There have been jollier times to be a Conservative Prime Minister heading into her first party conference as leader. Not only have the markets been in a spin, but most of the commentariat and – judging by recent polls – most of the public think you’re to blame.
Few would deny that Liz Truss has ‘owned’ the turbulence since last Friday, but there has been at least some pushback on the idea that the Government alone is responsible.
For more hawkish analysts, the Bank of England has to shoulder some blame for an unexpectedly tepid rate rise last Thursday, combined with the promise to keep selling gilts (aka ‘quantitative tightening’), just when it was gilts that were taking a battering the world over.
Likewise, the mini-budget might have been the proximate cause for the pensions turmoil on Wednesday, but it’s a crisis that has been brewing largely unnoticed for some time. Indeed, the Bank was warned in 2017 that funds were over-exposed to volatility in the bond markets.
There’s also a broader point that economies the world over are finally emerging from a very long period of very low interest rates, the transition from which was bound to involve some pain and disorder.
None of that exonerates Truss or Kwasi Kwarteng for their unforced errors, but it does put the market volatility in a bit of context. (If you’re after a more detailed assessment, do listen to this week’s CapX Podcast with the economist Julian Jessop.)
If there is a faint glimmer of hope, it’s that most of the policies in the Growth Plan were individually pretty popular (see this poll). Some, like the energy price freeze and reversing the National Insurance rise, go down particularly well, but even reversing the planned Corporation Tax rise got a net positive response. (By far the most unpopular, unsurprisingly, were removing the bankers’ bonus cap and scrapping the 45p rate of income tax).
Similarly, as Alex Morton explained on CapX yesterday, the public are much more up for dealing with inflation through higher interest rates than higher taxes, which is precisely the case that Truss has made, albeit with not nearly enough force or clarity. (Relatedly, we really should get away from the idea that house prices coming down a bit is a huge disaster. Certainly some will lose out, but plenty of people lost out from prices going up and up as well.)
Given the direness of her political predicament, I’m not sure ‘make or break’ is the right phrase for Truss’ conference speech. Trying to speak to the public and jittery markets simultaneously is also a speechwriting task few would envy. Still, it is at least some uninterrupted time to set out what she stands for, what her plans are and the mission underpinning it – to start trying to set things right.
It’s a fair bet that Wednesday’s address will strike a similar tone to the PM’s recent Sun editorial: a bit of contrition, acknowledgement of tough times and stressing the huge package of support on energy bills. The latter should be part of a central theme of tackling inflation, given that it is the public’s number one concern and a compelling reason to get interest rates up.
Just to round off with a shameless plug, if you are at Conservative conference, CapX and the Centre for Policy Studies have a packed fringe schedule, so please do come along and say hello.
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