This morning, Jeremy Hunt left Trussonomics not only dead, but damned. In the space of six or so minutes, is emergency statement constituted the biggest U-turn by any British government since Neville Chamberlain realised that Hitler chap wasn’t so reasonable after all. The new Chancellor has pronounced the last rites on Truss’s original agenda, and made himself the frontrunner to be her successor.
When markets reacted badly to Kwasi Kwarteng’s (remember him?) mini-Budget, it was not because of those items in it that Truss had trailed during the leadership campaign. The money men expected a Corporation Tax cut, the reversal of the National Insurance rise, and a big package on energy bills. What they did not expect was everything else: bringing forward the 19p cut, removing the 45p rate, bankers’ bonuses being uncapped, and a pledge that this £60 billion-odd package was only the start.
Crucially, they thought the Government would deign to accompany the largest package of tax cuts in 50-odd years with an announcement on how it would all be paid for. That expected significant supply-side reforms – a quick plug for our Deputy Editor’s Metropolitan Planning Bill – and a plan to get spending down. Namely, cuts – and big ones, if raising taxes was now beyond the pale.
This, plus Bailey’s monetary incompetence and international financial turmoil, prompted the collapse in market confidence that has culminated in Kwarteng’s sacking, Hunt’s appointment, and today’s announcement. Whilst Kwarteng’s stamp duty and NI cuts survived, having already been introduced, the rest of the package has now gone the way of the Dinosaurs, Betamax, and the Soviet Union.
Hunt has salted the earth in the wake of his predecessor. Yet this Carthaginian approach appears to have bough stability. Gilt yields have rapidly fallen back below 4 per cent, and the pound is on the up. The markets think that the sensible chaps are back in charge. You might abhor Treasury orthodoxy, but it’s what the investors markets want – and if you want to borrow, they are king.
All of this has made a volatile political environment even more crazy. The Editor and myself have been clear what the Government’s U-turn constitutes. We now have Truss men implementing Sunak measures. The former Chancellor has yet to comment on current developments. But as his allies are making clear, his criticisms of Trussonomics have been vindicated, and Truss, by reverse-ferreting, is now aping his example.
Nevertheless, before the Sunakites get too smug, they should consider what is going on. Before today, one could have said the markets had one of three opinions. The first was that they wanted Sunak – one of their own, and the voice of the status qou – back in office. The second was that they wanted Keir Starmer – a new fan of fiscal rectitude, closer to them on Brexit, and not a Tory. More Financial Times readers vote Labour now.
And the third? That Britain was a basket case. Post-Brexit, we are Greece without the sun, under the control of a political class systematically incapable of calming down. Whatever was done by whomever, market confidence would continue to ebb away. The positive reaction to Hunt’s announcement today has proved that wrong. The markets care about policies more than personalities. They are happy to have Sunak measures without the man himself, even if the new Chancellor has no previous Treasury experience.
So whilst he might have been right about Trussonomics, Sunak is the biggest loser from today’s announcement. His allies can no longer say only his return would stabilize the situation. Moreover, the rival appearances of Ben Wallace and Penny Mordaunt in the papers today – even after Wallace refused to run, and Pennymania collapsed as soon as people read her book, only three months ago – shows that agreeing a single ‘Unity Candidate’ will be almost impossible.
As such – in a development that nobody could have foreseen just days ago – Hunt finds himself as the most powerful politician in Britain. Truss, with her agenda, authority, and popularity lost, is in office but not in power. She is the figurehead of a government now controlled by a man who failed to get past the first ballot in this summer’s leadership election.
Yet now it is much easier to now imagine him as Prime Minister, because he is already, effectively, Prime Minister. Before his appointment, Hunt lacked the support of MPs, and had earnt the antipathy of the party’s right. But his new role provides him with authority. Who cares if he was calling for tax cuts and rising defence-spending only weeks ago, if he has already done more to stabilise the economy than Truss and Kwarteng managed for the whole of their partnership?
Perhaps, if Truss fixes her comms problems and sticks only to foreign policy and constitutional necessities, she could continue as the face of a government run by Hunt. McDonald and Baldwin did something vaguely similar in the 1930s. The inability of her opponents to so far agree on who to replace her with – as with the fall of Johnson – and the neutering of Sunak have made her survival slightly more likely. The former President of the Oxford University Conservative Association is rescuing the former President of the Oxford University Liberal Democrats.
But as MPs considers her poll ratings, or endure another awkward press conference, the cogs will whir. The Tory party has previously produced leaders and Prime Ministers who would not have been the obvious choices. Bonar Law went from third place to first. The new Chancellor Baldwin leap-frogged the former Viceroy Curzon. The 14th Earl Douglas-Home pipped the heir apparent Butler. So Hunt going from failure and backbench obscurity to being the de jure (as well as the de facto) Prime Minister would not be so outlandish.
If anything, it would be a fitting conclusion to weeks and months and years of political madness. God only knows what the voters think of it all. Maybe Hunt could out-Starmer Starmer: a sensible, slightly grey, affable sort of chap hemmed in by a perilous economic situation. But he and the agenda he is implementing is the polar opposite of the high-spending, low-tax, Johnson-fronted, Vote Leave-esque approach that won us the 2019 election.
What will happen, God only knows. My advice would be to go to the pub and ignore Twitter for a couple of hours. That’s certainly what I’m going to do. But for now, I will just paraphrase Simon and Garfunkel. Jeremy Hunt, our nation turns its lonely eyes to you…