UK Tories are ditching ‘sound money’ and embracing the world of Trussonomics – POLITICO
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LONDON — With her famous wooden-talking style and a Margaret Thatcher-inspired wardrobe, Liz Truss seems like an unlikely figure to lead a revolution.
But the burning favorite to be crowned Britain’s new prime minister next month plans to tear up years of Tory orthodoxy with an immediate package of tax cuts that party traditionalists fear will leave the debt-ridden UK – with its rising inflation levels – cannot afford .
“My first priority is to cut taxes,” Truss insisted during a leadership roundup in the northern town of Darlington on Tuesday night. “I think it’s important for people to keep more of their own money and for us to grow the economy.”
These, Truss insisted, are “conservative principles”. But its tone is markedly different from the ‘sound money’ message with which former Conservative Prime Minister David Cameron and his Chancellor, George Osborne, dominated British politics during the UK’s last major economic crisis and beyond. . From the late 2000s, they delivered a relentless message that higher borrowing was irresponsible and that, above all else, Britain had to learn to “live within its means”.
Their philosophy was that of “sound money”, which Osborne declared the “oldest conservative principle of all” in a seminal speech as shadow chancellor in 2007. He presented several “tests of sound money” , emphasizing that taxes should never be cut if it would jeopardize the risks of low interest rates and low inflation.
Subsequent Tory chancellors have largely followed the same plan. While Rishi Sunak, who took the reins of the Treasury weeks before the COVID pandemic hit, oversaw a major emergency response to save jobs and businesses, he still warned of tougher decisions on taxation and spending once the crisis is over.
Now, as a rival for Truss’s leadership, he is sticking to that message, warning party members that tax cuts would only fuel inflation and lead to higher interest rates longer. late.
“The tradition of the British Conservative Party is sound money and fiscal responsibility,” a high-profile ally told POLITICO. “Rishi Sunak is absolutely in that tradition.”
But it is Truss – with his startlingly different economic outlook – who polls show is now the overwhelming choice of Conservative party members to be their next leader. She promised to immediately scrap Sunak’s planned National Insurance and corporation tax increases, while imposing a moratorium on green energy taxes – collectively costing the UK Treasury £48.2billion sterling.
Paul Johnson, director of the Institute of Fiscal Studies, said tax cuts have been the main dividing line between the two candidates so far.
“Rhetorically at least, Rishi Sunak is right to focus on inflation as the big issue. It’s a little surprising that this is something Liz Truss hasn’t talked about so much,” he said. he declares.
Yet Johnson stressed that none of the candidates have been faced with the fact that spiraling inflation means the next prime minister will face tough choices on public spending.
“Neither tells us how they will react to the rising inflation facing utilities,” he said. “There are big challenges there, because the spending review a year ago assumed inflation would be 3% and it turns out it’s 13%. They have much less money than they expected.
Indeed, there is something surreal about the way Truss and Sunak have argued over tax cuts as the UK economy teeters on the brink of a huge crisis. Energy bills are set to soar in October and then January 2023, as the Bank of England predicted a recession as long as the 2008 banking crisis. An internal document leaked to Bloomberg on Tuesday suggested ‘worst-case scenario’ plans “were ongoing for power outages this winter.
But if it sometimes seems like the economic debate is taking place on another planet, that’s because the voters Sunak and Truss are currently trying to win over are not the British public at large, but the 180,000 grassroots members of the Conservative Party that will choose the next leader by postal ballot.
Tim Bale, professor of politics at Queen Mary University of London, has studied the composition of this very important group which will name the next British Prime Minister. “By our calculations, the average member is in their late 50s, and about four in ten are receiving or about to receive their pension,” he said. “They are also disproportionately likely to live in the [typically wealthier] south of England, rather than the north or midlands – the blue wall rather than the red wall, if you will.
Conservative members are disproportionately likely to be older, affluent, white, and male. They tend to own their own homes, often directly, and many have reached or are approaching retirement. As a result, their priorities are not fully aligned with young professionals and other working-age voters who have mortgages — and for whom inflation is a major issue.
Giles Wilkes, a partner at Flint Global and a former No. 10 adviser on economic issues, said Truss’ policy platform was partly informed by the profile of this conservative selectorate. “They’re safe, they’re affluent, so they’re the kind of people who could shrug off the risks of Brexit and some of the risks that are going on right now. If people warn you about inflation, if you already have a house, you can imagine, I’m mostly protected – I have what I really need.
Patrick English, associate director of political and social research at YouGov, who interviewed party members, said there was “definitely a feeling of shifting priorities – they still care about the deficit and managing the a good balanced economy, but that’s low on the priority list right now.
“They’re ready to buy into this idea that you know, we don’t have to get rid of it [the deficit] right now,” English said. “We know that members of the Conservative Party like to cut taxes, and we know that the tax increases that were made under the Johnson administration were deeply unpopular within the Conservative Party.”
Due to the demographics of Tory members, none of the candidates have made it a priority to come up with a plan to ease the cost of living crisis, which will hit low- and middle-income people the most.
But Truss and Sunak have been criticized for failing to detail what they will do to tackle what will undoubtedly be the government’s biggest challenge in the fall.
On Tuesday, Sunak tried to take the lead in pledging to introduce a new support program for families struggling with energy bills – although he declined to say how much more he would spend. Speaking to ITV, he said it was “difficult to be precise”, but agreed that hundreds of extra pounds per household could be needed.
When asked by broadcasters on Tuesday, Truss repeatedly refused to commit to more support on energy bills and said: “What I’m talking about is allowing people to keep more money in their own pockets.” In an interview with the Financial Times last weekend, she insisted that “the way I would do things is in a conservative way to reduce the tax burden, not hand out handouts”, a remark taken up by the Sunak campaign.
Wilkes said Truss’ plan may not survive a collision with reality. “I think she will almost certainly have to backtrack on the so-called documents because it’s very hard to fathom how bad it’s going to be.”
Ed Shackle, policy manager at consultancy Public First, which held focus groups in so-called “red wall” areas claimed by Labor Tories in 2019, said promises of job cuts Truss’ taxes appealed to working-class voters in the broader electorate, with more middle-class voters leaning toward Sunak’s “steady hand on the tiller” pitch.
“They are largely aware of the candidates’ positions,” he said. “Especially in the more recent focus groups we’ve run, they’re widely aware that Truss is synonymous with lower taxes, and they’re widely aware that Rishi doesn’t want to immediately and is to balance the books. But what is – which I don’t see how it has a massive impact on this winter.”
Enthusiasm for the two candidates’ economic proposals is rare, Shackle said. “There was no sense of hope. There was no sense of excitement about the race. Even people who wanted certain candidates to win weren’t excited about the candidate.”
Matt Honeycombe-Foster contributed reporting.