Westminster’s most hard-line advocates of free markets and lower taxes are looking on in despair as their agenda crumbles under the weight of political pressure and chaos in the financial markets.
When Liz Truss became prime minister just over five weeks ago, she promised to deliver a radical set of policies rooted in laissez-faire economics -- an attempt to boost the UK‘s sluggish rate of growth.
Yet her chancellor of the exchequer, Kwasi Kwarteng, faced a quick reality check when his mini-budget, packed with unfunded tax cuts and unaccompanied by independent forecasts, sent the pound tumbling and triggered mayhem in the gilt market. On Friday, the Times reported he is about to be fired.
“The wheels have come off very quickly,” said Tom Clougherty from the Centre for Policy Studies, a think tank founded by Margaret Thatcher and Keith Joseph which inspired the new government’s thinking. “What I hope is that other bits of the agenda can be salvaged.”
Truss and Kwarteng’s policy blitz upon entering Downing Street took three forms -- a price cap on energy; generous tax cuts; and a promise to slash red tape. Their measures included “investment zones” as well as pledges to loosen rules inherited from the European Union that govern the City of London.
The fiscal impact of the first two tranches of policy spooked markets, with the Conservatives falling 30 points behind the opposition Labour Party in opinion polls amid the ensuing crisis.
The government is now being forced to change tack, with the Bank of England insisting it will not prop up gilt prices with more purchases beyond Friday. Truss is preparing to hold a press conference to lay out which parts of her plan will change.
Sad, Angry and Frustrated
“I’m somewhere between sad, angry and frustrated,“ said Julian Jessop, an economist who has championed many of the government’s policies. “Overall the strategy is still correct, but because of mistakes made around the mini-budget, large parts of it are at risk.”
The prime minister and chancellor have long-standing connections to Westminster’s free-market advocating think tanks. Truss came up with the idea to form a group of market-liberal Tory MPs shortly after she was elected to parliament in 2010, according to Mark Littlewood, head of the Institute of Economic Affairs.
The Free Enterprise Group, as it was known, included Kwarteng. He and Truss were among the authors of a 2012 book -- Britannia Unchained -- which called for the state to be radically shrunk to improve prosperity.