It seems crazy it was only less than a month ago that Liz Truss became the new PM. A month of high-profile deaths, mini budgets, the pound dropping, strange interviews and now a U-turn. It’s been quite a whirlwind few weeks for the PM, as well as the Chancellor, Kwasi Kwarteng.
Many wouldn’t have predicted the sheer level drama this soon into Truss’s tenure. Add in a war in Ukraine which shows no signs of deescalating anytime soon, as well as global economic turmoil, and the situation looks bleak for the former Foreign Secretary. Since starting her new position as PM on 6th September, the nation and its mood has drastically changed.
We break down the key events which has shaped Truss’s first month in charge, and why the public are already asking serious questions about their new leader…
The Mini-Budget Announcements
A fortnight in the role as Prime Minister, Liz Truss announced a Mini-Budget to be held by the Chancellor. Some huge, newsworthy policies were released. These included the basic rate of tax and the highest ‘additional’ rate would be reduced from 6th April 2023. Higher earners would benefit the most, as the 45% additional tax rate for those earning £150,000 or over was to be scrapped. These tax cuts were estimated to cost around £45bn of unfunded taxpayer money.
Kwasi Kwarteng also decided to keep the main rate of corporation tax at 19% at all profit levels. Furthermore, reforms to IR35 were also announced with off-payroll working a contentious issue for many industries. A reduction in stamp duty and a reversal of NIC point increases were the other main talking points.
The Pound Faltering
As the Mini-Budget was announced, many analysts were dumbfounded as to its content and timing. As such, global markets were both shocked and stunned by the announcement of the policies by the new Conservative government. This led to a financial backlash, with the pound reaching a record low. Slumping to $1.0349 early on Monday 26th September, it rebounded to $1.07. This meant the currency fell by more than 3% on Friday, trading at levels previously seen in the early 1970s.
This huge economic turmoil shone a harsh light on Truss and her cabinet. News outlets didn’t hold back in criticising the actions of government, with calls for a General Election resounding.
The Bank Of England Stepping In
With the situation worsening, the Bank of England faced no other choice than to step in. Attempting to halt a ‘doom loop’ in the bond markets, the Bank of England provided a £65bn emergency bailout to try and revive the British economy. They were deeply concerned the financial health of Britain’s biggest pensions and insurance companies were under threat. With government gilts (bonds that float to cover borrowing) being sold off rapidly, the financial system was on the brink of a crisis akin to the 2008 financial crash. The Bank stated it was setting aside £65bn to purchase bonds over the next 13 working days. This was an attempt to ease pressure on pension funds and insurance companies, who manage trillions of the public purse.
Public Outcry & Catastrophic Interviews
With global markets continuing to destabilise the pound and not see an upsurge, the public resoundingly voiced their disapproval. The PM went silent after the Mini-Budget, conducting no interviews or offering a statement. Instead of doing national TV or radio interviews, the PM chose to attend a range of local radio station interviews. This was probably in the hope she’d get less of a hard time. What followed was a calamity of public speaking, with scripted answers blaming Russia for the markets tumbling and no admittance of her government’s own doing.
All of this did little to calm the public’s nerves and instil belief in Truss as PM. Opinion polls showed the biggest lead in YouGov history for the Labour party, a massive 33% lead over the Tories.
On the morning of Monday 3rd October 2022, the Chancellor scheduled in a statement regarding the 45p tax rate. It was then announced the government would be doing a U-turn, cancelling the planned scrap of the 45p tax rate. Kwarteng cited ‘a massive distraction on what was a strong package’. Several Tory MPs publicly voiced their concern on the mini-budget policies, adding fuel to an already stoked fire. This was even more dramatic considering the annual Conservative conference was set to get underway in Birmingham that very day.
There was an immediate revival of the pound, rising to $1.1263, before falling back. Whether this translates to long-term revival, remains to be seen. This U-turn was needed, however 10 days after the original announcement is probably a little too late to save face. With inflation up globally, there’s hiding from the graveness of the situation, no matter who is at the helm.
The next few months of Truss’s leadership is not expected to diminish in severity, with constant scrutinising at every opportunity. Whether enough damage has already been done is questionable, as the PM has certainly got off on the wrong footing.
We hope this has outlined to you the key events of Truss’s first month as PM, and the situation both economically and politically. If you’d like to know any further information on anything mentioned, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy talking you through your query.