LIZ TRUSS is already a historical figure. However long she now lasts in office, she is set to be remembered as the prime minister whose grip on power was the shortest in British political history. Ms Truss entered Downing Street on September 6th. She blew up her own government with a package of unfunded tax cuts and energy-price guarantees on September 23rd. Take away the ten days of mourning after the death of the queen, and she had seven days in control. That is the shelf-life of a lettuce.
If this judgment sounds severe, look at the bond markets, where gilt yields have this week been climbing again. Two fires are burning in markets (see Britain section). The first, more urgent problem is related to financial stability. The Bank of England has twice widened its emergency bond-buying programme to try to prevent a spiral of forced selling of assets by pension funds. As a sign of markets’ continuing unease, sterling slid when the bank’s governor said on October 11th that purchases would end as planned three days later.
It is tempting to conclude from rising gilt yields that the bank’s interventions are failing. Tempting, but wrong. Government borrowing costs have been rising along the yield curve, not just in the long-dated bit of the market where the Bank of England has been active. That is because of the second fire, which crackles because bond investors have decided that Britain has become riskier. This is not the central bank’s problem to solve, however much Ms Truss and her hapless chancellor, Kwasi Kwarteng, may wish otherwise. The government created doubt about the credibility of the public finances: the government must try to restore confidence.
The steps that this pair have taken thus far to reassure markets have been the easy ones: a u-turn on a small part of the tax-cutting package; an accelerated timetable for Mr Kwarteng to unveil a fiscal plan on October 31st; and belated shows of deference to institutions, like the Treasury, that they initially disparaged. The Iceberg Lady will find that the remaining choices are hard.
One is to undertake massive spending cuts. The Institute for Fiscal Studies, a think-tank, reckons that the government has to find savings worth around £60bn ($67bn) to fill in the holes created by the tax cuts, rising debt-interest costs and a deteriorating economic outlook. Cutting departmental spending across the board by 15% would get you only a little more than halfway there: Tory mps will not wear cuts on such a scale; nor will voters. The coalition government of 2010-15 imposed austerity in part because it could pin the blame on the previous Labour government. Ms Truss would be accused of slashing services because of her own mistakes.
The second hard choice is to reverse more of Ms Truss’s tax cuts. The sensible course for the government would include measures to unwind the income-tax cut for basic-rate taxpayers and to focus on encouraging investment incentives instead of cutting headline rates of corporation tax. Ms Truss shows no sign of heading down this path. David Cameron concluded that he could no longer be prime minister after the country had voted for Brexit in 2016. It is almost as hard to imagine Ms Truss heading up an administration that has backtracked on her flagship policy.
So Ms Truss and Mr Kwarteng will probably try to pass the October 31st milestone with a great dollop of fudge: sticking to tax cuts; promising implausible growth dividends and unspecified spending cuts; claiming that government-bond yields are rising everywhere. If so, they will confirm the verdict of the markets that Britain is now a more dangerous place to lend to. The damage done by the “mini-budget” on September 23rd will be embedded in needlessly higher borrowing costs, for the government, homeowners and businesses.
The prime minister is trapped. Right now her choices are to slash the state, reverse course on tax cuts or carry on as though nothing is really wrong. In the end, though, financial markets or politics will force her to stop pretending and act. Ms Truss’s premiership is damaged beyond repair.
