The Financial Times’ Philip Stephens writing for agendaNI assesses whether new Prime Minister Liz Truss MP can marry conviction to political pragmatism when confronting the awkward compromises between the pledges she made and the reality of delivery.
Now for the real world. All new prime ministers struggle to reconcile promises made on the campaign trail with the hard truths of power. None will have found the constraints tougher than Liz Truss MP. The UK, in the apt description of her leadership opponent Rishi Sunak MP, faces a national emergency. For all the upbeat tone of her speech on the steps of Downing Street, Truss is already confronting the awkward compromises between pledges and reality.
Only weeks ago she dismissed the idea of more “handouts” to soften the impact of soaring energy prices on the cost of living crisis. Her promised cut in National Insurance contributions would do the trick. Now she is committing a sum not far short of £100 billion to a support package to avert economic and social chaos. The “small state” Prime Minister is presiding over a vastly expensive programme of intervention to cap prices in the wholesale gas market.
The energy crisis caused by Russian aggression in Ukraine, a stalling UK economy, runaway inflation and a funding crisis in the National Health Service are only the beginning of the new Prime Minister’s problems. A wave of public sector strikes challenges Truss’s authority. Truss’s plan for tax cuts sits alongside a clamour for more money from Whitehall spending departments. Brussels is promising a tough response to repudiation of the Northern Ireland Protocol.
The first imperative was always to shield families and small businesses from the worst of the energy price crunch. Consumers were threatened with another 80 per cent increase in average bills to £3,549 from 1 October. This over and above the inflationary surge in prices for food and other essentials. Businesses – from manufacturing companies to pubs and shops and care homes – faced much steeper rises.
Truss was persuaded that for all her ideological aversion to intervention, if she failed to get a grip on the crisis early on her premiership would not recover. There was no silver bullet. And none of the options came cheaply. An across-the-board freeze on gas and electricity prices was the most expensive. It also looked unavoidable.
For all that, the risks are also obvious. Truss has been told that high inflation, rising interest rates and slowing growth have wiped out any fiscal room for manoeuvre. She has made tax cuts her first economic priority. All this will have to be paid for through borrowing. This at a time when financial markets have been losing confidence in the UK’s management of its finances. Sterling is trading close to levels as low as any seen for more than 30 years. The Prime Minister cannot afford a strike among international investors and a further run on the pound.
Whitehall officials forever urge prime ministers to avoid prioritising the urgent over the important. In Truss’s case, however, the two have merged. She faces a winter funding crisis in the NHS and social care, a rolling wave of public sector strikes, and a fight with the European Union about the Brexit arrangements for Northern Ireland. All are both urgent and important. So too is the need for western unity in support of Ukraine’s fight itself against Russian aggression.
The Treasury thinks the economy is heading into a protracted recession. Earlier expectations of a short, sharp downturn followed by a bounceback next spring have made way for forecasts that the economy will shrink through next year. Inflation, by some estimates, could reach 20 per cent. The impact on living standards will be devastating. The Resolution Foundation think tank estimates that, without massive government intervention, the average family faces an unprecedented 10 per cent cut in disposable income during the two years to the end of 2023.
The “small state” Prime Minister is presiding over a vastly expensive programme of intervention to cap prices in the wholesale gas market.
For their part, NHS chiefs are warning that the health service will not get through the winter without money to deal with a hospital logjam that has seen ambulances queuing for hours outside accident and emergency units. Public sector workers – barristers and nurses as much as rail and postal workers – want wage increases to match rising prices.
These demands fall on a Prime Minister promising to reduce the size of the state, starting next year with big cuts in corporation tax. Whitehall officials whisper privately about the need for “adjustments” to her prospectus. Political opponents will be watching for U-turns. The Brexiter right of the Conservative party will be alert to any retreat from her pledges.
The Northern Ireland protocol presents another first test of where the balance will fall between political conviction – Truss voted remain in 2016 but has since declared herself a hard-line Brexiter – and necessary pragmatism. The UK faces a 15 September deadline to respond to a European Commission legal action which spells the end of the so-called ‘grace periods’ for phasing in border checks in the Irish sea.
As the author of the legislation that would see the UK unilaterally withdraw from parts of the Protocol, Truss’s rhetoric has been robust. “There’s only one thing that the EU understands and that is strength,” Truss declared during the leadership campaign. “I’m strong enough to make it happen.” Aides have emphasised that she wants to give the Democratic Unionist Party the confidence to remove its veto on the restoration of Stormont government. Some have suggested that she might opt for the “nuclear” option of invoking Article 16.
Officials are urging caution. The signals from Berlin and Paris as well as from the Commission in Brussels have been unequivocal. The EU will not bow to ultimatums. The UK’s allies would see unilateral revocation as a breach of international law. This is not the moment to threaten western unity – and prospects of a good relationship with the Biden administration in Washington. Nor, with the economy heading into recession, to risk a trade war with Europe. The first signs are that Truss and her Northern Ireland Secretary Chris Heaton-Harris MP want to avoid an early confrontation.
Another circle to be squared. Truss’s allies say that she is underestimated. She is sharper and tougher than generally realised. Voters will warm to her when they see her resolve. Perhaps, but even within her own party support for the new Prime Minister is conditional. The UK, she declared in Downing Street, will “ride out the storm”. That assumes she can marry conviction to political pragmatism.