Monday was the first day of calm in the UK, but it’s impossible not to see the final weeks of British politics. A new Conservative government, full of ambition, got the keys and slammed into a brick wall of economic reality. The fallout has been horrific. Liz Truss lost her Chancellor of the Exchequer and her closest ally as well as her entire economic program in the crash. His own leadership is on life support.
His party must now assess the damage, decide who they want in the driver’s seat and where they want to go.
The question of leadership is the easiest. Whether the Tories find a way to bring in former Chancellor Rishi Sunak – who pretty much predicted the whole sordid scene – or elevate someone else, it’s clear that Truss is about to see his license revoked. Only the precise mechanisms and timing of its replacement remain to be determined.
The big question is what the last few weeks mean for his party. Will he decide that she simply drove too fast and recklessly or tear up the whole roadmap?
At least, finally, Britain has adults in the room. New Chancellor Jeremy Hunt calmed markets and lifted the benches a bit, stressing the importance of clear and convincing communications and real-world economic policy-making. Although he lost two leadership campaigns, Hunt is an experienced cabinet minister who has served in government for nine of the 12 years the Conservatives have been in power.
In his statement to the House of Commons, Hunt made a point of saying that he had already met twice with the Governor of the Bank of England, Andrew Bailey, and consulted with the Office for Budget Responsibility, Treasury officials and the Debt Management Office. He announced the quartet who will form a new economic council to provide economic advice – intellectual firepower in the form of Rupert Harrison of BlackRock Inc., who advised former Chancellor George Osborne in the aftermath of the global financial crisis, and two former Bank of England officials, Sushil Wadhwani and Gertjan Vlieghe, and Karen Ward of JPMorgan Chase & Co.
And yet, what about the direction of movement? From the lofty post-Brexit ambitions of Boris Johnson of global Britain to the radicalism of Truss on the supply side, this is now a government whose grand economic ambition is – wait for it – stability. His goal is to drive very slowly down the safety lane and hope to make it to the next rest stop in one piece. It’s refreshing, in a way. After years of three-word slogans aimed at populist manipulation (Take Back Control, Get Brexit Done, Save the NHS), it’s clear to say that the government’s main task now is to restore trust.
Hunt got rid of 60% of the tax cuts put in place by Kwarteng, time-limited the uncapped liability of the government’s energy support program and promised that there would be demands for spending restrictions to all levels. While this may appease markets, it will mean taxes as a share of gross domestic product will hit 36% of GDP, their highest level outside of wartime. There will be pain on the expense side ahead when Hunt presents his financial statement on Halloween.
It will look suspiciously like austerity to many people. It leaves the question open as to how Hunt can still try to put Britain on a growth trajectory. There are things the government can do, of course, even with spending constraints. He can at least continue some capital spending to improve infrastructure (as Hunt, to his credit, has indicated he is in favor of). It can do more to attract immigrant labor (silence there from the government). It can delegate more powers and finance local authorities, which are often better placed to implement public services. But it will be difficult now to integrate these policies into a new government vision that unites disparate conservative wings.
“Once you’ve crashed the car at 100mph you’ve damaged it for good and you’re going to be paying a lot more on your insurance for years to come,” Labor leader Keir Starmer said on Monday. He was talking about Britain’s reputation for fiscal responsibility, but he could just as well have been talking about the future of the Conservative Party.
More from Bloomberg Opinion:
• Liz Truss is still in office, but no longer in power: Thérèse Raphaël
• Hunt and the Markets Take Truss on a Welcome U-Turn: Marcus Ashworth
• Have the UK’s Keystone Cops hit the peak of market chaos yet? : John Authers
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Therese Raphael is a columnist for Bloomberg Opinion covering health care and British politics. Previously, she was the editorial page editor of The Wall Street Journal Europe.
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