Liz Truss’s first big test

Liz Truss and Kwasi Kwarteng are determined to show that Britain’s economy is under new management. They want to indicate through their decisions – such as cancelling the corporation tax rise and reversing the National Insurance rise – that they are breaking away from the fiscal approach of recent years.

More broadly, they want to emphasise that growth is their priority. In contrast to Boris Johnson’s attempts at people-pleasing, Truss is happy to declare she is prepared to be unpopular if that is what it takes to get the economy moving. She is dismissive of arguments about the distributional impact of tax cuts. At the same time, Kwarteng is scrapping the cap on bankers’ bonuses – a policy that is never going to go down well with voters, but does show that the government is prepared to take some criticism for measures it thinks will boost competitiveness. Kwarteng’s decision also reveals something about the government’s attitude to its new post-Brexit powers. Despite prizing sovereignty in the negotiations, the Johnson administration made relatively few changes to the rules that it inherited from EU membership – often for fear of how the public would react.

Even some ministers are nervous about how the electorate will receive this week’s package. Truss and Kwarteng’s calculation, however, is that the Tories must reassert their low-tax, pro-growth credentials.

At the same time, the energy bills package is meant to give the government space to get on with a tax-cutting agenda. Truss’s decision to intervene to this extent, with the government directly setting the price of energy for both businesses and households, is a reminder that she knows there are some ideological fights which aren’t worth the candle. The cost of the energy package is unknowable, but there are those in Truss’s team who believe it may cost much less than feared because the wholesale gas price may well continue to fall.