Doomed from the start?
This article is by our Managing Director, Tom Lees. You can email him here.
Liz Truss had been positioning herself to take the Prime Ministerial crown for many years. From cosplaying Margaret Thatcher to swinging from an avid Remainer who said she didn’t want her daughters to grow up in a world outside the EU to portraying herself as the most ardent Brexiteer around. Her political compass certainly blows with the prevailing winds. Now she has beaten Andrew Bonar Law’s record of 211 days to take a new crown - one that she never wanted to wear - that of the shortest-serving prime minister in modern times with a mere 45 days in office.
She’s made plenty of mistakes in her short tenure - a Cabinet full of her friends, the haphazard political mismanagement of her ‘mini-Budget’, her failure to read the economic runes, the timing of the vote on Fracking - but to be fair to Truss, she also took over as Prime Minister at a difficult time for the UK and the Conservative Party.
Everything has an expiry date
No UK political party has won five electoral terms since 1826, when the Duke of Wellington triumphed for the Tory party.
After so many years in power - and inevitable leadership tussles and political fallouts - there is bound to be too much bad blood and venom between the different winners and losers of each issue. Over 12 years the Conservatives have divided themselves into so many camps, tribes and teams - changing leaders three times in the process, not to mention four chancellors in as many months - that they are virtually ungovernable with a breakdown of trust and goodwill between the Government and the parliamentary party.
2019 was a spectacular electoral success for the Conservatives, but the coalition they had built to win that 80-seat majority has divergent aims. Traditional shire tories have very different views and priorities from Red Wall northern first-time Conservatives on everything from house building and immigration to ‘levelling up’ and HS2. Binding ‘unnatural’ bedfellows together was always going to be a political and policy challenge and has added to the sense and manifestation of division.
Brexit’s unintended consequence
Six years on from the fractious EU referendum, the scars and divisions have left their mark on the Conservative Party. At the time 80% of the Cabinet wanted to stay in the EU, along with 70% of Ministers and roughly half of backbenchers. Our political relationship with the EU has always been a political fault line in the Conservative party. Clearly, some MPs will have had their career prospects front of mind given the ‘commentariat’ view that Remain would likely win and that it was the best thing to do to advance their careers. Nonetheless, many MPs had deeply held and principled views on the issue.
Bringing a party back together after such a publicly ill-tempered campaign - layered with half-truths (on both sides) - to undo the process of a 40-year political, legal and economic integration was a near-impossible challenge. That period also gave backbench MPs a new taste for rebellion with the traditional loyalty to party being trumped by a bigger policy issue. Once they smelt rebellion they liked it! Since the 2019 election - which was supposed to bring clarity and unity - there have been more than 350 MPs who have rebelled against the party line.
Global economic headwinds
The ‘mini-Budget’ certainly exacerbated some of the UK’s economic woes, but a large proportion of these are happening globally and would have happened regardless of who was PM.
Inflation, or as it is commonly referred to, the Cost of Living Crisis is a problem all western democracies and central banks are wrestling with. Driven in part by energy prices and 14 years of quantitative easing - the UK’s inflation rate of 10.1% is broadly in line with the Eurozone and less than the Netherlands, Turkey and Argentina. Indeed, the majority of the G20 countries are seeing rates north of 8%.
Exchange rates compared to the US dollar have been falling around the world - yes it has been slightly worse in the UK - but the main issue is a strengthening of the US dollar itself. In Japan, the yen has slipped past ¥150 against the dollar for the first time in 30 years and the euro has been on the slide since May 2021 reaching an all-time low against the dollar this month.
On interest rates, the Bank of England has raised rates from 0.1% at Christmas to 2.25% today and Andrew Bailey gave a clear indication at the IMF conference in Washington last week that they would need to rise further - but look elsewhere around the world. The USA has gone from virtually 0% at Christmas to 3-3.25% today. Similarly, the European Central Bank has gone from 0% to 1.25% with further rises likely to come.
With Truss gone these pressing issues will be top of the new Prime Minister’s in-tray. Prepare yourself for more bumpy months, in-fighting and a rocky ride until the next election and an all but inevitable Labour victory.
We now have an unbelievably quick leadership contest of up to a week. The lightning-fast timescales will surely result in a win for Rishi Sunak who claimed the most parliamentary support from MPs last time, he has the machinery still in place and can help reassure the markets with his financial experience and background. Whether he can heal the divisions in the Conservative party is another matter!
