It’s a cliche to report an air of unreality at the Conservative conference here in Birmingham. All party conferences are divorced from political reality, cut off from the rest of the country by steel fences and self-absorption. But this little bubble of self-referential noise feels even further away from normality than usual. Safe behind the fences and still, just about, comfortable in the familiar company of their colleagues and contacts, conference-goers (Tories and non-Tory visitors alike) risk failing to grasp just how much trouble the party, the government, and the country, are in.
Start with talk of a fresh austerity programme, trimming between £20 billion and £40 billion a year from public spending. Those are big numbers: they mean real, tangible cuts. They can’t be achieved by saving money on photocopier paper or sacking some civil servants. Lots of people in Birmingham are wondering where the Truss-Kwasi axis will try to make those cuts: welfare is getting a lot of chatter, not least because it’s a big-ticket item.
Not enough people are observing the obvious truth of such cuts: they’re not going to happen. Why not? Politics. To elaborate: because the country won’t wear it, so Conservative MPs won’t support it.
Cutting welfare was, just about, politically viable for the Cameron coalition because Cameron and his team had successfully shaped public conversation around public spending (wasteful) and welfare claimants (idle) over half a decade. They then used the momentum of a global economic downturn to justify their programme. (They also, to be fair, rolled out Universal Credit, a commendable structural improvement on what went before.)
Cameron also had a reasonable command of the Commons. Yes, a few Tory right-wingers disliked him and his coalition, but he’d put the party back in power and – with George Osborne – offered a coherent political-economic strategy that raised the hope of re-election. The Truss government has none of these things.
The messages from the centre say: no change, no retreat, no surrender
If she failed to ‘lay the ground’ for her tax cuts, her lack of preparation for Austerity 2.0 is of much greater magnitude. Don’t forget: in the original Truss vision, those tax cuts would be self-financing from higher growth. It isn’t getting enough attention, but accepting the need for cuts is a fundamental retreat from pure Trussonomics.
Arguing that cuts are needed for international reasons also won’t wash. Cameron had the Eurozone sovereign debt crisis to support his agenda: voters could see Greece burning on their TV screens, so he could say ‘we must cut, or we’ll be next.’ Those same voters are very aware that the urgent crisis that apparently requires drastic fiscal change started less than a fortnight ago, around the same time as their new Prime Minister’s new Chancellor outlined new economic plans. Claiming that ‘all countries have problems’ because of Ukraine or Covid or something doesn’t repeat Cameron’s narrative success. It actually calls to mind the wounded Gordon Brown’s response to Cameron over the credit crunch: ‘It started in America…’
Of the Truss government’s numerous political deficiencies, a lack of command over Tory MPs should be getting more attention. Most of them didn’t vote for her. Most of those who didn’t aren’t even coming to Birmingham, in some cases because they don’t want to run the risk of making public comment about a government they fear is doomed.
Their absence is telling. Like the dog that didn’t bark in the night, it’s hard to notice the absence of things, and those who have turned up, such as Michael Gove, will get more attention. But it’s the no-shows who count more, since their absence speaks volumes about Truss’s power over her party, and thus her ability to do difficult, unpopular things.
A PM whose party is polling barely 20 per cent doesn’t have a lot of power – especially just after a reshuffle where she’s made it clear to a lot of colleagues they have no hope of a job. Maybe you think that a PM who can’t compel her colleagues to come to their own conference will soon be able to command those same colleagues to vote to cut welfare in order to fund tax cuts for the rich, in the hope of calming financial markets spooked by her policies. If so, I have a bridge to sell you: it’s made of rainbows and it reaches to the moon.
That political reality will soon dawn fully on the gilt markets. Traders and the analysts who shape their choices generally know less about the ins and outs of Westminster life than those of us who spend our lives in the village. And as a result, they can often have a better sense of what happens next than we do.
My guess is that the coming government attempts to reassure sceptical markets about the UK’s fiscal sustainability and inflation outlook will fail – because traders will calculate that Truss won’t be able to deliver much of the fiscal tightening being whispered about in Birmingham. It’s even possible that those tightening plans could be negative for gilts, if they involve cutting the capital budget that provides the building and infrastructure on which future growth prospects depend.
No wonder some in the markets are already basing their outlook for gilts and sterling on the assumption that the PM will be forced to do the thing she swears she won’t do and retreat on some of her tax cut; an awful lot of Tory MPs seem to be pricing in a u-turn on the 45p rate of tax too.
But all the messages from the centre say: no change, no retreat, no surrender. The dangers in that message are more than political. If those markets start to think Truss really does intend to brazen this out, expect even more red pixels on dealing screens.
As for the supply side revolution we’re also promised, well, these measures may be worthy enough but they will be too slow and too small to address the immediate credibility crisis facing the UK. And that’s before we consider whether Truss has the ability to make them happen – that’s not a given, when it comes to (sensibly) relaxing some immigration and planning rules.
So what happens if UK government policy can’t convince the markets that the UK economy and public finances have a healthy future and a path back to low inflation? When government fails, there is only one player left at the table: the central bank. I’d bet on the Bank of England raising the Bank rate hard and high – and possibly further than markets currently expect, if Truss goes for the full-blown Spartans-at-Thermopylae-Gate approach.
Neither the economic nor political consequences of such increases really need to be spelled out. Those Conservatives who have turned up might not be having the happiest of conferences, but they should still enjoy their holiday from reality in Birmingham. What lies ahead when they return to reality is likely to be much bleaker.
For a full list of Spectator Tory conference fringe events, click here
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