The death of Trussonomics

After weeks of chaos, the financial markets have stabilised but only thanks to the death of Trussonomics.

In arguably the most dramatic U-turn in Britain’s economic history, the new chancellor, Jeremy Hunt, delivered a nuclear statement which ripped Liz Truss’s tax-cutting agenda to shreds. 

Only two mini-budget measures have survived: the uplift in stamp duty thresholds, and the reversal of the National Insurance hike.

Every single other tax-cutting policy announced less than a month ago has been junked. In fact, Hunt has not only reversed Truss’s plan to cut the basic rate of income tax, he has even reversed Rishi Sunak’s plan to cut it in 2024. 

What’s more, the Prime Minister’s flagship energy package – viewed by many as the only saving grace of her disastrously unpopular budget – has been dramatically scaled back. The support will now run for just six months after which the package will be reviewed and is most likely to be replaced with targeted support. Humiliatingly for the PM, just five days ago she attempted to score points at PMQs by comparing the measly six months of support Labour had set out in its own energy package to the “decisive action” she had taken to offer her superior two-year package. 

According to the new Chancellor, these reversals will save the public purse £37bn. And, with the growth plan gutted, the new buzzword, uttered repeatedly by Hunt, appears to be “stability.” 

Investors have indeed welcomed the dramatic changes. Government borrowing costs are down, with the yield on 30 year bonds dropping to 4.33% this afternoon. And the pound is now trading up two cents at 1.14 against the dollar. 

Yet scars from the Kami-Kwasi budget remain. Mortgages are still higher than before Kwarteng’s explosive fiscal event – although interest rates are on the rise in many countries around the world, particularly in the US. 

There is further pain to come. Hunt also warned that: “There are more difficult decisions ahead, I’m afraid”, and “some areas of spending will need to be cut” in order to get the public purse back on track. Again, this leaves Truss in a sticky position. Why she chose to back herself into a corner by telling Labour leader, Keir Starmer, at last week’s PMQs that she would “absolutely” honour her leadership pledge not to cut any public spending is difficult to understand. The way this public spending episode has played out felt entirely predictable. 

In a stormy Commons debate this afternoon, Penny Mordaunt was assigned the unenviable task of sticking up for the beleaguered PM, while Truss herself came under fire for not appearing in parliament herself to defend the dramatic U-turn. “The lady is not for turning… up,” jibed Starmer. It has not been confirmed but it is understood that Truss was in talks with Sir Graham Brady, the influential head of the 1922 committee. 

Yet it was Labour’s Hilary Benn that put the question to Mordaunt which was at the forefront of everybody’s minds. Why is Liz Truss still in office when “it is clear to everybody that she is no longer in charge?”

Indeed, as Maggie Pagano wrote last Friday, Hunt seems to be PM in all but name. The official PM’s position may well be irretrievable. 

The entire economic agenda on which Truss campaigned to be leader – and launched her premiership – has been shredded.

How is the PM supposed to convincingly defend any of these new policies when they are a complete reversal of everything she spent months at loggerheads with Sunak fighting over? And what purpose does she serve if she cannot deliver any of the economic measures on which she was elected? 

Only a fortnight ago, many Sunak-backing MPs were branding Truss a disaster while also acknowledging that trying to oust her so soon would make a complete mockery of the Tory party. But things move quickly in the world of politics. Very quickly. The question now is whether Truss will still be PM tomorrow.