Mark Littlewood: It really is time Conservatives accepted the truth behind the ‘Truss mini-budget’

Mark Littlewood is Director of Popular Conservatism.

Last week provided some firm indications of how the Conservative Party is going to try and reinvent itself as its electoral credibility now hangs by a thread.

Kemi Badenoch has made it pretty plain, without fully committing, that the Tories will eventually end up advocating for ECHR withdrawal and a major overhaul of our legal system, in which the definition of human rights has been stretched beyond reason. A five-month review conducted by Lord Wolfson will work out the technical details of how to go about this. Kemi will therefore have a detailed roadmap rather than merely a headline-grabbing pledge, something she seems wedded to in every area of policy debate.

This comes on top of her abandoning the commitment to hit carbon net zero by 2050.

In both cases, the direction of travel is clear and will be welcomed by those, such as my own group Popular Conservatism, who wish to see the party move away from the statist, globalist consensus of the past twenty-five years.

It is true that both these pivots – on lawfare and environmental extremism – have been tepid rather than full-blooded. Carbon neutrality by 2050 will be ditched not because the entire plan is manifest lunacy but because it’s “impossible to achieve”. Similarly, Kemi tells us that it is “very likely” will we need to leave the ECHR.

The danger is that the Conservatives give the impression that they are begrudgingly shifting policy in the face of stark realities that can no longer, unfortunately, be ignored rather than exuding unbounded optimism about embracing a radically different approach to how Britain is governed. Nevertheless, in these two areas, the water – however tepid – is flowing in the right direction.

The same cannot be said of the party’s efforts to regain a reputation for economic competence.

Mel Stride’s presentation last week on how to show the Conservatives “get it” when it comes to fiscal responsibility was to remind people of the political trauma of the 2022 mini-budget, the financial turmoil which followed and to pledge to ensure that it never happened again.

Kemi’s prescriptions tend to have painstaking detail and a swathe of qualifications. Some are concerned that whilst this may make the policy platform intellectually robust, it hinders attempts to move at speed and with clarity. But at least it’s a coherent strategic approach.

In contrast, Mel Stride’s determination to put as much distance between himself and Liz Truss’s mini-budget doesn’t bear much scrutiny at all.

The convenient – but inaccurate – story about the short-lived Truss administration and its implosion amidst market meltdown is that she and Kwasi Kwarteng had the temerity to attempt to reduce the tax burden without delivering a balanced budget.

This supposed fiscal laxity led to a spike in bond yields as the markets apparently – and suddenly – reached the conclusion that the UK government had abandoned any pretence at ever making tax revenues come close to matching state spending. The lesson the Conservatives are expected to draw from this is that “unfunded” tax cuts are permanently off the table.

Those of us who wish to see a reduction in the tax burden and a supply-side revolution to lift economic growth off the floor remain deeply scarred by the events of September 2022.

Politics is an unfair – and often unreasoned – business. If you happen to be holding the parcel when the music stops, you get the blame. Some months and years later, historians and academics might pore over the details of each cause and each effect. But in the real-time and brutal world of modern politics that will do nothing to save you.

You often need to be a lucky general rather than a good one.

The truth of the 2022 meltdown is complex but in a Badenoch-led, attention-to-detail Tory party it should be graspable.

The era of low interest rates was drawing to a close globally – and not before time. The Bank of England failed to follow the lead of the Fed and was asleep at the wheel in dealing with exposure relating to Liability-Driven Investments. The Bank’s own internal report concludes that two thirds of the market turmoil was down to this.

An additional factor was that there was no appetite amongst a wide swathe of Conservative MPs to embrace meaningful spending constraints.

Truss had hoped to limit hikes in welfare payments to wage growth rather than the much higher inflation rate. She may stand accused of political naivety in assuming that her Tory colleagues could be counted on to support a fiscal package that would reduce both tax and spending. She was wrong.

Dampening down welfare payments and reducing the top rate of tax from the absurd rate of 45 per cent was more than many backbenchers could stomach. This seemed largely to be a case of “optics” rather than economics from Truss’s detractors. Nevertheless, with civil war breaking out on the government benches at a time of market turmoil, these two factors became reinforcing and brought Truss’s premiership to a very swift end.

There are a whole load of lessons that the Conservatives might draw from the grim events of the autumn of 2022. But, last week, Mel Stride sadly seemed uninterested in many of them. The Tories now seem to promise that so-called “unfunded” tax cuts must never again be considered for fear of the economic collapse that would surely follow.

It should be noted that “unfunded” state spending appears to be pretty much fine in this view of the world.

The Conservatives failed to balance the budget even once in fourteen years – despite having promised to do so within their first term in office. The national debt has sky rocketed as a consequence. Sure, there were all sorts of things this can be blamed on – the woeful inheritance from the Brown years, the protracted uncertainty over Brexit, the Covid lockdown, the war in Ukraine – but any government whose fiscal plans are based on an assumption that external events will always be benign is not a conservative one.

Worse still, the Conservatives left office with the UK’s long-term fiscal sustainability in – to put it generously – an unimproved state.

The cost of public sector pensions – a moral outrage as well as a monumental financial burden – was shunted into the “too difficult to handle” tray for the entire duration of the Tories’ tenure. The increasing crisis in social care was also left to fester. Despite the oft-repeated claim from politicians that they are making “difficult decisions”, the Conservatives’ fourteen years in power were marked by virtually no serious or difficult fiscal decisions being taken at all.

Nobody expects – or wants – the Shadow Chancellor to indicate that the Conservatives’ first priority in office would be to resurrect the ill-fated 2022 mini-budget. However, to indicate that you might believe that it was the principal cause of the country’s recent economic woes is entirely the wrong message.

If the party is serious about Kemi’s pledge to tell the unalloyed truth, however uncomfortable, they need to be honest that vast reductions in public spending will need to be found. This is now a mathematical fact, not an ideological position. They then need to spell out the sort of process that will be undertaken to find such savings. Alongside this there will need to a huge programme of deregulation and supply-side reform and a commitment to getting the tax burden down on a year-on-year basis from its current growth-killing levels.

That would be a much more compelling message than simply attacking Liz Truss.