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The collapse of Germany at the end of the First World War was very sudden, and it happened without a yard of German land occupied by French, American or British troops, that the narrative emerged: this country was not defeated in the war, but had been stabbed in the back by a conspiracy of financiers, freemasons and Jews .
Something similar happened with the memories of the Truss-Kwarteng administration. It did not fail, it was stabbed in the back for the crime of being too Conservative, too radical, and for – in the end – believing in Britain rather than in Decline. Truss, in this version of the event, is another Thatcher, only this time the wets (read “Sunak and behind the city”) won.
There are some strange things about this analysis.
First of all, Truss and Kwarteng are people who are taking a bold path against conventional wisdom, just as Thatcher did before them. And, indeed, Mrs Thatcher followed a brave path. When entering Number 10 in 1979, he cut spending (removed the Double Lock for pensions), and increased taxes (especially VAT). His view is that only by righting the fiscal ship, and reducing the deficit, will Britain be able to reduce taxes in the future.
Truss, by contrast, suggests the opposite. Although the debt-to-GDP is higher than the 1979 level (about 90% vs 40%), they want to cut taxes and increase spending. His policies are unlike Thatcher or Howe, they harken back to the Wilsonian 1970s. Callaghan and Heath.
Second, there is no “conspiracy” in the City. Borrowing rates rose and the pound fell as investors feared the policy would lead to inflation. (Like, you know, what happened in the 1970s when they last tried.) Investors, either in the UK or abroad, are under no obligation to buy UK government debt. If they think inflation (and therefore higher rates) is coming, it’s obvious that the economy wants to continue less than that. That is not a conspiracy, which fulfills a fiduciary duty to investors.
Thirdly, Truss and Kwarteng got into this mess because they refused to hear from those who disagreed with them. Again, the difference with Thatcher could not be greater. Thatcher was used to standing up to people she disagreed with; but until the end (when I admit he was a little angry) he continued to criticize those around him, because he accepted the intellectual examination. And this extends from the Civil Service, where he often quarreled with Robert Armstrong, to Howe, Lawson, Clarke, and Heseltine in the Cabinet.
Truss and Kwarteng, in contrast, chose not to get OBR figures on the impact of the policy on debt and deficit, because they know the numbers will be bad. He fired Tom Scholar, instead of listening to what he had to say about how the market would react to his budget.
There’s one last piece of rewrite history that needs to be held in your head. This assumes that Truss and Kwarteng are just presentation errors. Everything in the budget has been tested, and if they don’t really like tax payers with higher rates, then everything will be fine. (It’s the damn socialists in the City on the minimum wage that… wait for it… this makes no sense.)
This is simply not true. During the election contest, Ms Truss has repeatedly raised concerns about energy subsidies. And when he rose (briefly) to the top, he announced a £150bn plan to freeze household energy bills, while cutting taxes.
No different than Mrs Thatcher, who famously said “you can’t capture the market”. And that, assuming power, removed all price planning mechanisms inherited from the Callaghan government.
Callaghan misread the market, (almost) saying “Crisis, What Crisis?”. But at least he got it in the end, telling the Labor Party Conference: “We used to think that you can get out of the recession, and increase the workforce by reducing taxes and increasing Government spending. I tell you frankly that the option is no longer there” .
Ms. Truss still hasn’t got it.
Robert Smithson
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