New UK PM Liz Truss Will Need Her Erstwhile Liberal Democrat Instincts

The United Kingdom economy is tanking. The Pound Sterling is at a historical low and inflation is at a 40 year high. There is a cost of living and energy price crisis. The crisis is not just in household energy costs that have doubled, but also in industry, such as steel, that uses a lot of electricity and fuel. They are all crying out for more subsidies on top of the subsidies they have already been given. Economists are warning of the medium term consequences of this tsunami of subsidies given and being contemplated.

Supporting American President Joe Biden and the EU’s Ukraine War effort has been very costly for Britain, coming on top of the costs of exiting the EU, and Covid. Politically, Protestant Northern Ireland too is chafing at the bit even as  informal and localised talks are on to unify with Catholic Eire which is part of the EU.

Boris Johnson’s popularity and jaunty premiership had no impact on the British economy, except for the damage caused by Brexit and the lack of ready success to replace markets lost as a consequence. A Free Trade Agreement with India is moving at a snail’s pace because of British demands that are no longer deemed acceptable. Another, a work in progress with the United States is not yielding results either.

The economy has not improved, even with former investment banker Rishi Sunak running it as Chancellor of the Exchequer. And this may have been a major dampener for his chances to replace Johnson. And now, in any event, it’s the turn of Liz Truss.

Johnson and Truss have been congratulating each other after the results of the Conservative Party internal vote from 160,000 members, some accounts say 200,000 voters, came in on Monday the 5^th. Johnson sees Sunak as a backstabber and has backed Truss all the way.  Meanwhile Truss has already acquired a description in the media: shapeshifter. No point knocking it. It is a valuable political trait.

From a person who voted against leaving the EU in the referendum, she quickly changed over to become a staunch Brexiteer in league with Boris Johnson. In the conservative party governments even prior to Johnson’s term, Truss, now 47, has held a variety of portfolios over the last decade. She goes to the prime ministership after being the foreign secretary.

She started off her political career earlier, not in the Labour Party but in the middle-of-the-road-with-pink-tinges Liberal Democrats. And now she is the Conservative prime minister, only the third lady to win the job after Margaret Thatcher and Theresa May.

One of her first pass-the-buck statements even before taking over on Tuesday 6^th September 2022 was to say that fixing inflation was The Bank of England’s job. Meaning that when the Bank of England raises interest rates to curb inflation, it won’t be Truss who did it. There is some debate on the degree of autonomy the Bank of England and its Governor presently enjoy, but it is difficult to see how the prime minister could evade responsibility for such an important matter. Still, Truss must be hoping for the best.

She has announced, during the campaign against Rishi Sunak that she would cut taxes. Sunak mocked her for this, suggesting it was a fantasy, because the government coffers are highly stressed. It was one of the reasons Sunak could do little to alleviate national distress as Chancellor. But it is this Truss pledge, to cut taxes, that probably won her the election. She won a tad above 57% of the vote (81,326) to Sunak’s 42% plus (60,399).

The margin of the win however was lower than any for the conservative party leadership in the 21^st century. Almost 20% of the eligible did not vote, making Truss’ win representative of under 50% of the membership. Sunak did very well with the conservative party voters, despite being a ‘brown boy’, she wanted to get away from, per Liz Truss. Others have called Sunak, the richest MP in Britain currently, as something of an international smoothie.

The toffs in the City, ‘remainers’ mostly, understood what Sunak was saying, about controlling inflation being the first task. But Conservative voters in the countryside liked the sound of lower taxes.

Truss reiterated she would cut taxes again after winning the vote. This probably means no new corporation taxes for a start, and a scrapping of the green energy levies that will cost the exchequer more than 20 billion pounds sterling.

Several analysts think cutting taxes and subsidising energy costs and stressed businesses about to fail, will only fuel more inflation. There is already a run to dump the Pound Sterling and government bonds.

Liz Truss will probably pick African-origin Kwasi Kwarteng, currently business secretary, for her finance minister to replace Sunak. Kwarteng said there was likely to be some fiscal loosening, but that it would be done in a responsible way. He said he did not know if he was going to be Chancellor of the Exchequer.

Energy prices have doubled household energy bills, likely to be up another 80% by October, and even higher by 2023.There was a large subsidy to cushion the public against high energy prices given out in May 2022, but it seems to be inadequate. More energy subsidies are likely to be added. Many sectors of the British economy are planning to go on strike demanding government subsidies in order to survive as well.

Meanwhile inflation has made food items very expensive.  Ditto hotels, services, all things. This is certainly not a time for Indians to visit the UK with the rupee hovering at 80 to the US dollar.

Truss is on record stating she will increase Britain’s defence spending. With what money though?From all this, it is clear that her tenure in 10, Downing Street is likely to feature a higher fiscal deficit, because there are no resources in reserve, putting further pressure on the economy. However, it is a difficult time and the options available to her to provide quick relief are extremely limited.

The task may well be to out-labour-the-labour-party, with populist measures. This will reduce the inherited burden of less than dynamic conservative party economic policies over the last 12 years.

What next in foreign policy? Britain is closely allied to the US in this regard and will probably benefit India strategically and militarily via AUKUS, and a greater naval presence in our region. India will definitely be interested in nuclear powered engine technology for our navy, amongst other high technology strategic military know-how transfer from Britain. Will Britain under Truss deliver?

The good thing for India is that we have other options, including France, the US, Japan, and Russia, for state of the art technology. In other military cooperation, Spain seems keen in  aatmanirbhar areas including C295 aircraft from Airbus Spain to replace our ageing Avros.  

Whether Truss will take stern trade measures against China, to follow on from America, and warm up to Taiwan also, it seems quite likely.

Since Truss is a continuation of the Johnson line of thinking, it is expected that impediments in the way of a Free Trade Agreement with India should be removed by sometime in 2023, if not quite by Diwali 2022 as Boris Johnson had hoped.

For now, the less than threatening demeanour of Liz Truss, though she can be strident too, may be a reassuring factor in European politics. The provocations against Russia however may have to be toned down in favour of the long haul in Ukraine.

(1,252 words)

September 6^th, 2022

For: Firstpost/News18.com

Gautam Mukherjee