When Liz Truss flew to the US this week on her first trip abroad as prime minister, she was clear about how she would achieve her mission in office: “Lower taxes lead to economic growth, I have no doubt about that.”
There was not a quiver of self-doubt in her voice as she gave a round of televised interviews atop the Empire State Building expanding her plans for the economy and saying she was “willing to be unpopular” to advance them.
The Prime Minister may not have foreseen how quickly her own Tory MPs would begin to criticize her radical new approach, overturning Treasury orthodoxy. “I’ve never known the party so divided,” said one skeptical MP. “He’s clearly determined to go big or go home.”
Truss knows all too well that time is not on her side. He has inherited the worst public finances in a generation, a country in a cost-of-living crisis and creaking public services. The next general election is two years away. It’s a mammoth task to start shooting before then.
However, she also knows that she will never be stronger than her first few weeks in office. For now, most of her Tory backbench critics are taking their advice – at least publicly – and government departments are primed for action.
She and her chancellor, Kwasi Kwarteng, have been working on plans for the government for more than a decade, ever since they wrote their book Britannia Unchained, the first draft of Trussonomics, a rapid-fire romp through free markets, deregulation and small state. She is determined to make seismic changes.
An ally says: “It’s not going to be a comfortable two years. Liz isn’t afraid to break things. But if it can boost growth and people feel like they have a bit more money in their pockets before the next election, it will be worth it.”
Not everyone agrees on their side. The Commons benches behind Kwarteng were silent. The grim-faced MPs barely cheered. Some of those with positions on the “red wall” are surprised that the tax cuts so disproportionately benefit the rich. “It’s electoral suicide,” one despaired. Even some of her supporters admit that her designs are “brilliant, or they’re awful.”
If they go right, he wins big, turning the economy around and winning another term. If they go wrong – as many economists and politicians suspect they will – it could be an economic disaster that would crush the Tories’ economic credibility in a way not seen since Black Wednesday in 1992.
The success, or otherwise, of her experiment will take months to gauge. There will be a raft of new legislation, scrapping rules on everything – from planning to funding to immigration – that he believes have hindered growth. But his path through parliament will almost certainly be bumpy.
The final publication of the Office for Budget Responsibility’s forecasts will be another moment of acute risk for the Trust. The Treasury has seen a draft but is refusing to release details, sparking fears that the projections undermine its pledge to boost growth by 2.5% in the “medium term” – generally assumed to take place over the next two to five years.
There is now a sharp ideological divide with Labour, which begins its party conference in Liverpool this weekend, with senior opposition figures debating how to deal with a government criticized for raising taxes but now cutting them, while the own plans the development has not yet been cut. With an extra £72bn of borrowing between now and April, some are questioning whether there will be money left over for their own spending plans.
Kwarteng heralded a “new approach for a new era” – despite the fact that he and Truss had both been in government for years – as he announced the biggest tax cuts since then-chancellor Anthony Barber’s “dash for growth” in 1972.
Barber’s radical plan to stimulate growth was seen as a bold experiment for a while. The economy really picked up speed. Truss and Kwarteng could also see a brief financial “sugar rush” once markets get used to the idea. But Barber’s proposals ended in financial disaster. With inflation above 10%, interest rates rising further and a recession on the cards, it’s hard to see Trusonomics ending any other way.