On 14 October 2022, the day Jeremy Hunt became Chancellor, the UK was close to economic collapse. The pound had fallen to a 37-year low against the US dollar, government gilt yields had soared and the pensions market was in chaos; the Bank of England had launched a £65bn bond-buying programme to avert a 2008-style financial crash.
Britain’s six-week experiment in “Truss-onomics” had been an unmitigated disaster. The package of £45bn worth of unfunded tax cuts announced in Kwasi Kwarteng’s mini-Budget on 23 September had caused panic and pushed the UK’s borrowing costs above those of Italy and Greece. A YouGov poll published on 29 September put the Conservative Party 33 points behind Labour.
On 3 October, midway through the Conservative Party conference, Truss abandoned her plan to cut the top rate of income tax. Yet this did little to reassure the markets or voters. The prime minister’s defiant speech targeting the “anti-growth coalition” looked delusional.
Truss was forced to sack Kwarteng, then watch as Hunt calmly tore up her agenda on 17 October; he boasted that he had reversed “almost all” of the tax cuts announced in the mini-Budget. Three days later, Truss resigned, and on 25 October Rishi Sunak became prime minister. The “grown-ups” were back in charge.
Did they steady the ship? As we near Sunak’s first anniversary in No 10, the UK economy remains on the edge of recession (regardless of revisions to past GDP growth). In July the average two-year fixed mortgage rate reached 6.66 per cent, above the peak seen during the Truss chaos. Public services and councils are being asked to do too much with too little, while households continue to endure the biggest squeeze in living standards since records began. The Sunak-Hunt model isn’t working – and in Westminster there are whispers that would have been unthinkable a year ago: Liz Truss was right.
In recent weeks, the New Statesman has spoken to key figures in the free-market movement – those who have known Truss for years, served in her cabinet, and who share her belief that growth is the only way to save the UK economy from irrevocable decline. (In this, their narrative aligns with the message from Keir Starmer’s Labour Party.) They might disagree on where Trussonomics went wrong, but they are united on one aspect: that a free-market revival remains vital to the future of the UK. A year after Truss was deemed to have discredited the ideology for a generation, they believe it is more powerful than ever – and set to shape Conservative thinking in opposition.
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Who bears the blame for those farcical seven weeks? (Not the more commonly cited six: one former Truss cabinet member was at pains to stress that she was in office for 49 days, although Kwarteng only lasted 38.)
Truss herself, in a 4,000-word exculpatory article in the Telegraph and a recent interview with the Daily Mail, identified a long list of culprits: the Bank of England; Treasury officials, for not warning her about potential risks; the overmighty Office for Budget Responsibility (OBR); US president Joe Biden for criticising her tax cuts; the “Global Left” and “the Greta Thunbergs of this world”.
While Truss admitted to mistakes of communication and execution, the real failure, she insisted, was a lack of Conservative imagination. “I was pushing against a system and against an orthodoxy that was gradually moving to the left,” she told the Mail.
Those who worked closely with Truss add (with varying degrees of tact) that the former prime minister bears some responsibility. “Things unravelled very quickly,” Kwasi Kwarteng told me, when reflecting on those frenetic weeks. He believes the “fundamental error” he and Truss made was the announcement of tax cuts alongside a £130bn energy support scheme without any accompanying savings. “I don’t think there was much strategy. She wanted to do things very, very fast. I look back, and even at the time I thought we were going very, very fast. I remember saying after the mini-Budget, ‘We need to calm things down.’ And she said, ‘I’ve only got two years.’ I said, ‘You’ll have two months if you carry on like this.’ She was just going to blow up.”
Kwarteng argues that Truss’s big mistake was to go beyond the promises she made during the 2022 Conservative Party leadership campaign – namely reversing the rise in National Insurance from 12 per cent to 13.25 per cent and abandoning the planned increase in corporation tax from 19 per cent to 25 per cent. “If we’d just stuck to what she’d campaigned on, I think a lot of what happened wouldn’t have happened. But we put all sorts of other things in.”
Some might argue that it was Kwarteng’s responsibility as chancellor to exercise caution. Yet Simon Clarke, another free marketeer who served as levelling up secretary in Truss’s government, is sympathetic.
“[Truss] wasn’t in much of a mood to hear what she didn’t want to hear,” Clarke told me when we met in his parliamentary office – a spacious, light-filled room looking out onto the River Thames; he joked it was assigned to him out of sympathy for his short-lived stint in her cabinet. “It’s easy to say [Kwarteng] should have pushed the brakes. But I’m not sure the brakes were connected to anything at that point.”
One of the “other things” Truss and Kwarteng added to the mini-Budget was abolishing the 45p rate of income tax on earnings above £150,000 (the top 1.5 per cent of earners). This, along with the (cost-neutral) move to scrap the cap on bankers’ bonuses, gave the impression that theirs was a budget for millionaires, paid for by struggling households. It also suggested a government that lacked seriousness and was detached from economic reality.
Truss’s cabinet, and even senior economists in free-market circles, were caught off guard. “It was a policy of shock and awe,” Mark Littlewood, the outgoing director general of the Institute for Economic Affairs (IEA), told me. “It was, ‘We’re going to suddenly stand up and surprise people with things like the 45p rate being abolished’ – a policy I approve of, but not a hill I would have chosen to die on.” Julian Jessop, an economics fellow at the IEA, agrees: “That was sprung on the markets – it surprised them.”
Kwarteng now distances himself from the 45p tax cut, but at the time he went even further; two days after the mini-Budget he told the BBC that there was “more to come”. There was speculation in the media that he would reintroduce the full personal allowance for those earning more than £100,000.
Jessop and others said that this made a volatile situation much worse, but it took Kwarteng and Truss weeks to accept what others were telling them. One Treasury official recalled the chancellor’s frenzied positivity as his mini-Budget began to fall apart. This continued until 14 October, when he was sacked by Truss – news he claims to have heard first from Twitter.
[See also: Liz Truss is more realistic than you might think]
Weeks of chaos were about to come to an end. Littlewood summed up the view among the wounded Trussites by citing the title of the 2023 winner of the Best Picture at the Oscars. “That seemed to be the watchword of the Truss administration: let’s do everything, everywhere, all at once.”
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The consequences of the Everything Everywhere All At Once approach will be taught in schools as one of the great political disasters of recent British history. Yet while classical liberals still argue about Truss’s timing and communication strategy, they do not believe the path she was pursuing was in any way flawed.
“The medical diagnosis in my view was correct,” said Littlewood. “We have had woefully disappointing growth rates. That is the underlying cause of many of our ills – big budget deficits and people struggling to get by – because growth in the economy has been disappointing since the turn of the millennium.”
Littlewood, 51, and Truss, 48, have long been intertwined. Both studied politics, philosophy and economics at Oxford University in the 1990s and began their political careers as Liberal Democrats. Littlewood explains this drift in ideology by arguing that, back then, “a relatively low-tax, relatively lightly regulated economy in which spending is kept under control almost went without saying”; they were drawn to the Lib Dems as the party of civil liberties.
Littlewood joined the IEA in 2009, six months before Truss was first elected an MP, and he has been one of her biggest advocates since. In 2011 Truss founded the Free Enterprise Group of Conservatives MPs, widely regarded as the IEA’s parliamentary wing.
A year later, Truss and four other Tory MPs – Kwarteng, Dominic Raab, Priti Patel and Chris Skidmore – published Britannia Unchained: Global Lessons for Growth and Prosperity, a book which argued that Britain was falling behind its global competitors because of its “bloated state, high taxes and excessive regulation”. Truss has maintained her close association with the IEA, holding informal meetings at its office in Westminster even after she resigned as prime minister. At No 10, her deputy chief of staff was the IEA’s former communications director, Ruth Porter.
For Trussites, the past 12 months have been frustrating – not least because they share the former prime minister’s assessment that institutional resistance was a significant factor in the failure of her premiership.
Littlewood described the OBR as “a serious political barrier to Liz Truss getting her arguments through”. He also pointed to the unique challenges of her premiership: a bond market crisis already under way, a strong US dollar, and the death of Queen Elizabeth II on 8 September, which put politics on pause for ten days. “You could barely imagine a worse time to become prime minister, let alone a worse time if you were trying to carry out a period of reform.”
Yet Littlewood acknowledged the damage done to the free-market cause. “You can see that the next time someone says, ‘Oh, we need to cut taxes and liberalise regulation,’ people are going to say, ‘Didn’t Truss try that and it all ended in tears?’
“We’ve got a challenge in public discourse to try to correct that sort of one-line rebuttal: ‘We’ve tried all of that, it was ludicrous, you’re a bunch of libertarian jihadists, and what we actually need is the adults back in the room.’”
The irony, Littlewood says, is that now Britain’s economic malaise is making the case for Trussonomics on its own. “The longer the adults are back in the room and things don’t improve, the more the Truss diagnosis and programme will get a second hearing.”
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Littlewood’s faith was shared by everyone I spoke to from the free-market movement. Truss may have got the sequencing wrong, they argued, but her strategy was right. They stressed that this was no longer a fringe Tory view, but a central plank of Labour Party policy. The first of Starmer’s five “missions” – for the UK to achieve the highest sustained growth in the G7 – could have been taken straight out of the Truss playbook.
Yet there is a difference between agreeing that the economy needs to grow more quickly, and agreeing on how to achieve that growth. Labour’s defining economic policies include raising green investment to £28bn a year and Rachel Reeves’s “Securonomics”: a stronger industrial strategy and a more protectionist trade policy. Such interventionism is the antithesis of the free-market mindset.
For alternative suggestions, look to the newly formed Conservative Growth Group (CGG). This faction of 50 or so Tory MPs emerged in January, led by Clarke and Truss’s former environment secretary, Ranil Jayawardena. Their ambition is to persuade Sunak’s government to embrace the kind of supply-side reforms that Truss aspired to introduce. The group’s key aims include abolishing inheritance tax (to spur growth by encouraging “aspiration”), fully transferable tax allowances between married couples (as an alternative to government-funded childcare), and planning reform for housing and other infrastructure.
The members of the group say they do not want to challenge Sunak and Hunt, who they believe are both more favourable towards free-market policies than they might publicly concede. (Sunak is a self-described Thatcherite, ideologically aligned to Silicon Valley libertarianism; Hunt is a 1980s-style Thatcherite, who pledged to cut corporation tax from 19 per cent to 12.5 per cent when he ran for the Tory leadership in 2019.) The CGG aims, rather, to be “helpful”, offering policies that are both pro-growth and politically popular – and in doing so, detoxifying the Truss agenda.
The CGG claims credit for Hunt’s decision to use his first Budget, in March, to abolish the £1m lifetime pensions allowance, which limited how much someone could save over a lifetime. “If Liz had proposed that, we’d have been castigated for giving handouts to the wealthiest,” says Clarke. “But we were able to get it through because the centre left of the [Tory] party heard it coming from a different voice.”
That particular policy was spun as a reversal of the “tax on doctors”, a way to prevent experienced NHS consultants in their fifties from retiring early. The CGG’s other policies are more contentious: it is hard to sell tax cuts that benefit the richest during a cost-of-living crisis (only around 6 per cent of estates are liable for inheritance tax), while within the Tory party there is fierce opposition to planning reform that would make it easier to build houses.
Nudging Sunak in a free-market direction before the next general election is a tough challenge – but it isn’t the Trussites’ only plan. Some believe that making the free-market case will prove easier during the wilderness years of opposition. While almost every Conservative MP will argue publicly that the next election is not yet lost, they can read the polls: a Labour victory is, if not inevitable, by far the likeliest outcome.
Kwarteng, who wrote his PhD on economic history, noted the benefits of a period of reflection. “Opposition has probably lent itself better to the kind of long-term strategic thinking that you need than government,” he told me. “It’s no accident that if you look at the last 50 years, the two great reforming governments were New Labour under Tony Blair, and Margaret Thatcher’s. It’s no surprise that a lot of their thinking was done in their long years of opposition. That’s not to say that we’re inevitably going to be in opposition. But if we are, I think the party will certainly have the opportunity to refine its thinking, and think about a staged, sequenced approach.”
Kwarteng has a majority of more than 18,000 in his Surrey constituency of Spelthorne, and while there is no such thing as a safe seat, his prospects of remaining an MP look better than those of some of his colleagues. It is too early to predict what a post-defeat Conservative Party might look like, but speaking to other members of the CGG, there is a sense that the Tories’ ideological centre of gravity could shift as they shed MPs, giving the free-marketeers a renewed chance of influence.
Who might channel that influence is another matter. Truss is finishing a new book – Ten Years to Save The West (scheduled to be published in April 2024) – and told the Mail that she “would not rest” until the political changes she sought had been achieved. But no one I spoke to was under any illusion that Truss would make a return as leader: she is simply too tarnished, as is Kwarteng. Yet various other names were suggested, such as Boris Johnson’s former Brexit negotiator Lord Frost, Jacob Rees-Mogg, the former Conservative Party chair Brandon Lewis, and Clarke (yet with a majority of 11,626, his Middlesbrough seat is not that secure).
“I think the people emerge as and when ideas start to win,” Littlewood said. “It’s very difficult to predict who will emerge, but someone will. There will be a cometh-the-hour, cometh-the-man-or-woman.”
Littlewood was similarly sanguine about the prospects for free-market ideology after he leaves the IEA next March. “I’m a great believer in Milton Friedman’s dictum, that the role of a think tank is to keep good ideas floating around or possibly on the shelf, and to wait for an inflection point. At which point things that were previously considered politically impossible suddenly become politically necessary, or economically necessary.
“We keep going around, those of us at the IEA, saying, ‘This isn’t sustainable’. The great thing about things that are not sustainable is that they are not sustained – and I think that will happen. A reckoning is coming.”
The consistent message from the Trussites is “look around”. Government spending is rising faster than GDP, taxes are at a postwar high, and the strain on both public and household finances is huge. If this is the best the grown-ups have to offer, something more radical is needed after all.
The reality that “difficult things need to be done hasn’t gone away, and I think most of what Liz was talking about was broadly right”, said Simon Clarke. He believes there could be increased support – both within the Conservative Party and among the public – for the kind of measures that Liz Truss attempted if a Labour government fails to deliver economic growth. Kwasi Kwarteng agreed: “The growth agenda isn’t going away.”
The Trussites may be in exile, but they do not believe their ideas have been defeated.
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This article appears in the 13 Sep 2023 issue of the New Statesman, The Revenge of the Trussites