Neil Heriot | October 31, 2022
Oct. 25 was the end of Liz Truss’ premiership, which was, in simple terms, a complete disaster. In only six weeks, the pound fell to its lowest level against the dollar, Labour (the opposition party) achieved an unthinkable 33-point lead in the polls, and the Tories (Conservatives) are at risk of total collapse. Events happened so quickly that it's hard to think of this as something unavoidable, as one set of bad news after another appeared like a chain reaction. In reality, this could have been completely avoided.
The beginning of the end began when Kwasi Kwarteng (the finance minister at the time) unveiled the “mini-budget,'' which was full of unfunded tax cuts. This mini-budget was everything a tax-hating libertarian could have wanted, but it was not what the U.K. needed. Truss chose to remain ideologically pure and rigid, and please her base even in the face of pressing issues, and she paid the price for it.
Countries will always have major problems that the government must respond to and solve. According to the Office of National Statistics, inflation in September 2022 was 10.1% which meant Truss took office with larger problems than her predecessors. The solutions to these problems can be and often are painful and unpopular with the general population, but the short-term pain from these solutions is understood to be temporary in exchange for the long-term benefits once the problem is more manageable.
In today’s example, central banks in various countries, including England, are raising interest rates to address inflation. These interest rates can hurt today, especially for those paying off debts such as a mortgage. Even so, it is understood that given time, these rates will bring inflation down, and the consumer will benefit from lower prices at places such as the grocery store or gas pump. This is basic economics, and economists have been smart enough to follow it, ideology be damned.
The mini-budget did not follow basic economics at all. Rather than reduce demand, which has driven inflation combined with a lack of supply, the tax cuts from the mini budget would only increase demand due to increasing disposable income, and by extension worsen inflation. The markets and the electorate realized this, and the resulting backlash led to a couple reversals of the mini budget. When this failed to satisfy the markets, Truss sacked Kwarteng, turning him into a scapegoat for the whole catastrophe. This still did not quell the anger of the markets, and Truss succumbed to pressure and resigned a week later. Yet the backlash that ended Truss and Kwarteng wasn’t universal.
Even as everyone else united against the mini-budget and its architects, Truss’s allies continued to support her even as her ship was sinking. Their justification: the mini-budget adopted their ideals of low taxes. In other words, it may be terrible economic policy, but since its pure “fiscal conservatism,” it is therefore acceptable. Instead of doing a politically unpopular yet necessary action in trying times, Truss would not bend on her ideologies, and chose to please her base instead.
Rishi Sunak, who Truss defeated in the Tory leadership election in September, had warned of the risks of Truss’ plans throughout the campaign. Tory membership did not care to listen, however, and elected Truss, who introduced the mini-budget shortly thereafter. But after the resignation of Truss, he was elected as Conservative leader unopposed and is now the new prime minister. Unlike Truss, Sunak’s approach to solving inflation is by way of spending cuts, which according to the Financial Times may reach up to £50 billion. But it is important to note, however, that as of the writing of this article the New York Times reports that these cuts have been delayed and are yet to be finalized and implemented. The British electorate isn’t going to like spending cuts to their public services, but given the markets having somewhat calmed down from the chaos of Truss’ premiership, they have a greater chance of working to bring down inflation than the mini-budget did without crashing the British economy.
Other governments abroad would do well to study and learn from the mistakes of Truss, especially in America. I have seen many American politicians, some far-left progressives and others far-right Trumpers, support positions and policies that are very popular with their respective bases. These positions can solidify the support of these bases, but they can only damage and harm America socially and/or economically while alienating the general electorate. For the good of the country, American politicians must push for policies that might be unpopular, yet necessary, and they must shut down any harmful, ideologically pure policy. It is likely that the desire for reelection will win over the good of the country, but there have been a few instances where American politicians have managed to successfully abandon ideological rigidity to get something necessary done. The media picked up on this, with the New York Times acknowledging the compromise and concessions made to get these bills passed. In addition, reflection from CNN has shown American voters have punished those who have attempted to remain ideologically pure in 2020 by voting them out of office and voting against their proposals. Ideological rigidity has ended many politician’s careers, and it has damaged countries when allowed to become law. Hopefully, American politicians will look at Truss, who chose to please the base, and think twice before pulling anything similar here.
Truss was not the first world leader whose efforts to remain fully committed to their ideologies ruined their careers and/or countries, but she is unlikely to be the last. Rishi Sunak, and by extension the Conservative Party, are on very thin ice, and the world is watching very closely to see if he will repeat the mistakes of Truss or be the steady head the U.K. desperately needs. World leaders must understand that when they enter office, they will always face challenges that must be addressed, sometimes with tough measures. Even if this strays from their ideology and costs them reelection, it is still the right thing to do.
The political base is important to ensure the leader has the mandate and political power to get things done, but it cannot come at the expense of the rest of the electorate who did not vote for them. Truss might be able to say that she delivered what she promised to the Tory membership, but she crashed the economy and destroyed investor confidence in the British government at the same time. What’s worse for her, however, was that the first act of Jeremy Hunt, Kwarteng’s successor, was to scrap the mini-budget and nullify everything that Truss achieved. Her legacy was to leave the UK in a worse state within 50 days with nothing to show for it, and it’s all because she chose to stick to her ideology and please the base, not make the hard decisions needed. If future politicians do not learn from Truss’s mistake, they will repeat it.