When Liz Truss flew to the US on her first overseas trip as Prime Minister this week, she was unequivocal about how she would achieve her mission in office: “Lower taxes lead to economic growth, I have no doubt about it.”
There was no wave of doubt in her voice as she gave a series of television interviews on top of the Empire State Building, outlining her plans for the economy and saying she was “willing to be unpopular” to push them through. .
The prime minister may not have expected how quickly her own Tory MPs would come to criticize her radical new approach, which would turn the Treasury’s orthodoxy on its head. “I’ve never seen the party so divided,” said a skeptical MP. “She’s clearly decided she’s going to grow up or go home.”
Truss is well aware that time is not on her side. She has inherited the worst public finances in a generation, a country going through a crisis of the cost of living and creaky public services. The next general election is in two years. It’s a daunting task to even turn it around before then.
However, she also knows that she will never be more powerful than her first few weeks in office. For now, most of its critics are holding the backseats of the Tory council—at least in public—and government agencies are ready for action.
She and her chancellor, Kwasi Kwarteng, have been working on government plans for more than a decade, since they wrote their book Britannia Unchained, the first draft of Trussonnomics, a frenzied ride through free markets, deregulation and the small state. She is determined to make seismic changes.
An ally says: “It will not be a comfortable two years. Liz isn’t afraid to break things. But if she can drive growth and people feel like they have a little more cash in their pockets for the next election, it’s worth it.”
Not everyone on her own side agrees. The Commons banks behind Kwarteng were muted. Grim-faced MPs barely cheered. Some of those with “red wall” seats are baffled that tax cuts benefit the wealthy so disproportionately. “It’s electoral suicide,” one despaired. Even some of her supporters admit that her plans are “brilliant, or they are insane”.
If they do well, she wins big, turns the economy around and wins another term in office. If they go wrong — as many mainstream economists and politicians suspect they will — it could be an economic disaster that would destroy the economic credibility of the Tories in a way not seen since Black Wednesday in 1992.
The success, or otherwise, of her experiment will take months to measure. There will be a slew of new legislation, removing the rules for everything – from planning to finance to immigration – that she believes has held back growth. But his way through parliament will almost certainly be bumpy.
The eventual release of the Office for Budget Responsibility forecasts will be another moment of acute danger for Truss. The Treasury has seen a draft but refuses to release details, raising fears that the forecast will overturn its promise to boost growth “over the medium term” by 2.5% – widely believed in the next two to five year – undermine.
There is now a stark ideological rift with Labour, which kicks off its party conference in Liverpool this weekend, with leading opposition figures pondering how to take on a government it has criticized for raising taxes but is now cutting to pieces. while their own plans for growth have not yet dawned. With £72bn in additional loans between now and April, some are wondering if there will be any money left over for their own spending plans.
Kwarteng ushered in a “new approach for a new era” — despite the fact that he and Truss have both been in government for years — when he announced the biggest tax cuts since then-Chancellor Anthony Barber’s “dash for growth” in 1972.
Barber’s radical plan to boost growth was for a while seen as a daring experiment. The economy has indeed picked up. Truss and Kwarteng could also see a brief economic “sugar rush” once markets get used to the idea. But Barber’s proposals ended in economic disaster. With inflation over 10%, interest rates set to rise further and a recession on the horizon, it’s hard to see Trussonnomics end any other way.