Britain’s Prime Minister Liz Truss holds a press conference in the Downing Street Briefing Room in central London on October 14, 2022.
Daniel Leal | AFP | Getty Images
LONDON — Just six weeks into British Prime Minister Liz Truss’s term in office, the political future of another Tory leader appears in jeopardy.
Truss said on Monday she was sorry for the mistakes made by her government and accepted responsibility for having “gone too far too fast” with its controversial approach to the “trickle down” economy.
The “trickle down economy” theory is that tax breaks and benefits for the wealthy will eventually trickle down to everyone else. The approach has been sharply criticized by British political opponents – and even US President Joe Biden – at a time when Britain faces a deepening cost of living crisis.
Truss’s apology – whose “Trussonomics” political stance has been compared to that of his political idols Ronald Reagan and Margaret Thatcher – followed one of the most extraordinary reversals in modern British political history.
On Monday, newly installed Finance Minister Jeremy Hunt radically tore up almost all of the tax cuts promised by Truss, halted his flagship energy policy and made it clear that there would be public spending cuts to come – something something Truss said she was “absolutely” not considering doing last week.
The about-face leaves Truss’ economic vision in tatters, with five of his own conservative lawmakers now openly calling on him to step down.
Truss insisted she stay on, tell the BBC that she intends to ward off criticism from across the political spectrum and lead the Conservatives through the next general election.
Britain’s new finance minister, Jeremy Hunt, made big budget announcements on Monday.
House of Commons – PA Images/Contributor/Getty Images
Kallum Pickering, senior economist at Berenberg Bank, said in a research note that Hunt ending “Trussonomics” meant it was now likely that Tory lawmakers would replace the prime minister sooner rather than later.
“The removal of large parts of her political manifesto suggests that she is in power in name only,” Pickering said, noting that it would not be surprising if British politics “get rowdy” in the coming days as the Truss government collapses.
“We’ve been here before with former prime ministers. Once the resignations start and the letters of confidence go to the party board, it’s usually only a matter of time before the prime minister does. resign.”
Pickering said that in choosing Truss’s replacement, Tory MPs would likely choose someone who has the confidence of the financial markets.
That could include former finance minister Rishi Sunak, who lost to Truss in the recent leadership race, or Hunt, “whose star seems to be rising based on his recent performance,” Pickering said.
“Rather bleak” growth outlook
Hunt’s reversal of nearly all controversial tax measures announced by his predecessor Kwasi Kwarteng on September 23 appeared to ease investor concerns earlier in the week.
The pound rose against the dollar on Monday, along with government bond prices.
Truss and Kwarteng have sought to boost Britain’s anemic economic growth with forecasts of unfunded tax cuts for a total of around £45 billion ($50.7 billion). The so-called “mini-budget” triggered chaos in financial markets, emergency intervention by the Bank of England and several humiliating reversals.
Truss sacked Kwarteng last week amid mounting political pressure, although the market fallout continued until Hunt intervened on Monday.
“The picture for growth is quite bleak,” Daniel Vernazza, chief international economist at Unicredit, told CNBC’s “Street Signs Europe” on Tuesday.
Hunt’s announcements were designed to restore market stability, Vernazza said, but did little to improve Britain’s growth prospects.
“We have a big squeeze in real incomes and higher interest rates. There are plenty of headwinds for the UK economy over the next 12 months,” Vernazza said.
An orderly transition?
Opinion polls show that only 10% of Britons view Truss favourably, according to a recent survey by market research firm YouGovwhile support for the Conservative Party plummeted.
For now, the ruling Conservatives still have a large parliamentary majority, and Truss, in theory at least, still has two years before a national election is held.
However, analysts at political risk consultancy Eurasia Group assign only a 10% chance that Truss will be able to retain his post as prime minister.
“The consensus in Westminster is now that the Prime Minister is so weak that she can do nothing without the consent of her Chancellor. She cannot afford to lose another. position has not stabilized its position in the way it had hoped,” Eurasia Group analysts said.
“Given these pressures, Truss may even accept that she is not up to it and advise Sir Graham Brady, the chairman of the 1922 committee, that she wants to leave with some dignity intact, with an orderly transition to a time that suits the party,” they added.
“Though she has inevitably been shaken by events, her allies insist she is determined to continue her ‘mission’, even though it is an open secret that Trussonomics has self-destructed. But the odds can increase if things go from bad to worse.”