Not since Margaret Thatcher came to power in 1979 has the UK economy been in such crisis. Energy bills are crippling the finances of households across the nation, food prices are skyrocketing, thousands of small businesses are facing oblivion, we’re heavily involved in the war in Ukraine, and our public services are being brought to a halt by unions seeking more cash to help their members through the cost-of-living crisis.
Add to these the ongoing recovery from the Covid pandemic and the continuing impact of Brexit, plus a divided Conservative Party, then it seems certain that our new Prime Minister Liz Truss will not be afforded anything like a honeymoon period in office. She must get to work on day one if her party has any chance of winning a fifth term in office.
Like the country’s brand new Prince of Wales aircraft carrier, Britain is broken, and Ms Truss faces an in-tray the outgoing Prime Minister may be thankful he’s leaving behind.
While spending the past six weeks wooing Tory members with her tax cutting mantra, few believe Ms Truss will not be forced to spend billions in an attempt to rescue households from the impact of rampant inflation, which some of the world’s leading banking groups are now predicting will settle around 20 per cent by next spring.
Politically, Ms Truss is being squeezed by Labour in the Red Wall and the Liberal Democrats in the Blue Wall. She has firmly aligned herself with the right of her party and, with only a third of her own MPs backing her as party leader in the final Parliamentary party vote, she faces the toughest of tasks to win her remaining colleagues in the House of Commons over.
While the war in Ukraine, Covid and Brexit will continue to have an impact it is the resulting economic issues that Ms Truss has to tackle, whatever the causes behind them.
For at least one economic commentator Ms Truss is almost certain to fail.
For Elliot Hentov, head of macro policy State Street Global Advisors, Ms Truss may not even last as long in office as her predecessor Boris Johnson.
“The labour market is likely to soften a lot over the coming year with a significant rise in unemployment expected, and a similar fate looks likely to befall the new Prime Minister,” says Mr Hentov.
“The stagflation recession of 2022-2023 will hit household finances hard. Household real purchasing power forecast to be lower by year-end 2023 than in 2007 before the financial crisis. It’s hard to overstate how painful this is for the electorate.”
Not only is Mr Hentov predicting the demise of Ms Truss before she has even been handed the keys to No 10, he’s predicting her short tenure will result in the Conservative Party losing its grip on power at the next general election.
“The combination of economic recession, higher unemployment and lower real wages does not bode well for the political survival of any government. In this regard, we believe Liz Truss would not even enjoy the typical political honeymoon period upon taking office, and is likely to end up holding the shortest tenure in office of any Prime Minister over the past half-century before elections in 2024 prompt a change in government.”
The last Prime Minister to serve less than two years in office was Sir Alec Douglas-Home, who lasted just 363 days in office before leading the Conservative Party to defeat in 1964.
Other than pointing to veteran Patrick Minford, Ms Truss has struggled to find an economist that agrees with her strategy of tax cuts, with almost every forecaster is pointing to inflation hitting around 20 per cent in 2023. There’s a reason for that. No economist i heard from believes her tax cutting will work.
Chris Beauchamp, chief market analyst at IG Group, says: “Liz Truss faces the mother of all policy headaches. Her hints of a wide-ranging programme of tax cuts and pauses in new green levies will help hard-pressed consumers in some ways, but also risk stoking inflation in a manner that threatens to force the BoE’s hand when it comes to rate rises.”
Philip Shaw, an economist at Investec, adds: “The markets are showing signs of concern over Liz Truss’s economic policies.
“We already have a UK recession pencilled in, starting by the end of the year.”
After two months of zombie government, during which nothing has been announced to ease the concern of households that are facing a winter of choosing whether to put food on the table or pay their exorbitant energy bills, Mr Shaw also suggested voters will have to wait even longer for Ms Truss solutions.
“Ms Truss is not expected immediately to reveal her plans for tax cuts and fiscal support packages in light of the looming energy price hike,” he says, adding that 21 September is rumoured as a potential date for an emergency budget.
James Smith, an economist at ING, believes the closure of the UK’s gas storage plants since David Cameron entered No 10 in 2010 has left the UK more vulnerable to the energy crisis. The UK has just one per cent of gas stored across Europe. The Netherlands has capacity more than nine times the UK’s, while Germany’s is 16 times the size.
The closure of gas facilities in recent years has left the nation with its lowest level of storage in more than a decade.
“The UK may benefit from greater security of gas supply and larger LNG regasification facilities. But a lack of gas storage means that Britain is vulnerable to price volatility across Europe this winter, says Mr Smith, who also believes we are headed for recession.
“Indeed, if wholesale gas prices were to settle at their most recent peak, we could see the average household energy bill hit almost £7,000 on an annualised basis next April. That compares to roughly £1,100 in previous years, and our latest forecasts suggest that inflation could hit 16 to 17 per cent in January next year – or perhaps even higher.”
Without the intervention of the new Prime Minister, Mr Smith, along with many other experts, believes the majority of UK households will be paying more than 10 per cent of their disposable income on energy bills, meaning they fall within the definition of energy poverty.
The consequences of that will spread throughout the economy.
“That could amount to material cuts in non-essential spending,” says Mr Smith. “The government has announced £37bn worth of support so far, but that was when energy bills were expected to peak at around £3,000. Households will need to find an extra £65bn to pay for energy bills from October to the same period next year, to offset the further rise in gas prices we’ve seen since the last round of support was announced.
“Liz Truss has stated a preference for using tax cuts to help households. However, the sheer scale of the energy bills that are likely to hit next year suggests that this will need to be coupled (or replaced) with additional direct payments to households across the income spectrum.”
The most obvious mechanism for that, according to many economists, would be to dramatically increase the existing £400 discount on energy bills that households receive from October.
Mr Smith adds: “This will also need to be extended, in one form or another, to small businesses, which are unprotected by the regulator’s price cap and are already experiencing potentially-existential price hikes.”
However, during the Tory leadership campaign, Ms Truss could not have made her opposition to handouts from the state clearer. She believes such solutions are not Conservative. Quite how long she sticks to that mantra remains to be seen.
Ms Truss also believes her tax cutting strategy can avoid the recession almost every economist believes is inevitable. And that’s not just a short sharp recession.
According to the Bank of England gross domestic product – the official measure of the size of the economy – will shrink in every three-month period from October to the start of 2024, falling by as much as 2.1 per cent.
Energy providers have asked for the government to provide a multi-billion pound emergency fund to keep them afloat as millions could fail to pay their bills this winter and, therefore, hit the cashflow of the providers.
If today’s PMQs was anything to go by, Truss might actually triumph over Keir in 2024
Yeah but she’s got nice pins.
Shes tied her future to not having a windfall tax to help pay for the energy crisis.
Thatcher was the milk snatcher.
Truss appears to be aiming to shaft your kids, grandkids, all in the name of trickle down ideology and dividends, oh and ‘investment, ‘ in offshore^bank^accounts^and^dividends.
…. Pissing on you, from the shitty uplands.
>Not since Margaret Thatcher came to power in 1979 has the UK economy been in such crisis
Really? I think it’s a little bit worse than that.
What we are going through now feels so, so much more of a crisis that the late 70’s and early 80’s ever did.
Sure things were a bit rough back then but it’s not on the huge scale that we have now where half the country is faced with the decision to pay the rent or buy food or pay for fuel to get to work or to heat their homes. The NHS is collapsing, out economy is fucked, education is failing…
Honestly, compared to this it wasn’t that bad under Thatcher despite having nearly 4million unemployed, huge interest rates and the country being sold off from under our feet. Christ, at least back then we had hope that things might improve rather than the feeling the decisions made at the moment are burying the what is left of the country for the next few generations if not for good.
We have had over a decade of brutal mismanagement and profiteering to bring us to this point. All Truss can do is preside over a burning country like an imbecilic Nero fiddling away whilst his mates loot what’s left of Rome.
I wouldn’t be so sure.
1. Expectations of her are very low and the last guy was total shite
2. Vladimir Putin is a very good scapegoat
3. Large bribes tend to go down well with voters in the short term – even if they just involve more borrowing in the long term.
I have everything crossed she pilots the Tories to electoral annihilation, but Labour still needs to up their game to make sure.
If Liz truss’ head splits open and a UFO should fly out, I want you to have expected it.
She isnt that short
Remember when they said that about Boris?
Still waiting for her to explain how NI and income tax cuts will make the blindest bit of difference to those in the direst circumstances, who already earn less than the minimum threshold for income tax on its own or, lower still, both the income tax *and* national insurance thresholds.
In times of crisis or national insecurity, the majority of the population of a country is far more likely to vote for a conservative government, as people unconsciously think of them as being like a strong steadfast ship riding the waves of a stormy sea, offering up a sense of safety on such uncertain dangerous waters.
In times of peacefulness or national security, the majority of the population of a country is far more likely to vote for a liberal government, as people unconsciously think of them as being more flexible and radical, and therefor offering up exciting challenges or new horizons which counter the general sense of malaise that a calm sea brings.
Hate to break it to all you Lefties out there, but take a look around at the state of the country at the moment and realise that a conservative-run government is more likely than not to be around for another 4 – 8 more years, at least, following the next general election – unless something really drastic and extreme happens before then, which is unlikely.
General Election!
The psychodrama of Brexit keeps giving.
She will be here until the Tories get kicked out in 2 years.
How will NI cuts benefit the NHS though? Genuine question
well that’s a truism, because believe it or not she is currently the shortest serving PM, so at any time she ‘could’ quit permanently becoming the shortest serving prime minister, ever possibly.
I couldn’t actually read your article, behind some wall.
“What do you mean tax cuts for the rich and massive bungs to my mates aren’t working? Noone could have seen that coming. Something something Labour’s fault” – Liz Truss (probably)
17 comments
Not since Margaret Thatcher came to power in 1979 has the UK economy been in such crisis. Energy bills are crippling the finances of households across the nation, food prices are skyrocketing, thousands of small businesses are facing oblivion, we’re heavily involved in the war in Ukraine, and our public services are being brought to a halt by unions seeking more cash to help their members through the cost-of-living crisis.
Add to these the ongoing recovery from the Covid pandemic and the continuing impact of Brexit, plus a divided Conservative Party, then it seems certain that our new Prime Minister Liz Truss will not be afforded anything like a honeymoon period in office. She must get to work on day one if her party has any chance of winning a fifth term in office.
Like the country’s brand new Prince of Wales aircraft carrier, Britain is broken, and Ms Truss faces an in-tray the outgoing Prime Minister may be thankful he’s leaving behind.
While spending the past six weeks wooing Tory members with her tax cutting mantra, few believe Ms Truss will not be forced to spend billions in an attempt to rescue households from the impact of rampant inflation, which some of the world’s leading banking groups are now predicting will settle around 20 per cent by next spring.
Politically, Ms Truss is being squeezed by Labour in the Red Wall and the Liberal Democrats in the Blue Wall. She has firmly aligned herself with the right of her party and, with only a third of her own MPs backing her as party leader in the final Parliamentary party vote, she faces the toughest of tasks to win her remaining colleagues in the House of Commons over.
While the war in Ukraine, Covid and Brexit will continue to have an impact it is the resulting economic issues that Ms Truss has to tackle, whatever the causes behind them.
For at least one economic commentator Ms Truss is almost certain to fail.
For Elliot Hentov, head of macro policy State Street Global Advisors, Ms Truss may not even last as long in office as her predecessor Boris Johnson.
“The labour market is likely to soften a lot over the coming year with a significant rise in unemployment expected, and a similar fate looks likely to befall the new Prime Minister,” says Mr Hentov.
“The stagflation recession of 2022-2023 will hit household finances hard. Household real purchasing power forecast to be lower by year-end 2023 than in 2007 before the financial crisis. It’s hard to overstate how painful this is for the electorate.”
Not only is Mr Hentov predicting the demise of Ms Truss before she has even been handed the keys to No 10, he’s predicting her short tenure will result in the Conservative Party losing its grip on power at the next general election.
“The combination of economic recession, higher unemployment and lower real wages does not bode well for the political survival of any government. In this regard, we believe Liz Truss would not even enjoy the typical political honeymoon period upon taking office, and is likely to end up holding the shortest tenure in office of any Prime Minister over the past half-century before elections in 2024 prompt a change in government.”
The last Prime Minister to serve less than two years in office was Sir Alec Douglas-Home, who lasted just 363 days in office before leading the Conservative Party to defeat in 1964.
Other than pointing to veteran Patrick Minford, Ms Truss has struggled to find an economist that agrees with her strategy of tax cuts, with almost every forecaster is pointing to inflation hitting around 20 per cent in 2023. There’s a reason for that. No economist i heard from believes her tax cutting will work.
Chris Beauchamp, chief market analyst at IG Group, says: “Liz Truss faces the mother of all policy headaches. Her hints of a wide-ranging programme of tax cuts and pauses in new green levies will help hard-pressed consumers in some ways, but also risk stoking inflation in a manner that threatens to force the BoE’s hand when it comes to rate rises.”
Philip Shaw, an economist at Investec, adds: “The markets are showing signs of concern over Liz Truss’s economic policies.
“We already have a UK recession pencilled in, starting by the end of the year.”
After two months of zombie government, during which nothing has been announced to ease the concern of households that are facing a winter of choosing whether to put food on the table or pay their exorbitant energy bills, Mr Shaw also suggested voters will have to wait even longer for Ms Truss solutions.
“Ms Truss is not expected immediately to reveal her plans for tax cuts and fiscal support packages in light of the looming energy price hike,” he says, adding that 21 September is rumoured as a potential date for an emergency budget.
James Smith, an economist at ING, believes the closure of the UK’s gas storage plants since David Cameron entered No 10 in 2010 has left the UK more vulnerable to the energy crisis. The UK has just one per cent of gas stored across Europe. The Netherlands has capacity more than nine times the UK’s, while Germany’s is 16 times the size.
The closure of gas facilities in recent years has left the nation with its lowest level of storage in more than a decade.
“The UK may benefit from greater security of gas supply and larger LNG regasification facilities. But a lack of gas storage means that Britain is vulnerable to price volatility across Europe this winter, says Mr Smith, who also believes we are headed for recession.
“Indeed, if wholesale gas prices were to settle at their most recent peak, we could see the average household energy bill hit almost £7,000 on an annualised basis next April. That compares to roughly £1,100 in previous years, and our latest forecasts suggest that inflation could hit 16 to 17 per cent in January next year – or perhaps even higher.”
Without the intervention of the new Prime Minister, Mr Smith, along with many other experts, believes the majority of UK households will be paying more than 10 per cent of their disposable income on energy bills, meaning they fall within the definition of energy poverty.
The consequences of that will spread throughout the economy.
“That could amount to material cuts in non-essential spending,” says Mr Smith. “The government has announced £37bn worth of support so far, but that was when energy bills were expected to peak at around £3,000. Households will need to find an extra £65bn to pay for energy bills from October to the same period next year, to offset the further rise in gas prices we’ve seen since the last round of support was announced.
“Liz Truss has stated a preference for using tax cuts to help households. However, the sheer scale of the energy bills that are likely to hit next year suggests that this will need to be coupled (or replaced) with additional direct payments to households across the income spectrum.”
The most obvious mechanism for that, according to many economists, would be to dramatically increase the existing £400 discount on energy bills that households receive from October.
Mr Smith adds: “This will also need to be extended, in one form or another, to small businesses, which are unprotected by the regulator’s price cap and are already experiencing potentially-existential price hikes.”
However, during the Tory leadership campaign, Ms Truss could not have made her opposition to handouts from the state clearer. She believes such solutions are not Conservative. Quite how long she sticks to that mantra remains to be seen.
Ms Truss also believes her tax cutting strategy can avoid the recession almost every economist believes is inevitable. And that’s not just a short sharp recession.
According to the Bank of England gross domestic product – the official measure of the size of the economy – will shrink in every three-month period from October to the start of 2024, falling by as much as 2.1 per cent.
Energy providers have asked for the government to provide a multi-billion pound emergency fund to keep them afloat as millions could fail to pay their bills this winter and, therefore, hit the cashflow of the providers.
If today’s PMQs was anything to go by, Truss might actually triumph over Keir in 2024
Yeah but she’s got nice pins.
Shes tied her future to not having a windfall tax to help pay for the energy crisis.
Thatcher was the milk snatcher.
Truss appears to be aiming to shaft your kids, grandkids, all in the name of trickle down ideology and dividends, oh and ‘investment, ‘ in offshore^bank^accounts^and^dividends.
…. Pissing on you, from the shitty uplands.
>Not since Margaret Thatcher came to power in 1979 has the UK economy been in such crisis
Really? I think it’s a little bit worse than that.
What we are going through now feels so, so much more of a crisis that the late 70’s and early 80’s ever did.
Sure things were a bit rough back then but it’s not on the huge scale that we have now where half the country is faced with the decision to pay the rent or buy food or pay for fuel to get to work or to heat their homes. The NHS is collapsing, out economy is fucked, education is failing…
Honestly, compared to this it wasn’t that bad under Thatcher despite having nearly 4million unemployed, huge interest rates and the country being sold off from under our feet. Christ, at least back then we had hope that things might improve rather than the feeling the decisions made at the moment are burying the what is left of the country for the next few generations if not for good.
We have had over a decade of brutal mismanagement and profiteering to bring us to this point. All Truss can do is preside over a burning country like an imbecilic Nero fiddling away whilst his mates loot what’s left of Rome.
I wouldn’t be so sure.
1. Expectations of her are very low and the last guy was total shite
2. Vladimir Putin is a very good scapegoat
3. Large bribes tend to go down well with voters in the short term – even if they just involve more borrowing in the long term.
I have everything crossed she pilots the Tories to electoral annihilation, but Labour still needs to up their game to make sure.
If Liz truss’ head splits open and a UFO should fly out, I want you to have expected it.
She isnt that short
Remember when they said that about Boris?
Still waiting for her to explain how NI and income tax cuts will make the blindest bit of difference to those in the direst circumstances, who already earn less than the minimum threshold for income tax on its own or, lower still, both the income tax *and* national insurance thresholds.
In times of crisis or national insecurity, the majority of the population of a country is far more likely to vote for a conservative government, as people unconsciously think of them as being like a strong steadfast ship riding the waves of a stormy sea, offering up a sense of safety on such uncertain dangerous waters.
In times of peacefulness or national security, the majority of the population of a country is far more likely to vote for a liberal government, as people unconsciously think of them as being more flexible and radical, and therefor offering up exciting challenges or new horizons which counter the general sense of malaise that a calm sea brings.
Hate to break it to all you Lefties out there, but take a look around at the state of the country at the moment and realise that a conservative-run government is more likely than not to be around for another 4 – 8 more years, at least, following the next general election – unless something really drastic and extreme happens before then, which is unlikely.
General Election!
The psychodrama of Brexit keeps giving.
She will be here until the Tories get kicked out in 2 years.
How will NI cuts benefit the NHS though? Genuine question
well that’s a truism, because believe it or not she is currently the shortest serving PM, so at any time she ‘could’ quit permanently becoming the shortest serving prime minister, ever possibly.
I couldn’t actually read your article, behind some wall.
“What do you mean tax cuts for the rich and massive bungs to my mates aren’t working? Noone could have seen that coming. Something something Labour’s fault” – Liz Truss (probably)