The latest manifestation of neoliberalism, Trussonomics, reflecting a combination of the surname of the former British Prime Minister, Liz Truss, and her economic policies, has collapsed spectacularly in the United Kingdom. Ms. Truss, from the right wing of the Conservative Party, defeated Rishi Sunak, a moderate former Chancellor of the Exchequer (Finance Minister), in a bruising battle for support among approximately 170,000 Conservative Party members for Leader of the Party from which Boris Johnson, Prime Minister and Party Leader, had resigned after a series of scandals. Her defining policy proposal was to trigger growth of the British economy by reducing taxes on big business and the wealthy. Ms. Truss won and was sworn in as Prime Minister on 6 September. Her mandate was from the Conservative Party, not the electorate.
Presenting the mini budget on 23 September, new Chancellor of the Exchequer, close friend and ideological soul mate of Ms. Truss, Kwesi Kwarteng, described it as “the biggest package of tax cuts in generations.” The measures announced were: cancelling a rise in corporation tax from 19% to 25%; removing the 45% top rate for high earners; cutting the basic rate of income tax from 20% to 19%; other measures all amounting to reductions of 40 billion pounds. Reduction in public spending was ruled out to fund the tax reductions and subsidies to gas prices costing 20 billion pounds. The speculation was that borrowing would be increased. This would have negatively impacted the current high inflation and put further pressure on interest rates.
The British economy went into immediate free fall. The stock market crashed dramatically, the pound ‘collapsed,’ and the value of bonds declined. The Bank of England, warning that crumbling confidence posed a ‘material risk’ to financial stability, intervened by purchasing bonds to keep the price stable. This only temporarily dampened market hysteria. The New York Times (2022-10-20) explained: “The prime minister’s fatal miscalculation, experts said, was to believe that Britain could defy the gravity of the markets by passing sweeping tax cuts, without corresponding spending cuts, at a time when inflation is running in double digits and interest rates were rising.”
As consternation mounted and poll numbers fell, the reduction in corporation tax was reversed. Ms. Truss’s and her Government’s credibility continued to fall. She then fired her Chancellor, appointed the moderate Jeremy Hunt, who reversed most of the measures and announced that there will be painful budgetary cuts. By then Ms. Truss’s support in the country and from among Conservative MPs had evaporated. Her stay in office was counted in weeks. It lasted for six.
Reduced taxes and reduction in public expenditure by cutting social services are core, neoliberal, policy measures. They are supposed to trigger economic growth and deliver trickle-down crumbs. There is no credible evidence that these policies have ever worked either at all or in any sustainable way. In fact, ‘austerity’ policies by David Cameron and George Osborne in 2010 to 2016 so shattered the public services that they triggered the shocking Brexit vote at the referendum in June 2016 after Brexiteers’ jingoism convinced the electorate that the EU was responsible for the UKs’ economic problems, not government’s policies.
It is not as if there were no alternatives to Trussonomics. Sweeping economic and social policies to reform the British economy, end austerity and address poverty proposed by the Labour Party under its then Leader, Jeremy Corbin, saw an increase in its percentage of the vote to 40 percent in 2017 from 30 percent in 2015 and a minority Conservative Government. The electorate at that time chose wisely on policies of increasing taxes on the wealthy, increasing public ownership and increasing social benefits. Such a regime would have seen the UK in a better position to contend with the economic crisis now threatening. Unfortunately, in 2019 the electorate swept the Labour Party aside on the false Brexit narrative about the cause of the UK’s economic problems.
But if neoliberal policies are designed to benefit big business and the rich, why did British capitalism, the ‘market,’ reject Trussonomics? Clearly, there is a division in the UK’s ruling circles as to the solution of the country’s economic problems. The right wing in the Conservative Party, the press and the think tanks supported Truss while the business class saw economic disaster as the consequence of her policies which they believed were reckless. Had the Truss Government announced the slashing of public services to pay for the reduction in taxes – placing the burden on those least able to afford it – it is unlikely that the ‘market’ would have reacted in such devastating ways.
Neoliberalism has not been defeated but has suffered a temporary setback. It is hardly likely that the forces behind Liz Truss will disappear. They have been temporarily winded and will regroup and await another opportunity to spread their economic poison, just as the Republicans in the US are sharpening their knives to slash public expenditure – medicare, medicaid and social security – the common objective of neoliberals being to dismantle the welfare state that emerged after the Depression in the 1930s in the US and after the Second World War in the UK. Smaller welfare expenditure means more profits!