Liz Truss has sent a legal letter to Keir Starmer demanding he stops making “false and defamatory” claims that she crashed the economy.
The former prime minister sent a six-page “cease and desist” letter accusing Starmer of harming her reputation and contributing to her losing her South West Norfolk seat in the general election.
The row came as the UK’s long-term borrowing costs hit their highest level since the 2008 banking crisis, and the value of the pound reached its lowest point in a year.
Truss’s legal letter argued that the market meltdown that followed her disastrous mini-budget in October 2022 could not accurately be described as “a crash of the economy” because it did not involve a fall in GDP or rise in unemployment.
Citing a report by the economist and rightwing commentator Andrew Lilico for Europe Economics, the letter said the economic turmoil was the result of factors over which Truss had “no control”.
In response, the prime minister’s spokesperson said that Starmer would not be moderating his language about Truss’s record. “I think you can ask people up and down the country what the impact of previous economic management was on their mortgages, on inflation, and I think you’ll get similar answers,” he said.
In a video, Truss claimed that when she tried to slash taxes and regulation she was “undermined by the economic establishment” and “smeared by the Labour party and by members of my own party for having crashed the economy”. She accused Rachel Reeves, the chancellor, of having “pushed this country to the brink of economic crisis” with her policies.
Truss’s legal letter claimed that the dramatic rises in interest rates and long-term government borrowing costs during her short-lived premiership were the result of failures by the Bank of England, and that describing them as an economic crash suggested an “ignorance of basic economics”.
Pension funds managing vast sums came close to collapse as a result of the meltdown in government bond markets after Truss’s mini-budget. Defined-benefit pension funds, which guarantee a set income in retirement no matter how investments perform, were caught out because they had relied heavily on LDI (liability-driven investing) hedging arrangements, which involve holding government bonds as collateral.
When the value of government bonds dropped dramatically after the disastrous mini-budget, pension trustees were forced to sell their holdings at speed to raise cash, which further drove down the value of bonds, creating a “doom loop”.
Crediting Lilico’s report, Truss’s legal letter argued that “the LDI crisis would have happened at some point in any event” and that it could not be described as “a crash of the economy”.
Less than two weeks after her mini-budget, Truss ditched its central plan to scrap the 45p top rate of income tax, in an attempt to stop the economic meltdown it had created. Within three weeks, she had replaced her chancellor, Kwasi Kwarteng, with Jeremy Hunt, who immediately ditched almost all her economic policies.
Senior Conservatives, including Rishi Sunak, have been scathing of her handling of the economy. In response to Starmer criticising Truss’s mini-budget at prime minister’s questions, Sunak told the Commons in April: “Everyone knows that two years ago I wasn’t afraid to repeatedly warn about what her economic policies would lead to, even if it wasn’t what people wanted to hear at the time.”
Truss’s letter, first reported by the Daily Telegraph, marks the latest attempt by Britain’s shortest-serving prime minister to salvage her political reputation.
A reference to “the disastrous Liz Truss mini-budget” was excised from official Cabinet Office briefing document in July after Truss wrote to Simon Case, the then cabinet secretary, to complain.
