A year ago, Britain’s shortest-serving prime minister left her office in Downing Street for the last time. Only 49 days had passed since Liz Truss had kissed the Queen’s hand, but her stint at the top would have lasting effects for the British economy, and the fate of her party and their allies.
Truss is back, sort of – banging the tax cut drum at Tory party conference to a packed room of adoring fans, whose cries of joy for their fallen leader do little to mask the astounding setback their politics has suffered. A year on, it’s worth looking back at what happened with Truss, and what we can learn from that wild time.
While most voters see the collapse of Truss’s premiership as a lucky escape, a small group of free-marketeers consider it disastrous – a fall from a summit they’d been climbing towards for a long time. Those followers, bound together in a nexus of libertarian economic pressure groups and think thanks – the Institute for Economic Affairs (IEA), the Taxpayers’ Alliance (TPA) and the Adam Smith Institute (ASI) – had been manoeuvring for years to have one of their disciples in the top job.
Once Truss’s bid for leader took off – and her main opponent, Rishi Sunak, saw his chances narrow – minds turned towards a ‘first budget’. Much of the prep was done by IEA duo Julian Jessop and Andrew Lilico, who alongside then Boris Johnson aide Gerard Lyons were known as “the Trussketeers”. As one former cabinet minister told biographers Harry Cole and James Heale, before her budget Truss was “staking a lot on a particular IEA, TPA, ASI view of the world that, if implemented sufficiently clearly, [would] give the economy the shot it needs […] she thinks a bit like a surgeon who has seen a patient with various remedies that haven’t really worked, so she thinks ‘let’s get the biggest hypo possible, pack it full of adrenaline and pump it into the heart’.”
The budget on 23 September was an attempt at that adrenaline shot, but it sent the economy into cardiac arrest and the country into shock. Among the measures were the scrapping of the highest rate of income tax, slashing a planned increase in corporation tax, binning a cap on bankers’ bonuses and reducing the basic rate of income tax. It was, in many ways, a free marketeer’s dream.
What happened next was dramatic. The pound fell sharply, and within days many mortgage products were withdrawn from the UK market. The writing was on the wall for Truss. As Fran Boait, executive director of Positive Money, said: “Governments in the UK have been made and broken on the back of mortgage rate rises.”
It wasn’t just the markets and international institutions which reacted badly – the British public did too. While a majority supported the 1p cut to the basic rate of income tax, almost all other headline policies were unpopular. Only 10% supported the abolition of the highest tax rate, and 14% thought removing the cap on bankers’ bonuses was a good idea. Overall, only 19% said the measures were fair, and even 47% of Conservative voters said they was unfair. By 29 September, a YouGov poll found that Labour had a 33-point lead over the Tories – the biggest gap since the 1990s. It wasn’t long before policy reversals began, then the sacking of the chancellor and, finally, on 20 October, the resignation of Truss herself.
To understand what happened, it’s worth listening to what Truss and those around her say. Their arguments are varied, but tend to boil down to two main strands. First, they blame liability-driven investing, or ‘LDI’ – a hidden bomb in the pension system that was found by parliament’s industry and regulators’ committee to have “played a significant role in the financial turmoil following the September 2022 fiscal statement”. Second, they say that they came up against “the leftwing economic establishment”. The claim is that economics is captured by the left, including the Treasury. This is clearly untrue; there have been years of brutal economic cutbacks and wage suppression.
But what does seem correct is Truss’ belief, written out in her 4,000 word Telegraph piece, that “large parts of the media and the wider public sphere had become unfamiliar with key arguments about tax and economic policy and over time sentiment [has] shifted leftwards”. As Kate Andrews, the free marketeering economics editor of the Spectator and ex-IEA think tanker, said: “That point is almost certainly true.”
According to the British Social Attitude Survey, the British public are more pro-redistribution now than at any time since the 1990s. As the report authors say: “So far as the public are concerned at least, the era of smaller government that Margaret Thatcher aimed to promulgate – and which Liz Truss briefly tried to restore in the autumn of 2022 with her ill-fated ‘dash for growth’ – now seems a world away.”
This shift in attitude is, without doubt, in part due to a negative change in people’s material circumstances. Workers in Britain earn less now in real terms than they did a decade ago, our high streets are crumbling, and our hospitals are failing. The economic system is plainly not working for people. As Keir Milburn puts it, those born since the late 1970s are turning from “generation screwed” into “generation left”. Is it any wonder that 67% of young Brits want a socialist economic system?
Since the dark post-crash days of 2010, when the political discourse was essentially defined by which party would cut spending the hardest, things have been changing. Efforts from economic progressives to reject the idea that the economy is like a household budget, and tell a different story, have, to some extent, paid off. It’s rarer now to hear discussions on the economy dominated only by neoliberal voices. Sometimes debates are even framed around ‘how much to spend’ rather than ‘how much to cut’. Covid played a part in this, of course, giving people a real life example of how an active state can make decisions and spend money which save lives, and support people through the toughest times.
It wasn’t just a narrative environment which limited Truss and her chancellor’s room for manoeuvre. Ahead of their budget, a series of powerful campaigns were building – most notably the thousands of people signing up to ‘Don’t Pay’, pledging to not pay their energy bills if the government didn’t offer serious support. With morning TV and radio full of interviews with ordinary people pledging to not pay, and a sense that doing nothing wasn’t an option, Truss was forced to promise some fairly big spending – while maintaining her steadfast commitment to slashing taxes. That position was never going to hold.
And so it fell apart, quickly, with Truss gone just over a month into her premiership – after a number of the key tax cuts had already been reversed. It’s worth noting just how profound a defeat Truss’s premiership was for the libertarian right. The IEA’s director, Mark Littlewood, put it clearly when he said: “I’m pretty distraught about it”. They had their moment in the sun, and they were burnt. We should look back on Truss’s downfall as a victory, not only against an extreme version of libertarian economics, but for the majority of people who want a major shift to a more redistributive economy. The scene is set for something different, and what’s next is up for grabs.
After years of economic mismanagement and scandal, the Conservatives appear to be in freefall – attempting to stoke a culture war on migration or net zero in a failing attempt to stop the rot. Labour has a leadership desperate to quash the left and be ‘sensible’ on the economy as they aim to overturn a Conservative majority. Their argument is that they need to earn back trust on the economy, and that the only route to power is winning back a chunk of voters who mistrust them on economics management. On the surface, and looking at the polls, that task has been a success.
The economic conditions however – described by the TUC as a “doom loop” – clearly require major economic interventions that will mean investment matching at least the ambition of what’s been seen in the US. If Starmer’s team are serious about achieving their mission to make the UK the fastest-growing major economy by the end of a first Labour term in government (something that’s realistically mostly out of his control), he has no choice but to go big.
Perhaps that’s why some of his front bench are beginning to make noises about a UK version of the Inflation Reduction Act, despite the fact that the leader of the opposition himself seems to be wavering on his support for more radical action. Labour’s pledge to spend £28bn per year on tackling the climate crisis is hugely significant, but question marks hang over whether or not that promise makes it to government and to what extent they water it down. We know Rachel Reeves’ talk of “the highest tax burden for 70 years” risks being self-defeating at a time when we need a government willing to intervene in the economy, and that “iron-clad fiscal rules” will mean limits, especially on day to day spending. There are, however, powerful options at Starmer’s disposal, outlined neatly by Mathew Lawrence and Alfie Stirling who conclude that “Labour’s biggest risk in government will be a programme of self-defeating moderation that proves unable to improve the conditions of everyday life”.
So does Starmer quietly plan to ‘do a Biden’ by committing to being bold in power? We just don’t know, but we do know that the public backs big policy changes when they’re asked about them. In his speech at Labour party conference, Starmer laid into Thatcher’s economics and the deregulation of the City of London as “wealth and opportunity […] concentrated in the hands of the few”. That sounds promising.
It may well be the that some of Starmer’s more ambitious plans risk ending up in the policy graveyard, but that still leaves a significant opportunity to make progressive economics in his electoral interest, and to highlight the chasm between tame economic offerings and the serious transformation that’s both needed and supported by the majority. The public wants both serious economic change and more stability – a challenge for those of us interested in messaging. Big policy changes needn’t sound radical, and they’re much better presented as sensible and serious solutions to the challenges people are facing in their lives.
If an incoming Labour government fails to fix the foundations of the economy, then we can be in no doubt that a Truss 2.0 will be waiting to pounce – indeed, her faction are already planning alternative budgets to set out their economic stall. It’s worth noting that the Green party’s best ever general election result took place in the context of a moderate Miliband offering, and the Greens are a far bigger, better organised force now than in 2015. If a Labour government does fail, it won’t just be flanked from the right. But if a new government with a progressive economic agenda does succeed, it will be because movements in the UK applied pressure, forcing them to steer us towards the economic security we so desperately need.