Would Liz Truss survive if she sacked Kwasi Kwarteng?

A sacrifice to the markets might keep the Prime Minister in office, but without power.

Photo by by Rory Arnold / No 10 Downing Street

Liz Truss is in a pickle. Since the mini-Budget delivered by her Chancellor, Kwasi Kwarteng, on 23 September the markets have been in the kind of turmoil that normally presages political disaster.

Interest rates on public debt have soared, along with mortgage rates, and the pound has collapsed ignominiously against the dollar. To add insult to self-inflicted injury, the Office for National Statistics announced yesterday morning (12 October) that the economy shrank by 0.3 per cent in August. This is all on top of the fourth horseman of the economic apocalypse: inflation at levels not experienced since the early 1980s. Some of the UK’s economic woes have been building inescapably since the Russian invasion of Ukraine in February but it is a brave economic commentator who denies that the mini-Budget has set off the present crisis.

In response the government has been vacillating between faux-innocent denial and venomous blaming in a manner that will be frighteningly familiar to any parent of a teenager. The government’s survival strategy appears to be to delay the pain until the Chancellor announces his fiscal plan on, of all days, Halloween. But can the government – and in particular, Kwarteng – really hold on another fortnight? What if a major pensions scheme collapses? Or the pound sinks to parity with the dollar?

Thirty years ago another Conservative chancellor, fresh from recent electoral victory, found that market discontent can be fatal. In September 1992 Norman Lamont faced a run on the pound as investors bet that the government would be politically unwilling to sustain ever-increasing interest rates to stay in the European Exchange Rate Mechanism. Black Wednesday ended the Conservative Party’s long-held reputation for economic competence just months into their parliamentary term. The party straggled on for almost five years, albeit to epic electoral defeat. Lamont, however, was given the proverbial whisky and revolver less than a year later.

Can Truss repeat the trick and at least serve a full term as Prime Minister if she similarly ditches Kwarteng? There are good and bad omens. Much has been made of the fact that the mini-Budget was as much Truss’s wishlist as Kwarteng’s. After all, Truss beat Rishi Sunak to the Conservative leadership with promises of strenuous tax-cutting, whatever the effects on the deficit. By this logic, removing Kwarteng would not calm the markets and Truss would have the worst of all worlds – continued economic chaos and the collapse of her political authority. If the underlying reason for market mayhem is Truss’s economic ideology then perhaps the market monster can only be satisfied by sacrificing the Prime Minister herself.

But the message of Lamont’s resignation is that sometimes the chancellor has to take the blame for carrying out the prime minister’s policies – it was John Major who was keener to remain in the ERM. Just as Black Wednesday marked the beginning of the end for Major’s ability to carry out his plans, ditching Kwarteng may leave Truss politically impotent, even if it does appease the markets. Nevertheless – and it’s not nothing – she would still be in office.

As with Major, though, Truss’s problem is not only with the markets. It’s with the public. Pension funds selling off liability-driven investments and gilts may be incomprehensible to the electorate but rising mortgage rates are not. Current polling averages have Labour 25 percentage points ahead of the Conservatives, and Truss’s personal ratings are subterranean. Ironically, she is even rated as “indecisive” by the public. Will ditching Kwarteng look decisive? Arguably it’s Truss’s manic decisiveness that got her into this mess. It’s unlikely there’s a way out for her, Kwarteng or no Kwarteng. She will either resign or lead the party to its worst defeat.