevin Kehoe
2 months ago

Hopefuly before then. If not the UK might well soon have it’s own “facebalm” party on the rise.

chris Barton
chris Barton
2 months ago

For anything to change One (or preferably both) of the Big 2 parties needs to die 1st which will create the room for a new one.
The Tory party is the biggest roadblock to a proper party of the right. The Labour party hates the poor – they are “gammon” etc
2 Parties left over from the last century and now captured by Blairties.

Last edited 2 months ago by chris Barton
Jeremy Smith
Jeremy Smith
2 months ago
Reply to  chris Barton

Vote UKIP, farage, whatever…

chris Barton
chris Barton
2 months ago
Reply to  Jeremy Smith

Look up Stockholm syndrome.

polidori redux
polidori redux
2 months ago
Reply to  chris Barton

Jeremy has been here before. He seems to be a hyperactive teenager who bombards this forum on occasion.

Last edited 2 months ago by polidori redux
Steve Murray
Steve Murray
2 months ago

At least this article presents a sensible and nuanced view of how things stand.

If i didn’t know better (ahem…) i’d say Unherd enjoys putting out articles which simultaneously express a sensible and an extreme version of something high in the news agenda, either to cater for all tastes or to simply provoke a reaction. (Am i guilty of ‘reacting’? Sometimes!)

But then we have pieces such as the one by Lionel Shriver, and highly intelligent contributions from such as Mary Harrington.

The Tory Conference will no doubt be throwing up (as it were) a whole host of opinion pieces, and it’s not even started yet.

Steve Murray
Steve Murray
2 months ago

Events have already overtaken us.

The U-turn on the top rate of tax, according to the analysis in this article means Truss loses the authority she needed to govern effectively.

Unfortunately, i agree. If i were in her shoes (and i don’t rock heels btw) i’d be considering resigning.

Last edited 2 months ago by Steve Murray
Ian Stewart
Ian Stewart
2 months ago

The Tories are toast now. Should have kept the election winner Johnson. Fools.

j watson
j watson
2 months ago

Gradual move further to the right, and in this case with no mandate other than 80k unrepresentative party members, and hey presto a hubris generated semi-catastrophe just abated by the BoE. And we don’t know yet what next 6 weeks will hold.
The rush for growth, whilst deploying a hard Brexit, always funnelled the Tories in a direction v contrary to what the majority of the British public would countenance as fair or desirable. Step by step we’ll probably back ourselves out of this mess but it’ll take some time and the only consolation is the Marxist behaving Neo-Liberals have to own this muddle. Marxist behaving because that was always the retort of the Communists – ‘we just haven’t done Marxism properly and it’s nothing to do with the fundamentals being wrong’. The Neo-Liberals are just the same but from the other end of the echo chamber.

Albireo Double
Albireo Double
2 months ago

The Conservative party his being led by the nose by the “One Nation Tory” group – an assortment of perfect horrors of the “Rory Stewart” type. They are not Conservatives, more permissive left/liberals really. but they fly under a false flag for the sake of power.
A leader needs the guts to cleanse the party of this toxic waste, withdrawing the whip from them all so they cannot stand as Conservatives again, and then going to the country with a radical programme of socially and fiscally Conservative policies.
Win or Lose, either will be better then this. Courage and conviction are needed, not more appeasement. The days of the “broad church” are over. 

Nicky Samengo-Turner
Nicky Samengo-Turner
2 months ago

What appears to me to be blindingly obvious, is the Conservatives inability to see the most compellingly obvious strategy of tax cuts, and that is simply so radical that they can and will bring hundreds of billions of new capital into the UK, including into Sterling and UK Government bonds.

It is to make Britain a Liechtenstein cum Swiss/ “offshore” tax haven, by offering banking and investment confidentiality laws, and giving a set of ultra low corporation and associated tax incentives to businesses to move to and register in the UK.

It is new cash capital that is needed, not tinkering with the status quo: there would be a flood of capital inflow from, not least, the EU, but from across the globe.

Treasury revenue comes in ‘ LSD’ NOT percentages!