Liz Truss and Kwasi Kwarteng arrive in Downing Street having been on a long political journey together. Both elected in 2010, they have co-written books setting out their shared economic agenda; they have co-founded party groups during their time in parliament; and now they will govern together. The future direction of the country, and the Tories’ electoral prospects, depend on the success of this new Downing Street partnership.
Their strategy is one of big economic gambles from day one. Chief among these is the big energy package, potentially costing over £100 billion, designed to ‘freeze’ energy prices for households and businesses. This will involve the state – future taxpayers, in other words – picking up the tab to protect today’s consumers from the current high prices. It’s an intervention on a par with furlough in both scale and cost, and will need to be financed with debt. It is bigger than anything the Blair or Cameron governments attempted. Truss’s tax cut – reversing the National Insurance rise – is tiny by comparison to the energy-bill bailout.
The energy freeze is a pragmatic move, not an ideological one – having politicians determine the price of energy is hardly free-market policy. But most governments in Europe, whether left or right, will be doing something similar, and they all hope debt markets will stump up the cash at an affordable rate. Truss’s hope is that a big bazooka approach to energy can give the government time and space to get going on the rest of its agenda.
The real start to her period in government will come later this month, with a budget (although it won’t be called that) reversing the National Insurance increase and cancelling the planned corporation tax rise (from 19 per cent to 25 per cent). This marks a substantial fiscal loosening.
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