My initial optimism about Liz Truss being a potential breath of fresh air was shattered, to my embarrassment, by her reckless mini-budget. But I am sticking to my guns. Let us not give up on Britain quite yet.
The media have long-mocked Jeremy Hunt as being a boring accountant type. They have now decided that he is the just the thing we need right now. The new chancellor abandoned the bulk of the mini-budget. Corporation tax will rise substantially after all, income tax cuts have been dropped, so has the reform of off payroll working. Energy subsidies for higher income households will also be phased out next year. This has brought a welcome sense of grip and optimism to proceedings.
The result? Sterling up 2% to $1.14 and gilt yields lower, with the 10-year yield down to 3.9%. Britain may be allowed off the international markets naughty step.
Good news from Ukraine too
Let us also consider the context, especially in Ukraine. A major breakthrough by Ukrainian forces in the town of Kherson may allow them to seize the Eastern ban of the mighty Dnipro river. The Kerch bridge, blown 10 days ago, leaves the Russian army perilously difficult to supply in both the Crimea and southern Ukraine.
Putin now relies on one of his few remaining friends, Iran, for supplies. This has upset the Israelis, hitherto sitting exquisitely on the fence. “There is no longer any doubt where Israel should stand in this bloody conflict. The time has come for Ukraine to receive military aid as well, just as the USA and NATO countries provide,” said Nachman Shai, Israeli diaspora affairs minister.
As Putin blunders around, there are reports that Moscow may close Jewish centres, conduits for migration to Israel. The Israelis do not like the Iranian drone programme and now have the perfect excuse to disrupt it, by one means or another.
The consequence of all this is another weakening of the wholesale gas price, with the November futures contract for UK wholesale gas dropping 10% to 234 per therm. That is below the effective level of 250p at which the Government has guaranteed it to households. So, in other words, for November the energy bail-out package will cost nothing, though there will still be outlays in the colder months. This is much better than expected on 23rd September, the day of the mini-budget, when the November price was 428p, or late August, when it was 790p.
Put all this together and condition of HM Treasury’s finances are much better than feared only a few days ago.
All over for Liz
That does not mean we do not face substantial challenges. We do. The US Federal Reserve continues to raise interest rates. And the decision by Hunt to raise corporation tax is regrettable. International tax revenues are piling up in Ireland, thanks to the low corporate taxes over there. Much of that money would have been here if we had not made such a mess of things. UK business investment, our export performance and the growth outlook remain poor. Liz Truss was right about that.
So, what happens now? Even her close friends and supporters admit Liz Truss is finished. But, as usual, we must think constitutionally. It is not possible to have a “coronation” as some claim. The King must summon as next Prime Minister the person who can command a majority in the House of Commons, based on the recommendation of the outgoing PM.
Such an important decision cannot simply be based on a ring round by the Marquess of Salisbury, as happened in 1963, which resulted in the appointment of Alec Douglas-Home as PM. There must be some sort of decisive process. And that means an election among MPs. There is no time to change the rules giving Conservative Party members a vote. Instead, those rules will have to be subtly subverted by ensuring that MPs chose only one candidate, thereby making a subsequent vote among the 160,000 party members unnecessary. This is what happened in 2003, when Michael Howard became leader.
There will be controversy, there usually is, but we should expect such a process to be initiated imminently. Liz Truss does not command the support of Parliamentary sentiment, even if she has not lost any votes yet. And that is the end of the matter. Her likely successors are either Rishi Sunak or Jeremy Hunt.
It is noticeable that Kier Starmer, leader of the Opposition, is not calling for a General Election just yet. We should expect him to do so if there is another change of Prime Minister without the great British public being consulted. The media pressure on the new Prime Minister will be intense. The rest of the country would prefer a period of calm.
We are not finished yet, though it looks like Britain is on course for a Labour Government, with moderately high taxes, greater proximity to the EU Single Market, all enlivened by progressive social policies and an abundance of wind farms. That is how the modern Establishment likes it. But as we have learnt in the last few weeks, things could be much worse.
George Trefgarne is CEO and founder of Boscobel & Partners, an independent communications and political consultancy; specialising in financial communications, strategic advice and analysis.
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