An era has closed as summarily as it began. Chancellor Kwasi Kwarteng in his September mini-budget portentously announced a new era of growth, growth, growth driven by unfunded tax cuts on a stupendous scale. In one of the most astonishing turnarounds in British economic and political history, it and he survived just three weeks. Now it is an open question whether the prime minister and government can survive and even the Tory party in its current guise. Never has failure been so self-inflicted, so absolute and so richly deserved. Nemesis has followed hubris, but in so doing, testing the institutions of government to their limit and the lives of everyone.
It was a three-week spasm that is the culmination of a second, more long-standing, era, one that began in 1976 when the then chancellor, Denis Healey, flew early to an IMF conference to negotiate a giant loan to protect sterling at the price of swingeing public spending cuts. The postwar consensus over economic management died to be replaced by free market Thatcherism. By a neat symmetry of fate, Kwarteng flew home early from an IMF meeting 46 years later to be sacked and see the guts torn from his mini-budget. The era of libertarian free market economics that has had such a grip on the Tory party, and wider economic and political debate, has died in similarly dramatic fashion to the way it was launched.
For no Conservative chancellor will ever try to repeat what Kwarteng did. The collective authors – the gaggle of rightwing Brexiter Tory politicians centred on the European Research Group, the rightwing thinktanks, notably the Institute for Economic Affairs and the Adam Smith Institute, and the rightwing media cheerleaders – have been found out and humiliated. They preached intellectual and political snake oil. There was no evidence to support the “trickle-down” thesis that the public finances should be organised to direct largesse to the richest, irrespective of the impact on the poorest and the resulting volume of public debt, who would in response drive economic growth from which everyone would benefit. It was economic nonsense, ignoring the truths of what really lies behind economic growth, neglecting the readiness of the capital markets to buy British government debt on such scale and torching any conception of fairness.
The reaction was all too predictable. The markets have dramatically raised the cost of UK government bonds with serious consequences for the interest rate on all debt, including mortgages. To restore its financial credibility the government was forced into considering launching a period of fiscal austerity more intense than that imposed by George Osborne. Meanwhile, the electorate, contemplating sharply higher mortgage costs, greatly reduced public services and further privation for the poor, has said no to it all, offering Labour poll leads of 30% or more.
The scale of the retreat is signalled by the newly appointed chancellor, Jeremy Hunt. In early interviews, clearly aimed at the markets as much as the public, with some honesty he has said that he starts with a clean slate, that taxes may have to go up rather than down, that painful public spending cuts may lie ahead and nothing cherished is necessarily safe – whether defence spending or the full indexation of welfare benefits. It is a repudiation of the tax-cutting centrepiece of Kwarteng policies, itself nothing more than the prospectus on which Liz Truss won the Tory leadership with the support of party members.
Her shock at this reversal was evident in her dejected demeanour at the nine-minute press conference she gave on Friday afternoon – so unconvincing that the markets fell again. She is a prime minister with no workable political philosophy, no policy programme, no purpose, no base in her party and no electoral mandate. Her title as first lord of the Treasury is titular: the control and direction of economic policy has been ceded completely to Hunt, who in effect now runs the government. A number of Conservative MPs worry that any public utterance from her will make matters worse, that even allowing her to take another prime minister’s questions is to tempt political fate.
But to replace a second prime minister with a third in one parliamentary term without a fresh general election raises fundamental democratic principles. Brexit has not only upturned the British economy, forcing the stagnation from which Truss wanted to escape, it has so disoriented the Tory party that it treats the state and our public institutions as an adjunct to its internal politics – whether its attitude towards the civil service, the supreme court, public ethics or the BBC. The same must not happen to our democracy. It must be understood that any successor to Truss can only be a caretaker before offering a general election.
The silver lining in an otherwise grim landscape is that the disastrous rightwing grip on public policy has been shattered. Truss was right on one thing: it is an imperative the country breaks out of economic stagnation. The alternative to trickle-down economics is to raise public and private investment along with rising exports, the universal drivers of economic growth. Britain needs a step change upwards in public investment and it needs to recast its financial and ownership system to foster the great companies that innovate and invest. It needs to boost its trade with the EU by fully aligning with the single market and customs union. Divergence with EU rules must be off the agenda. To raise revenue, the British tax system, especially the taxation of residential and commercial property, needs to be wholly recast. We cannot continue with the council tax based on 1991 property valuations. Options that the ideological right vetoed are now, at last, feasible and on the table. The country yearns for stability, good governance and solutions. It is clear it will fall to the Labour party to provide them – probably sooner than later. It had better be ready.
