Liz Truss is the new prime minister of the UK – the fourth Conservative in six years.
On her second full day in office she tackled the cost of living crisis, announcing a plan to cap energy costs for consumers for two years and support for businesses for 6 months – as well as controversial promises to restart fracking for shale gas and increase domestic oil and gas production.
Two weeks later, her new chancellor Kwasi Kwarteng announced the biggest series of tax cuts in 50 years – hailed by the government as the start of a new era intended to promote economic growth and criticized for mostly benefitting the rich and already privileged.
The government is controversially funding it by increased borrowing – widely estimated at about £200 billion this year – at a time when interest rates were rising because the Bank of England, like many other government central banks, were trying to dampen inflation.
The government was betting that increased growth would cover at least some of that cost but there was no official forecast or detail.
Immediate reaction from the currency and stock markets was negative – both the FTSE index and the pound fell around 2% or more. Sterling had already fallen steadily through August and was already down 15% over the year to its lowest point since 1985, mostly attributed to a strong U.S. dollar.
The government’s tax cuts and other measures included:
- cutting the basic rate of income tax from 20% to 19% – estimated to save 31 million taxpayers an average £170 a year
- abolishing the 45% highest rate of income tax – a tax cut of £55,000 for people earning £1 million said Torsten Bell, chief executive of the Resolution Foundation think tank
- cancelling a planned rise in corporation tax to 25%
- removing the cap on bankers’ bonuses
- cutting stamp duty on home purchases by doubling the thresholds at which it will apply
- cancelling the rise in National Insurance payments which was originally said to be aimed at supporting the NHS and social care
- cutting taxes for businesses in designated “investment zones” for 10 years
- legislating to require trade unions to put pay offers to a member vote so strikes can only be called once negotiations have fully broken down
- legislating to cut restrictions to building new roads, rail and energy infrastructure
- forcing people on social service benefits to work more
Prime Minister Truss admitted her tax cuts would disproportionately benefit the rich.
“I don’t accept this argument that cutting taxes is somehow unfair,” she said. “I mean, what we know is that people on higher incomes generally pay more tax. So when you reduce taxes, there is often a disproportionate benefit because those people are paying more taxes in the first place.
“We should be setting our tax policy on the basis of what is going to make our country most successful, what is going to deliver that economy that benefits everyone in this country.”
The opposition Labour party said the measures would “reward the already wealthy”, were an “admission of 12 years of economic failure” by Conservative governments, and would not boost economic growth as it will be funded by unnecessary borrowing instead of a windfall tax on oil and gas firms.
“This is casino economics – gambling the mortgages and finances of every family in the country to keep the Tory party happy,” Shadow Chancellor Rachel Reeves said.
The independent think tank the Institute for Fiscal Studies called the plan a “gamble”.
Director Paul Johnson referenced Prime Minister Ted Heath’s chancellor Anthony Barber in the 1970s as he commented:
“Barber’s ‘dash for growth’ then ended in disaster. That Budget is now known as the worst of modern times. Genuinely, I hope this one works very much better.”
The new prime minister’s earlier announced plans to cap energy costs for consumers for two years raised questions about costs and funding and were criticized by opposition parties, charities, economic think tanks, and investment analysts.
The plan would effectively freeze annual household bills around current levels – combined with an existing energy bill discount implemented by her leadership rival former chancellor Rishi Sunak – and ease the immediate cost of living crisis.
Truss also fired two top civil servants in what the leader of the senior public servants’ union called “an ideological purge”.
On her first day on the job she approved the sacking of Sir Tom Scholar, the experienced permanent secretary at the Treasury, and national security adviser Sir Stephen Lovegrove. She was widely expected to replace Simon Case, cabinet secretary, in the coming weeks.
Commenting about Scholar’s sacking, former Tory chancellor Lord Philip Hammond said he was “disappointed but not surprised. I’m a little a bit alarmed about what has become a bit of a trend in British politics for incoming prime ministers to fire senior civil servants or at least manoeuvre them out of the door. This is something we’re used to seeing in the US. It has all sorts of negative consequences. It undermines a very strong principle and tradition we have that the civil service is a continuing non partisan service.”
Three days earlier Liz Truss was confirmed as the new leader of the Conservative party.
The former foreign secretary was elected Conservative leader by 81,326 party members, beating former chancellor Rishi Sunak in a six-week leadership campaign. Sunak received 60,399 votes.
The party says 83% of its eligible 172,000 members voted, with Truss taking 57.4% – a smaller share than any of her predecessors – and Sunak 42.6%.
That’s around 0.3% of about 46 million registered voters in the UK.
Boris Johnson used his last speech as ousted prime minister to note what he considered his major achievements – Brexit, the vaccine rollout, and support for Ukraine – and possibly to hint at a return to power through a reference to obscure Roman leader Cincinnatus. There has already been speculation about a possible Boris comeback.
In her first speech as prime minister Liz Truss first praised Johnson and then promised action on rising energy bills and the cost of living crisis, saying she would focus on the economy, energy, and the NHS and make Britain “an aspiration nation”.
The Politico website has listed a total of 149 promises she made while campaigning for the leadership.
She faced a wide and difficult range of issues – a faltering economy beset by fast rising costs, inflation and widespread strikes, a National Health Service with major staffing and systemic issues, a long unresolved dispute over the Brexit Northern Ireland protocol which has shut down its parliament and caused friction with the EU, a continuing struggle over the Scottish government’s wish for an independence referendum, and ongoing issues with immigration – to name a few. Polling has shown a recent consistent lead for the opposition Labour party and a public deeply sceptical about Liz Truss’ leadership including a significant fall in her ratings through the August leadership campaign.
Polling has shown a recent consistent lead for the opposition Labour party and a public deeply sceptical about Liz Truss’ leadership including a significant fall in her ratings through the August leadership campaign.
Liz Truss appointed prime minister
Kwasi Kwarteng “mini budget”
Kwasi Kwarteng’s key points
Changing economic direction – FT
Rewarding the rich – Liz Truss
Rewarding the rich – Labour
Gambling the future – IFS
London Stock Exchange FTSE index
Liz Truss announces energy price plan – The Guardian
Liz Truss announces energy price plan – FT
Labour slams lack of windfall tax
Analysis from Institute for Fiscal Studies
Questions from industry
At least five questions about the energy plan
Energy plan unveiled – as it happened
Truss fires top civil servants
Top Treasury civil servant fired
Liz Truss first address to the nation
Liz Truss full address
Liz Truss wins Conservative party leadership
Narrowest leadership win in 20 years
The leadership contest
The New York Times on how the UK selects a new leader
A long list of 149 leadership campaign promises
Who is Liz Truss
The Liz Truss cabinet
Boris hints at comeback?
Tory MP plot to bring back Boris?
Truss not better than Johnson?
Britons disappointed that Liz Truss is next Prime Minister – YouGov
Truss poll ratings fall during leadership campaign – Opinium
Keir Starmer leads Truss on leadership – Ipsos
Election opinion polling summary – Wikipedia
Politico poll of polls
Sterling levels Sept.8
Impact of falling pound