An incompetent ‘mini-budget’
Prime Minister Liz Truss, and her Chancellor Kwasi Kwarteng, were rightly criticised for the incompetent ‘mini-budget’ statement that was published on 23 September 2022. It created turmoil in financial markets, caused a dramatic fall in the value of the pound, and sharply increased the government’s borrowing costs. She was forced into a series of humiliating U-turns, and opinion polls showed that both she and her party had become deeply unpopular.
Most criticisms have focused on the economics and politics of the mini-budget, without examining the source of the political error – which was a personal failure, caused by a combination of arrogance, inexperience, and ideology.
Arrogance can cause people to think that the views of others are unimportant. Liz Truss had just emerged victorious from a contest for leadership of the Conservative Party, so she may have assumed that she would be allowed to implement her ideas without further opposition or explanation. Kwasi Kwarteng’s Eton education, like that of Boris Johnson and David Cameron, was designed to create a sense of entitlement.
Inexperience is a problem for politicians who have just been appointed. The British political system compensates for this with a civil service and institutions with experienced subject-matter experts – but Truss and Kwarteng ignored them. Perhaps the arrogance referred to above was why they failed to consult those who would have given good advice.
Ideology sometimes convinces people that they alone are right, so they think that anyone who might disagree with them can be safely disregarded. Truss and Kwarteng are both libertarians, who believe that companies would grow more quickly if taxes and regulations were minimised. They acknowledged that their proposed tax cuts would lead to increased borrowing in the short term, but they didn’t explain how the additional national debt would be paid back – so the lenders, the financial markets, reacted badly. And they paid insufficient attention to the problem of inflation, which was plunging millions of people into a cost-of-living crisis.
Liz Truss dismissed Kwasi Kwarteng, although their exchange of letters over the sacking makes it clear that they had designed the incompetent mini-budget together, and she was unapologetic in the subsequent news conference. Following a Tory revolt, though, she then “dramatically resigned as prime minister after just 45 days in the job”. She said: “I recognise that I cannot deliver the mandate on which I was elected by the Conservative Party.”
National leaders cannot afford to implement policies which cannot command enough support – and libertarianism appeals to very few people. Paid-up members of the Conservative Party are not representative of the British population, so it is perhaps unsurprising that they chose a leader who campaigned for the job by offering immediate tax cuts. Neither they nor she understood why the mini-budget would not be acceptable to financial markets or to most voters.
Liz Truss has had a painful lesson: being a national leader requires attitudes and skills that are different from those of an attention-seeking leadership contender.
The economics of the package were unsound, as described on this website under the title Prudent economic management – to illustrate what the opposite of prudence looks like.