On 6 September 2022, Liz Truss entered No 10 with a clear vision for the country; the country asked her to leave less than 50 days later. But nearly three years on, even though all that remains of her premiership at Downing Street is a portrait she didn’t stick around long enough to see hung, it is she who really runs Britain.
Not through her influence – which has since been reduced to poorly attended speeches at far-right conferences in the US – but through the fear she left behind. Truss may be gone, but what remains is the shadow her failure cast, and the rigid fiscal caution that grew out of it.
Last week’s benefits bill fiasco is a case in point. While all the talk from this government was about getting disabled people into work, they presented no real evidence that siphoning money away from this group will achieve this. The benefit cuts were driven by a rush to find government savings after GDP growth forecasts were lower than expected, threatening the chancellor’s ability to meet her own fiscal rules. If this strikes you as an odd way to make major policy decisions, then you’re not alone.
We’ve ended up in a world where a one percentage point difference in a GDP forecast cascades down into a series of reforms that would have pushed hundreds of thousands into poverty. Why? Because the possibility of not meeting the fiscal rules was apparently spooking the markets.
The chancellor has been consistent with these fiscal rules. She told the Global Borrowers and Bond Investment Forum (ie bond investors, the same people who turned on Liz Truss) that they were essential for underpinning financial stability.
But fiscal rules have become a religion. In this self-imposed straitjacket, governments believe they can only spend if the economy is growing and borrow if the bond markets nod approvingly. These rules weren’t created by Truss, but their new totemic status in British politics was forged in the fire she left behind.
The result? We’ve boxed ourselves into a corner. Our public sector needs money. Growth is flat and threatened by global instability. Interest rates are high. But under these arbitrary rules, we’re left with just two levers: raise taxes or cut spending.
MPs and the public have shown that they are unwilling to tolerate further cuts, seemingly more alive than the government to the fact that they will create further costs in the long run. Who can blame them? The public isn’t irrational. They have seen the state decay after 14 years of cuts; they don’t believe it will be able to stand another round. They have also lived through years of stagnant wages and will be wary of tax rises on the back of already squeezed household budgets.
Plans to means-test the winter fuel payment led to this government being accused of attacking elderly people. Last week, £5bn of rushed and flawed benefit cuts were rightly destroyed through a rebellion from the government’s own MPs.
And while there is a growing consensus about the need to tax wealth fairly, this government so far appears unwilling to make these trade-offs. The closest we have come to anything resembling a bold wealth tax is a fairly meagre change to capital gains tax rates.
And so here we are, being informed that there is a “black hole” in the public finances that must be filled at all costs, yet with no politically acceptable route to make this happen. But there is a third lever that they should consider: rethink the fiscal rules themselves, and with them, our assumptions about debt and growth. Instead, Westminster treats these constraints as sacred.
That’s the legacy of Truss. Her mini-budget may have collapsed in days, but the fear it left behind governs us still. The bond market is now our unofficial second chamber. Every policy is measured against its hypothetical response. It doesn’t matter that the markets themselves aren’t demanding cuts, only that politicians think they might.
We are approaching a fundamental choice: do we continue trying to appease the markets by clinging to a set of self-imposed constraints that block the kind of spending needed to improve living standards and revive growth? Or do we remove those constraints and make the decisions necessary to fix our economy? I know which I’d prefer, not least because public investment can boost growth, raise tax revenues and ease pressure on the national debt over time. The alternative of more austerity risks doing the opposite: choking off growth, weakening the economy and actually making our debt burden harder to manage as a result.
The fear is that markets will punish us for daring to spend. But that fear has become self-defeating. In reality, the financial returns from well-targeted public spending – on infrastructure, childcare, health, skills – are often far higher than our anaemic assumptions allow. The economic returns are bigger, the benefits broader and the risks lower than we have conditioned ourselves to believe. A politics that always talks down the impact of spending ends up justifying stagnation.
That fear is how you end up with a government paralysed by its own Truss trauma, an exhausted politics where every problem is diagnosed but none are treated, because every solution breaks a taboo. And the longer we stay in this holding pattern, the more brittle the state becomes – and the more we’re left asking why nothing ever seems to change.
Until someone finds the courage to govern without flinching, we will remain stuck in this loop, where fear dictates policy, and decline is dressed up as stability. Until then, this is Liz Truss’s UK – we’re all just living in it.
Max Mosley is a senior economist at the New Economics Foundation
