The lady vanishes: the Truss agenda is dead

‘Governments don’t control markets,’ the new Chancellor, Jeremy Hunt, likes to say. But there are times when markets control governments. The market, or the fear of how the market might react, is now the driving force in British politics. It explains the dramatic developments of the past week and will determine the new Prime Minister’s fate.

Last month’s ‘mini-Budget’ was doomed because it required that the government borrow £70 billion more than had been planned. This money would have to be raised in the gilts market, and Liz Truss and Kwasi Kwarteng assumed that the markets would be happy to continue to lend so much at such low rates. But they missed the fact that attitudes were changing. The markets took fright at how cavalier the government’s approach seemed to be, promising tax cuts without any accompanying spending cuts. The cost of government borrowing spiked. The whole plan became unworkable.