Truss abandoned her signature tax proposal, but it wasn’t enough to help her stay in power.
By Ellen Ioane
The United Kingdom, not to mention the Conservative Party currently running it, is having a bumpy fall. So bumpy, in fact, that new prime minister Liz Truss has announced she will resign, after only six weeks in office.
“I cannot deliver the mandate on which I was elected,” she said Thursday in brief remarks.
Truss’s rapid fall from power came after she introduced Trussonomics, a plan for massive tax cuts aimed at Britain’s wealthiest, and then reversed course and apologized for all the economic turmoil the proposal created.
That proposed “mini budget,” which also included a rollback of corporate tax hikes and a break on planned cost increases for national insurance, had sent the British financial markets into a weeks-long tailspin. On top of a deepening cost-of-living crisis, Truss’s plan sent foreign investors fleeing from the British economy, driving the country’s currency to a record-low value against the dollar.
That economic chaos precipitated a political crisis: Truss’s grip on power slipped fast, as did public esteem for her Conservative Party.
Even before Truss took office, other politicians and commentators expressed serious doubts about her ability to govern; now, a month and a half into her term, those doubts have come home to roost. Truss came into power after Boris Johnson resigned as prime minister and leader of the Conservative Party amid his own scandals, not via a general election. That means she didn’t have a mandate from the whole of the UK as their elected leader, nor was she the choice of her colleagues in Parliament to succeed Johnson.
Truss had spent the past week trying to steady the economy and her premiership. On Monday, the UK’s new Chancellor of the Exchequer Jeremy Hunt announced a near-complete reversal of Trussonomics. That day, Truss told the BBC she would “accept responsibility and say sorry for the mistakes that have been made” and told interviewer Chris Mason that she intended to lead the Conservative Party through the next general election.
However, the damage had already been done: She became the least popular prime minister in the history of polling. The Conservatives, or Tories as they’re commonly known, announced they will select their next leader — and therefore leader of the UK — by next Friday.
It’s an exceptionally fast timeline for the contest, which will be decided by Conservative members of Parliament and party members only. Quite a few names are already being floated, including some familiar ones: Rishi Sunak, who lost to Truss in the most recent contest, sure, but also Boris Johnson, who’s already being encouraged to return by his supporters.
But lurking underneath the immediate questions about leadership are bigger ones, about how much damage has been done to the Conservative Party as a whole.
“This is end of times for the Conservatives unless they can get themselves back to some position of competence and some position of stability, which at the moment is looking very, very difficult,” Matthew Goodwin, a professor of politics at the University of Kent, told Vox earlier this week.
Truss’s signature policy became her downfall
Truss’s political crisis started with an economic one.
On September 23, Truss’s former chancellor Kwasi Kwarteng introduced the UK’s biggest tax cuts in 50 years, estimated at about 45 billion pounds over five years. The following Monday, investors soundly rejected the new economic plan, dubbed “Trussonomics” in reference to Reaganomics, the supply-side economic policies passed under Ronald Reagan in the 1980s. Global markets responded to the policy by selling off UK-backed assets and pushing the UK’s currency, the pound, to a valuation of $1.03, its lowest-ever value against the dollar, before it inched up later in the week.
The announcement of Kwarteng and Truss’s new plan also triggered a sell-off in government bonds — typically considered quite safe investments — which was so extreme that the Bank of England, the UK’s central bank, stepped in and purchased 65 billion pounds worth of bonds “to restore orderly market conditions” and float the country’s pension scheme.
One reason Trussonomics was so unnerving was the idea that the tax cuts would be financed by further borrowing. The UK already has a significant public debt burden — without new taxes, the UK’s Office for Budget Responsibility warned, public debt would balloon to 320 percent of Britain’s GDP in 50 years, up from 96 percent, or 2.4 trillion pounds, now.
The International Monetary Fund (IMF) agreed, issuing an astonishing and nearly unprecedented rebuke against the tax cuts, which devalued the pound even further. “The nature of the UK measures will likely increase inequality,” the global lender said, urging the government to “consider ways to provide support that [are] more targeted and reevaluate the tax measures, especially those that benefit high-income earners.”
While Truss and Kwarteng initially stood by their decision to cut taxes for some of the wealthiest Britons and create special incentives for corporations — including tax cuts and rollbacks in regulations, insisting that the tax cuts would spur more investment in the economy — Kwarteng did announce a partial reversal of the plan on October 3. That temporarily boosted markets, but the pound continued its slump, seeing some recovery last week on predictions of a more robust policy reversal.
In the past week, Truss’s government had been trying to stanch the bleeding. Truss fired Kwarteng on October 14 and on Monday, Hunt, aiming to ease the economic crisis, made public the reversal of Truss’s economic plan, weeks earlier than planned.
“We are a country that funds our promises and pays our debts,” Hunt said, rebuking Truss and Kwarteng’s intention to pay for their tax cuts by borrowing, and the very real possibility that their plan would eventually necessitate a cut in social services.
Hunt defended the reversal in Parliament later that day, with Truss sitting behind him, her silence telegraphing the rapid decline of her power and stature.
That day, Mark Blyth, director of the William Rhodes Center for International Economics and Finance at Brown University, told Vox via email that “she’s in charge, but she is clearly not in charge.” Hunt “defenestrated her. He is running the country. It’s like the shittiest Game of Thrones episode ever.”
Truss’s tax cuts worked against her own government — and Conservative voters
Truss inherited a bad economy and cost-of-living crisis from her predecessor. But “there might never have been a good time to push through tax cuts,” Nikhil Sanghani, managing director for research at the Official Monetary and Financial Institutions Forum (OMFIF), told Vox in an earlier interview.
On top of high inflation caused in part by the Covid-19 stimulus, stagnant wages, interest rate increases to combat the inflation, a weaker-than-expected economic recovery from the Covid-19 pandemic, and outrageous energy prices caused by Russia’s war in Ukraine amid one of the hottest summers on record, Truss’s tax plan was, he said, “the nail in the coffin in terms of, ‘Will there be a recession?’”
Truss and Kwarteng proposed the policy as a way to jump-start the sluggish economy — essentially, trickle-down economics in the 21st century. But adding money to the pockets of the rich and large corporations with the assumption that they’ll use it in alignment with policy directives flies in the face of widely accepted economic theory. Moreover, injecting more money into an economy already suffering from an inflation crisis is illogical and contrary to the efforts of the Bank of England, which has raised interest rates seven times since December to help reduce the rate of inflation — now around 10 percent.
Taxing income is another way to tackle inflation and provides the government with revenue to fund its programs, like pensions for the aging population and the National Health Service. Instead, the government “decide[d] to do massive tax cuts that may not be even stimulatory given that the skew on who gets the money makes the Trump tax cuts look like socialism,” Blyth said. “The people who get all the money will not spend it because they are already rich, and the people who need money to spend will get next to nothing and will then get slammed with a doubling of energy bills and a huge rise in their mortgage costs.”
Although the government’s policy reversal seems to have rallied markets, it’s unclear what the lasting effect will be, particularly since there are so many mitigating factors like global inflation and the war in Ukraine straining the economy. It has, however, clearly highlighted that the Conservative Party is in trouble.
And it’s not clear how the Tories will navigate that.
What happens next with the prime minister contest — and the Conservative Party?
The future of the Conservative Party is in doubt, and its issues are a lot bigger than Truss.
Some questions will be resolved in the next week. The party’s steering committee is meeting Thursday evening to hammer out the rules for the next leadership contest, and the party has promised it will all be wrapped up by October 28. (The last contest, after Johnson announced his resignation, took two months to complete.) In the final stage, Tory Party members may vote online.
Likely contenders include Rishi Sunak, the former chancellor of the exchequer who went head-to-head with Truss last time; and Penny Mordaunt, another minister who was popular among her fellow conservative members of Parliament in the earlier stages of the previous contest. And though Hunt may run, and snap polling suggests that Britons approve of his decision to overturn Truss’s policies, that doesn’t mean he’s the obvious choice to replace Truss, since most voters won’t really know who he is or have had time to form an opinion on his policies.
There’s also already speculation — bolstered by calls from his allies — that Johnson may try to stage a return.
But whoever the next leader is will have to navigate longer-term questions about the Tories’ identity — and their appeal to the UK more broadly.
Truss’s fall is partially of her own doing, but she was also operating within a party that‘s failed to coalesce under a united vision for the country post-Brexit. The Conservatives won their historic majority in 2019 by bringing new voters into the party. But without the unifying goal of getting Brexit done, the party has a serious issue with internal factionalization.
“Conservatives are now very divided,” Goodwin said. “They have very different views on where they want to take the country. This is not like the US Republican Party that has been largely, almost completely realigned around [a] Trumpist message. This is a much more factional Conservative Party, with different wings — there’s a Boris Johnson wing, there’s a Liz Truss wing, there’s a One Nation liberal conservative wing, and that makes it difficult for the party to find a figure that everybody can agree on, to find policies that everyone can agree on.”
Now public opinion is at an all-time low for Truss and her party. YouGov polls over the past nine months have put Labour firmly in the lead for the next government. After a series of mishandled crises under Tory leadership — from a rocky Brexit to former Prime Minister Boris Johnson’s Covid-19 scandals and ensuing resignation to the cost-of-living and currency crises now — it seems that voters are ready to boot the Conservative Party.
The Tories have a constitutional mandate for several more years, but opposition leaders are clamoring for an early election amid this turmoil.
Labour’s (also admittedly unpopular) leader Keir Starmer said his party had a platform ready to go if needed.
“There’s a manifesto that is going to be ready whenever an election is called,” he said Thursday. “We’ve moved our teams onto a general election footing. And I’ve got in place all the grids I need for a general election. So we’re very, very prepared, should there be a general election.”
Truss, at least, won’t be leading the Conservatives then — her unpopularity rivals that of only one other Briton, according to Goodwin. “She’s basically in what I would call Prince Andrew territory,” he said, referencing the disgraced brother of King Charles III, who was caught up in the Jeffrey Epstein scandal. “And you generally don’t tend to come back from Prince Andrew territory.”
Update, October 20, 12:50 pm: This story was originally published on October 18 and has been updated since, including most recently with news of potential replacements for Truss.