Why Trussonomics was doomed: Tories cannot stomach spending cuts

Good morning. Rishi Sunak and Jeremy Hunt are facing a tricky fight over tax cuts (or the lack thereof) in the government’s March Budget, and the latest rumoured member of the rebel alliance is Sunak’s predecessor, Liz Truss.

But the big problem is the Tory party’s failure to choose: they don’t want the spending cuts you would need to make Truss’s plans work, but they don’t really support the alternative either. Some thoughts on all that below.

Fiscal reality check

Liz Truss is set to join the ranks of Conservatives calling for tax cuts in Jeremy Hunt’s forthcoming budget, Chris Giles and George Parker reveal. An ally of the former prime minister says of the UK’s flirtation with “Trussonomics”:

“Liz believes that the policy was right but that she didn’t get the political backing she needed. She is still convinced we need to get out of this box of low growth.”

And the thing is: she’s not entirely wrong. Part of the problem with Trussonomics is that it lacked political support. Ultimately, tax cuts do not pay for themselves and the £45bn hole created by Kwasi Kwarteng’s debt-financed package could not be filled in by muttering vaguely about the Laffer curve, Treasury civil servants and the anti-growth coalition.

But, of course, you can have £45bn worth of tax cuts if you are willing to cut government spending by £45bn. The trouble for Truss is that there was never any prospect of Conservative MPs supporting £45bn worth of further cuts to the British state in 2022. I don’t know why markets freaked out as they did. After all, there were many reasons to do so. To name just a few: there was the Truss government’s hostility towards the UK’s fiscal police, the sacking of the Treasury’s top official and the unwillingness to subject the measures to the OBR.

There’s the lingering question mark over the country’s credibility as a result of Brexit and the way the UK’s government has conducted itself since. And then there’s the demonstrated reluctance of the Conservative party to find and support further cuts (yes, my favourite chart is back.)

Tory MPs have consistently shown that they don’t want to pay for tax cuts. Conservatives love to talk about how they dislike Sunak’s tax rises but when push comes to shove, they dislike cuts to public spending even more.

It takes a leader

One of Sunak’s difficulties is that he leads a party that opposes almost everything. It doesn’t want to have to implement or defend further cuts in public spending. It won’t even stomach defending the real-terms cuts created by higher inflation. Yet at the same time, it also objects to tax rises. There is, at present, no real world fiscal policy that does not cause internal ructions within the Conservative party.

But Sunak has made his political problems worse. When he talks about how he’d love to cut taxes tomorrow, but he just can’t, he is fuelling the big myth at the heart of Trussonomics: that there is a big enough appetite in the Conservative party for further reductions in the size of the state. The reality is that the Tory party’s revealed preference is for more spending, not less.

Sunak’s big mistake is that at every stage he has sought unity rather than engaging in an argument with, well, anyone. As Robert Shrimsley notes in his column this week, he even backed away from making a basic — and, given he is a Conservative, pain-free — argument in favour of the union. He is reluctant to defend private healthcare, to argue for reductions in the size of the state, or to present his MPs with the obvious alternative: that if they do not want spending cuts, they have to accept at least some tax rises.

He is seeking unity rather than trying to impose his will upon his party. Whether it is under Sunak or someone else after the election, the next successful Tory leader is going to have to confront their party with a basic choice: either you are willing to support Trussonomics politically by backing further cuts in spending, or you go for Sunakomics and accept further tax increases.

Shameless self-promotion

There are just a handful of days to go until bidding closes on the FT’s charity auction for Flic, our campaign to democratise financial education. On offer: lunch with me at the restaurant Turnips.

Now try this

I really enjoyed Best of Enemies, James Graham’s new play about the televised debates between William Buckley and Gore Vidal. You can book tickets to see it in London or watch it in cinemas as part of the National Theatre’s live programming. It’s a brilliant play, though the highlight for me is not David Harewood’s mesmerising turn as Buckley or Zachary Quinto as Vidal. It is Syrus Lowe’s astoundingly good turn as James Baldwin. He becomes Baldwin and steals every scene he’s in. Someone needs to commission a play or a movie with Lowe as Baldwin, quick.

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