It was with great joy and smiles that Liz Truss, the newly elected prime minister, inherited a "not-so-happy" U.K. economy after the election by conservatives and confirmation by the Queen on Tuesday. Truss, who defeated former chancellor Rishi Sunak by a narrow margin, is now in a prime position to lead the U.K. out of turbulence.
The circumstances surrounding Truss's emergence are strikingly similar to those of the great Margaret Thatcher, who, as a conservative, also took the helm of an embattled United Kingdom economy. Truss inherits a recession-bound economy with 10.1% inflation, surging energy prices, and a cost-of-living crisis. On the political angle, similar to her erstwhile role as foreign secretary, she’s still confronted with the Russian-Ukrainian crisis, Brexit technicalities with the EU, and Scotland’s push to secede from the U.K., among other issues.
With a possible election in 2024, Liz Truss and the conservative party know for sure that they must deliver! Truss knows she must deliver a heroic "Margaret Thatcher" or an exit blow will "touch her" and her party, who have endowed so much trust in her.
Let’s take a look at Truss’ economic and political ideologies and her plans for the sixth-largest economy in the world.
Truss’ ideologies: Is this what the U.K. needs now?
"I campaigned as a conservative, and I will govern as a conservative," was a reassuring catchphrase in Truss’ victory speech on Monday. Truss, in line with her party’s ideology for the economy, has made it clear that she intends to cut taxes, spend extra, and grow the economy. While this is not what an inflation-embattled economy needs now, it is obvious that Truss is more growth-oriented than she is concerned about inflation.
Speaking of taxes, Truss’ drive for a low-tax economy is planned to take effect through a series of tax reforms and reversals, estimated to cost about £30 billion annually. This includes a planned reversal of windfall taxes earlier slammed on extraordinary profits of oil and gas companies; the cancellation of a planned 6% rise in corporate taxes; a suspension of the £153/year green energy levy; a VAT cut of 5%; a reversal of the increase in National Insurance Contribution (NIC) rates at a cost of £13 billion per year; amongst other expected reforms.
From a spending perspective, Truss aims to increase defence spending from a current 2.3% of GDP to 3%. Also, she has laid out a plan to freeze energy bills in response to the energy crisis, which would also cost about £100 billion, according to Citi. While the expansionary fiscal policy depicted by the above measures is against the Bank of England’s sole drive to slow down inflation, we hope to see how all these play out in the coming weeks when the new cabinet releases a planned emergency budget which should reflect the reforms.
Super-Lizzie-Truss: On a Mission to Rescue the Economy
As discussed earlier, the newly elected PM is entering office at a critical moment in the history of the United Kingdom. In this light, she has a lot on her plate as regards resuscitating the economy and dealing with the cost of living and energy crises, which have been exacerbated by the Russian-Ukrainian war. For context, Britain’s energy regulator, Ofgem, predicted that starting in October, energy prices will jump by 80% to about £3,549.
While the expected fiscal loosening and tax cuts are set to relieve households and save them some cash, the energy crisis is also set to be taxed as the new administration plans to freeze household energy bills. While the price cap is yet to be confirmed, there are reports that the upper limit may be capped at around £2,500 a year, as opposed to the anticipated £3,549 in October.
In conclusion, while we wait for all these to unfold and be enforced, we’d also love to see how Truss balances her plan with an urgent need to tame inflation ravaging the economy.