Few Prime Ministers come to office facing such tumultuous challenges and few figures have been perceived as so politically shape-shifting as Liz Truss. The consequence is, whether it is the looming energy crisis, rampant inflation, the impending recession, the pressures on the NHS, the war in Ukraine or the mess of Brexit, it is difficult to judge quite how the Truss administration will approach the big issues piling up. Save for a promise to ‘fix’ this or ‘deliver’ on that or ‘hold to account’ the other, Truss has avoided giving any detail on what her government will actually do. Truss has presented herself as a populist, tax cutting Thatcherite to the party faithful; the candidate of both Johnson continuity and (unbelievably) simultaneously the fresh face of change. But throughout her career, she has shifted effortlessly from one position to another as has been politically convenient, most notably an overnight conversion from Remain campaigner to committed Brexiteer.
Where does this leave us?
Having adopted a somewhat irresponsible rhetoric during the leadership campaign, she dismissed accusations from former colleague Michael Gove — that she was ‘taking a holiday from reality’ — by simply accusing opponents of holding back Britain. It helped win her the election but one has to hope that she will shift once again. When she sits down with the Cabinet Secretary to run through the list of priorities, will Truss leave the populism behind and adopt a more pragmatic approach? The likelihood is that she will, but her supporters still expect her to throw them the red meat that she has promised.
That means that Truss will have to cut some taxes. The National Insurance rise is the obvious first target and the planned increase in Corporation Tax surely will likely not go ahead. Will that be enough for Truss to adopt the ‘tax cutting PM’ moniker that seems to be the last remaining unifying force in the modern Conservative party? One must doubt it.
The biggest obstacle to quick tax cuts is the one put time and again by Rishi Sunak during the campaign. Tax cuts means reduced tax take which means that (unless public spending is also slashed) the government will need to borrow more. And that will have a detrimental impact on interest rates and inflation.
Added to this is the energy crisis. Doing nothing is no longer seen as an option, even in the free-market Truss camp. Were consumer bills allowed to rise as predicted, it would mean a staggering £30bn of purchasing power removed from the UK economy over the next few months alone. That would guarantee a harsh recession. But it also reflects the size of additional borrowing required to cap energy bills given the reluctance of Truss to impose a windfall tax on the excess profits of energy companies. That borrowing (and reports cite £100bn extra) can mean that rather than suffering now, consumers repay the hike over the next couple of decades.
It is worth remembering, however, that this would not only be a bail out for worried consumers and the countless businesses facing financial catastrophe, but also the energy suppliers vulnerable to collapse were customers to be unable to pay up. Here, the lessons of the 2008 financial crisis might be instructive and there it was that support for industry must come with conditions rather than creating moral hazards. It would not be too surprising then were some sort of partnership model to emerge. It would mark out Truss as being politically innovative rather than simply a shape shifter. Markets have already strengthened in anticipation.
Liz Truss has achieved her lifelong ambition of becoming Prime Minister. She has done so by shifting positions, allegiances and adopting populist slogans rather than worked-through proposals. Campaigning is easier than governing though and in office the new PM will have to make hard decisions. Promises to ‘deliver’ now need to be replaced by serious policy.