uNew Prime Minister Liz Truss smiled triumphantly as she listened to her Chancellor of the Exchequer spell out new economic and fiscal policies in the House of Commons on Friday. Kwasi Kwarteng not only announced the biggest tax cuts since the early 1970s (an estimated €60 billion), he did it with gusto.
The more indignant the calls from the opposition benches became, the more happily Kwarteng emphasized that they were “not ashamed” to stimulate growth again. For far too long one had “engaged in redistribution debates”. Now is the time to “unleash the power of the private sector” – time for a “new era”.
The Labor Party was not enthusiastic about this return to the early phase of neoliberalism. Rachel Reeves accused Kwarteng of making the bankers better and fattening the energy companies—but presenting the bill to the workers when the debt he wants to raise has to be repaid at a time when interest rates are rising. At the same time, she sarcastically congratulated him on “recognition of twelve years of economic failure”.
“It’s either brilliant or stupid”
In fact, Kwarteng’s budget speech resembled in parts a reckoning with the previous Tory governments, at least a comprehensive correction. The increase in insurance premiums introduced under Boris Johnson was withdrawn, as was his plan to raise corporate taxes.
The limits on banker bonuses introduced under David Cameron are abolished. The Prime Minister in between – Theresa May – felt slapped because Kwarteng didn’t say a word about the goal she introduced of a carbon dioxide-neutral economy by 2050.
Many spoke of a “gamble” on Friday. As long as Truss’ calculations work out and the tax cut leads to growth, the borrowing can be coped with, said Paul Johnson of the Institute for Fiscal Studies. “If not, then not.” A Tory texted journalists after Kwarteng’s budget speech: “This is either brilliant or daft. The time will tell.”
Among Tory MPs, most of whom had wanted centrist Rishi Sunak as prime minister, many are left breathless. They fear that tax cuts will further fuel high inflation and that borrowing to finance the energy package will throw the budget into imbalance. A former minister on Friday spoke of a “breath of purity” in Truss’s approach. “This is no longer a Conservative government, but a Manchester capitalist one.”
But even among Trussonomics supporters, some rub their eyes at the speed and rigidity displayed by the new government. A pro-Truss Tory strategist was quoted as saying by the Times that Truss and Kwarteng’s policies are based on the theory “that rising water lifts all boats”. “But what if the water recedes?”
Truss waives sugar tax
Kwarteng’s notion of an “entrepreneurial, shareholding democracy” could be interpreted as a reversal of the social model to which the Tories had previously worshiped. In 2010, Cameron spoke of a “compassionate conservatism”, a compassionate conservatism that was intent on balancing things out.
May pulled the party even further in the direction of European Christian Democrats. Johnson even wanted to reinvent the Tories as a “Workers’ Party” and use (counter-financed) state intervention to balance the social imbalances in the country.
Under Truss the party has returned to where it was under Margaret Thatcher. Economy has an understanding of the state according to which the government guarantees freedom and security, also steps in in emergencies, but is otherwise invisible. Truss’ promise not to introduce a sugar tax and to no longer intervene in the eating and living habits of the citizens shows how radical the departure from the “nanny state” is. The kingdom is again ruled by belief in personal responsibility and the market.
Robert Shrimsley of the often Tory-critical Financial Times was skeptical on Wednesday, but also recalled that “this policy proposal has been successful before”.