Boxed in by market turmoil and a mutinous Conservative Party, UK Prime Minister Liz Truss was left with two cards to play: hitting reset on her economic plan, and firing her friend and finance minister, Kwasi Kwarteng.
Following days of rumours and leaks about upcoming U-turns, Truss finally confirmed another humiliating reversal on her low-tax vision for Britain, announcing she would scrap her plan to freeze corporation tax next year.
But by leaving her other tax cuts in place, Truss has laid the ground for more market turmoil on Monday, as traders digest what Bloomberg Economics estimates is an additional £24 billion ($43 billion) of savings she still needs to find to get public finances on a sustainable footing.
That Truss is demanding new Chancellor of the Exchequer Jeremy Hunt make no more U-turns will do little to sooth market jitters.
Yet it was her brittle, nervous, at times belligerent televised performance in announcing the U-turn that may have been even more damaging. Far from strengthening her hand, it left Tory MPs in despair. Even those who are no fans of Kwarteng were shocked Truss would spend so little time explaining herself.
It was eight minutes of political torture for Truss that will give her critics days and weeks of ammunition — if she lasts that long.
Allies dismayed, days in job numbered
Asked after Truss spoke how long she could last as leader, one Tory MP replied with a picture of Kermit the Frog from The Muppet Show. Another said she has days left in the job. A third said they think Truss will resign before Christmas, and that a new prime minister is a question of when rather than if.
If she does go before year-end, she’ll be the shortest-ruling prime minister in British history.
Even her allies are dismayed, albeit for very different reasons. They wanted her to implement her economic plans in full, and worry that yet another U-turn has made her project to remake the UK economy even more difficult.
MP Christopher Chope told Times Radio she had “capitulated” to her critics and turned the Tory government into a “laughing stock.” He added, though, that it would be “ridiculous” to change prime minister now.
Pressure had been building on Truss to change course all week, but according to a person familiar with the matter, it wasn’t until Thursday afternoon that she decided to abandon the corporation tax freeze and fire Kwarteng.
The premier intended to tell her longtime ally in person, but having cut short his trip to the International Monetary Fund in Washington, Kwarteng, 47, found out via other sources as he landed at Heathrow Airport on Friday.
It was a seismic decision that leaves her without the other half of a political double act that has spent years advocating a small-state, low-tax vision of Britain. Truss won the Tory leadership contest on the back of her promise to implement it. Her opponent in the runoff, former Chancellor of the Exchequer Rishi Sunak, spent the campaign warning she would trigger economic turmoil.
“It is clear that part of our mini budget went further and faster than the markets were expecting,” Truss said. “So the way we are delivering our mission right now has to change.”
For Kwarteng, it was a humiliating end brought about, ironically, by the market forces he and Truss argued in their 2012 book Britannia Unchained should be unleashed. For Tory MPs, it raises the question of what the point of keeping Truss in power is if she isn’t implementing the plans she campaigned on.
They will find little solace in opinion polls, which have consistently shown Labour holding huge leads in recent weeks as voters recoil from what has become known as the “Kwarteng premium” — a surge in mortgage borrowing costs during the market turmoil.
More than seven in ten people now think Truss cannot regain the trust of the British people, according to a poll published Friday by Savanta ComRes.
For angry Tories, it’s actually quite difficult to try to get rid of Truss so soon after Boris Johnson was ousted. One of the reasons he survived so long after his critics had written him off was that there was no consensus in the party about who should replace him. Truss is also protected by rules that, in theory, prevent a leadership challenge for 12 months after taking office.
But according to a person familiar with the matter, party rules can be changed quickly if enough MPs demand it. And in picking Hunt as her finance minister, Truss may have inadvertently opened the door to a consensus candidate.
Despite pressure on him from Truss to go along with the rest of her economic package, Hunt is seen as a calm, safe pair of hands who may be able to soothe the markets.
He was a long-serving cabinet minister under former prime ministers David Cameron and Theresa May, running the health department for almost six years before becoming foreign secretary for a year.
He has since re-branded himself as a crusading backbencher, chairing Parliament’s health and social care committee since 2020 and winning plaudits for grilling ministers over their much-criticised response to the pandemic.
There is clear potential for Hunt and Truss to clash over spending, especially on defence and health care, if the prime minister seeks savings to try to balance the books. One MP, speaking on condition of anonymity, said Hunt is already the likely “unity candidate” to replace Truss as leader.
Meanwhile, allies of Truss are trying to shore up support for the premier and her ailing government after her disastrous press conference.
Deputy Prime Minister Therese Coffey held a call with Tory MPs to try to reassure them, and according to one person on the call said Truss’s government represents all wings of the party. Delusional, was how the person described it.
With the next general election due by January 2025 at the latest, Tories are ultimately faced with a choice of sticking with Truss or cutting their losses and changing leader.
In her press conference, Truss was asked that if Kwarteng had to go, why she wasn’t following him out of Downing Street. “
People across this country rightly want stability,” she replied.
But in just over five weeks since she came to power, there has been precious little sign of it.