United Kingdom: Liz Truss tries to defend her brief management and the pound sterling falls further | The Prime Minister at a crossroads

From London

Just four weeks after being elected Leader of the Conservative Party and Prime Minister, the closing speech of Liz Truss before him annual party congress It was to be his hour of glory, the moment to announce to the world that he was freeing the UK from the chains that prevented it from returning to the global pinnacle. With the 180-degree turn that she gave this Monday regarding the tax cut for the richest, with members of her cabinet disavowing it and her own deputies in a state of rebellion, Truss only managed to sound defiantlike someone trying to save his head from the fatal guillotine with a victorious shout.

Normally the closing speeches of the party congresses, one of the great events of the British political calendar, last between an hour and an hour and a half because they serve for the leaders to give an overview of the national and global situation and of the plans that the government (or the opposition) for the next 12 months. In this case it lasted just over 30 minutes: it was about avoiding further trips. He didn’t make it: the pound and bonds fell shortly after his speech. It’s what happens every time she or her ineffable finance minister, Kwasi Kwarteng, open their mouths.

El plan Truss-Kwarteng

Reluctantly Truss recognized that in the budget of discordpresented on September 23, there had been mistakes, but he vindicated his spirit and its lyrics with the ultra neo-liberal dogmatism that characterizes it. “The challenge before us is immense. A war in Europe, a more uncertain world after Covid, a global economy in crisis. That is why we British have to change course. And when there is change there is disruption. Not everyone will be in favor. But everyone will benefit from a growing economy that will lead us to a better future. So we have a clear plan that we are going to execute,” Truss said.

The plan comes from the pages of the book that the dynamic duo Truss-Kwarteng published in 2012, Britannia Unchained. This “liberation from the chains” that oppresses Great Britain is the massive reduction of taxes on the richest and corporations, the adjustment of public spending and the frontal fight against unionism.

In her speech to the conference, the prime minister called for another pillar of the budget: help for households and businesses to deal with rising gas and electricity bills. “Our response to the energy crisis is the most important part of our budget,” Truss said.

In August there was only one voice that was raised against this aid: that of Liz Truss herself who did not want anything to do with the State providing aid. The danger that thousands of companies would go bankrupt and tens of thousands of households would end up in “energy poverty” (allocating more than 10% of income for gas and electricity) or the removal of the homeless, ended up bending their intransigence. .

This 180 degree turn has a problem. The aid will cost 60 billion in the next six months, about 150 billion if it is extended beyond that. Truss rejected the labor proposal for a tax on the extraordinary income of the oil and energy companies that have made a killing with the crisis. But he also announced tax cuts of 45 billion pounds.

Massive increase in spending, massive cut in income gives one result: the accounts do not close. Only a £65bn Bank of England intervention last week somewhat calmed the choppy waters in British sovereign bonds and the British pound. The intervention sought to give the government time, but it has a limit: next Wednesday.

Thus, Truss had to make another 180 degree turn on Monday regarding one of the central measures of the budget: the tax reduction for those who earn more than 150 thousand pounds (which would go from paying 45% to paying 40%) . The calm in the markets lasted a few hours because the accounts are still not closed and the government seems lost in the fog.

On the numbers side, the Truss-Kwarteng reversal alone constitutes £2bn of the £45bn tax cut. As published today by the conservative weekly The Economist, world financial markets, in a state of global turbulence, have already chosen the weakest link in the chain in the developed world: the British pound. But also, on a political level, there is a consensus in all the media that this annual Conference of the Conservatives was one of “the most disastrous of any party that one remembers”.

Rebelion on the farm

On Tuesday, the congress looked like a battlefield. In an interview with the BBC Home Secretary Suella Braverman said she was “very disappointed” with the U-turn on the tax on the rich and that there was a plot afoot among Conservative MPs to bring down the government.

Braverman, who despite his Indian origin is from the hard anti-immigration wing, pointed to two deputies and former ministers of Boris Johnson, who had criticized the tax reduction: Michael Gove and Grant Shapps. That same Tuesday Shapps had launched a warning to the State of the polls that give Labor between 25 and 30 points of advantage. “I don’t think Conservative MPs will sit back if the polls continue like this. The next 10 days are going to be critical,” Shapps said.

The rebellion among the Conservatives spilled over into one of the government’s plans to finance the tax cut: cutting social benefits. In an interview, Truss refused to rule out that social benefits would become aligned with average income (a 6% average increase) and not with inflation (10% or more): this would save some 4 billion pounds.

Two members of Truss’s cabinet, Penny Mordaunt and Robert Buckland, led the charge against this potential move. “I have always been in favor of pensions or our welfare state being aligned with inflation. We can’t hit with one hand and serve with the other,” Mordaunt said.

Added to this turbulent panorama is an unquantifiable dose of instability because the reality is that nothing has been decided on this budget that raised so much financial and political dust. On the one hand, the government’s final numbers will only be presented at the end of November together with the evaluation of its impact by the self-sufficient Office of Budget Responsibility. But in addition, the budget has to be approved by Parliament.

With the internal deterioration of the ruling party, it is not ruled out that many conservatives will make common cause with the opposition if Truss does not make a few more 180-degree turns. This puts the prime minister between a rock and a hard place. She is game over if he does not back down and Parliament does not approve the budget, a defeat is equivalent to a motion of censure. But if he goes back, his political-economic project will be emptied of all sustenance and credibility.

empty applause

The British are traditional and lovers of protocols. The protocol of these congresses is that the leaders are applauded and even receive standing ovations. With the conservatives, it is enough to raise your voice to criticize, as Truss did, her black beasts: the European Union, the unions and what she called the “coalition against growth”. But the unwritten protocol also states that this ritual of good manners does not last.

In 2003 the leader of the Conservative Party, Ian Duncan Smith, received 19 standing ovations in his closing speech at the Conservative Party Congress. A few weeks later the Parliamentary Party withdrew confidence in him: goodbye Duncan Smith. Of course Duncan Smith was leader of an opposition party and Truss is prime minister, but the background noise is deafening. Truss bets that in six months the economy will respond with vigorous growth and this whole crisis will be forgotten. Neither of these two conditions is guaranteed. And there is no plan B in sight.

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