Liz Truss recently had the shortest stint as Prime Minister of the United Kingdom in history – just 44 days. Her tenure as PM began on Sept. 6, 2022, and it ended on Oct. 25, 2022.
Ironically, her platform of “Trussonomics” is comparable to “Thatcherism” – the term used to describe the platform (and legacy) of one of the longest-tenured Prime Ministers in recent UK history.
Truss’s demise was the result of the “Growth Plan,” informally referred to as the “mini-budget,” proposed by Truss and Chancellor of the Exchequer Kwasi Kwarteng on Sept. 23, 2022. According to the BBC, the mini-budget proposal included:
- A large cut to taxation
- Getting rid of the 45% top income tax rate while cutting the basic rate of income tax
- Abandoning increases in national insurance contributions (the equivalent of U.S. Social Security contributions)
- Cancelling rises in corporate tax
- Abolishing the proposed Health and Social Care Levy
- Cutting stamp duty
All of these policies were set to be funded by government borrowing – which would have increased the already astronomical UK national deficit.
Bank of England Steps in to Divert a Major Economic Crisis
Kwarteng, in his speech announcing the mini-budget, gave the reasons for cutting taxes as “to boost growth.” But according to the government’s own website, cutting taxes to such a degree would have “reduced Treasury Revenues by around £45 billion by 2026-2027.”
Unfortunately, these tax cuts were completely unfunded and caused the value of the British pound to plummet. The Bank of England had to intervene to stabilize the market and prevent the decimation of UK citizens’ pensions.
Kwarteng’s Departure and Financial Panic
The mini-budget of Truss and Kwarteng also led to panic within the financial sector, resulting in Kwarteng’s dismissal on October 14, 2022. His replacement, Jeremy Hunt, did a U-turn on the mini-budget to the relief of many people and the eventual stabilization of the British pound.
However, it was not enough to save Liz Truss’s position as Prime Minister, and she was forced to resign shortly thereafter. So what was Truss’s goal with this mini-budget, and why was it so roundly rejected?
[Related article: Simple Economics: Fewer Job Applicants Mean Higher Wages]
The Institute of Economic Affairs Contributed Ideas to the Mini-Budget of Truss and Kwarteng
Many of the ideas put forward in the mini-budget came from right-wing think tanks, particularly The Institute of Economic Affairs (IEA).
According to the IEA’s website, it is an “educational charity” whose goal is to “improve understanding of the fundamental institutions of a free society by analyzing and expounding the role of markets in solving economic and social problems.” However, others see the organization’s stated goal a little differently.
For example, Adam Bychawski of Consortium News recently described the IEA’s mission this way: “To evangelize and convert politicians to the doctrine of free market economics – a mission it has had remarkable success with. At [the IEA’s] peak in the 1980s, Margaret Thatcher credited it for ‘creating the climate of opinion which made our victory possible.’”
The IEA has never disclosed who funds it. However, journalists have uncovered donations from oil giants like BP – along with tobacco industry companies, according to The Ferret.
Truss Seen as a Return to Thatcherism
Many see Truss’s allegiance with the IEA as a return to the days of Thatcherism because the Thatcher years (1979-1990) saw the last time the IEA had a true believer of its policies living in 10 Downing Street. Truss’s elevation to PM is seen as the culmination of the IEA’s move toward reliving its Thatcherism past by having both a PM and a Chancellor of the Exchequer loyal to the organization’s doctrine. Along with attempting a “Thatcherism” reboot, Truss has been derided by many as a Thatcher tribute act, with everything – even her fashion choices, according to The Independent – imitating the former PM.
Liz Truss and Her Proposed ‘Libertarian Utopia’
The IEA champions free-market libertarianism (low taxes as well as low regulation), which effectively lets the markets police themselves. The dangers of this way of thinking – and of trying to convert an economy into this kind of “libertarian utopia” all at once – should be obvious, but that did not stop Truss from trying to implement her plan.
The Problem with Trickle-Down Economics
However, the concept that encouraging profits and high wages in the upper classes will help everyone through trickle-down economics has many flaws. As Australian economist H.W. Arndt wrote in a 1983 Economic Development and Culture Change article, “No reputable developmental economist ever, implicitly or explicitly, entertained any such theory in any of its alleged versions.”
Money and benefits only “trickle down” if CEOs and other highly paid individuals allow the money to flow back into the economy. This effect can occur not only through taxes, but also by simply spending the money and allowing it to re-enter the economic cycle.
The UK’s Conservative Party – which has been in power for 30 of the last 43 years, including the last 12 years – has recently become a notorious tax haven. For instance, Amazon paid virtually zero taxes on its 2020 operations in the UK, Charged Retail notes. Simply put, the money can’t trickle down as it remains watertight in the accounts of the already wealthy.
Employment, Improved Distribution and Reduction of Poverty
The idea of minimal tax and uncapped bonuses only helps people already at the top of the economic ladder. Effectively, the government fell into the trap of – as Arndt put it – focusing on “overall growth of per capita income” while giving no thought to “direct social objectives” such as “employment, improved distribution and reduction of poverty.”
To put Arndt’s statement another way, the current UK government is focusing on the increase of upper-class wealth at the expense of the lower classes. This accusation has been leveled at the Conservative Party for a long time, and two infamous videos of new UK Prime Minister Rishi Sunak enforce this idea.
Prime Minister Rishi Sunak Seems to Favor the Wealthy
One of these videos shows a young Sunak cheerfully saying, “I have friends who are aristocrats, I have friends who are upper class, I have friends who are working class,” before adding “well, not working class.” The other video shows Sunak seemingly feeling proud of “diverting funds from deprived urban areas.”
Some have hoped that the volatility following Truss’s mini-budget in September – and her promotion of right-wing and libertarian ideals – may encourage the next government to reduce the influence that think tanks have on the UK’s overall economic policies. It appears likely that the next government will be led by the Labour Party.
Time will tell, but several members of the IEA are members of Prime Minister Sunak’s new cabinet. Consequently, the influence of this economically flawed system may still be felt during Sunak’s tenure as PM.
Sunak Has an Uphill Battle to Remain Prime Minister Thanks to Liz Truss
With recent polls suggesting the Conservatives face being wiped out at the next general election, UK citizens clearly view Liz Truss – and her disastrously short tenure and attempt to break the UK economy – as a permanent stain on the party’s history.
Sunak has an uphill and arduous task ahead of him if he wants to remain Prime Minister after the next general election. And for that, he can thank Liz Truss and what many saw as “Thatcherism – Part 2.”
The preceding article was written by Arran Appleton – Special Contributor to Edge.
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