Prime Minister Liz Truss' top job is U.K.'s rising cost of living

ADVERTISEMENT

The top job for new Prime Minister Liz Truss is to lead the U.K. out of an economic nightmare

Liz Truss had a busy Tuesday. Having won the contest to lead Great Britain’s Conservative Party, she paid the traditional respects to Queen Elizabeth II, took the reins as prime minister, announced top cabinet members and began work on prescriptions for a growing economic disaster in her country.

As Grid has reported, Truss’ inbox is piled with challenges as daunting as any incoming British prime minister has faced in decades: skyrocketing energy prices; across-the-board inflation; troubled public services; and a rapidly rising national debt. Into this storm comes Truss, whose experience has been as foreign secretary — most recently leading the effort to support the Ukrainian resistance financially and militarily. That support is among the few policies likely to remain intact in an otherwise turbulent period — a period of “grim foreboding,” as Anand Menon, professor of European politics and foreign affairs at King’s College in London, put it. Menon, who directs a special initiative at King’s College called “The UK in a changing Europe,” spoke with Grid’s Global Editor Tom Nagorski and Deputy Global Editor Nikhil Kumar on Wednesday as part of the weekly “Global Grid” TwitterSpaces series.

The conversation covered Truss’ early plans, the scope of the challenges, and her cabinet appointments, as well as reflections on two other Britons who were integral parts in this week’s transfer of power: the outgoing, scandal-plagued Prime Minister Boris Johnson; and Queen Elizabeth herself.

This conversation has been edited for length and clarity.

ADVERTISEMENT

Tom Nagorski: How rough are things, either right now — or expected to be soon — for people across the U.K.?

Anand Menon: At the moment, there’s this sense of grim foreboding in this country. The only issue on everyone’s mind is the cost-of-living crisis, and particularly the cost of energy. But to give you a sense of how serious things are, one estimate is that if prices are left to rise as the market is dictating, or as the energy price cap goes up, then over 60 percent of Brits will be in fuel poverty by January of next year. Fuel poverty is defined as spending a tenth of your income on your fuel bills.

That number of 60 percent is absolutely eye-watering. You’re already starting to get stories of people making difficult choices about whether to have their heating on or whether they can feed their kids. There’s this real sense of the calm before the storm, which puts a lot of pressure on the prime minister because her proposals this week are going to be absolutely key.

TN: One statistic we’ve seen is that energy bills that are already high may jump as much as 80 percent in October. How does that work? Is that a legitimate forecast?

AM: We have this system of energy price capping in our country, which means that every six months, the energy regulator looks at the price of wholesale gases and adjusts the cap, which is the maximum for energy bills. Because it’s partly a function of the wholesale prices and because wholesale prices are skyrocketing, it’s a pretty good estimate of where they’re going to be.

ADVERTISEMENT

Now the question isn’t so much whether Liz Truss will do something, but how far she will go to push that cap back down. In other words, what the government is talking about doing is paying the difference between the price that wholesalers are paying for that gas, and what the U.K. consumer is paying to keep prices where they are now, which is already significantly higher than they were — but nowhere near as high as what we feel they’re going to get.

TN: Nikhil Kumar, Liz Truss doesn’t have a rich resume when it comes to economic policy, but it doesn’t mean she can’t make good economic policy. Can you give us a rundown of her expected plans?

Nikhil Kumar: She has been busy appointing ministers. What we’re expecting Thursday is announcements from the new chancellor, the finance minister in Britain, on what exactly the plan is going to be.

As Anand mentioned, everything points to them doing something to keep the energy cap at around £2,500 for U.K. consumers. Right now, the typical household gas and electricity bill is supposed to rise from about just under £2,000 — which is between $2,300 to $2,400, which we expect to rise to about U.S. $4,000 in October.

What Truss is expected to do is outline a package of about £100 billion, which will cap those bills at £2,500. This would be, according to reports, up until January. But there are lots of questions.

One thing that’s very relevant is what happens with wholesale prices. Things have changed just over the last few days. We had the Nord Stream pipeline, which brings gas from Russia into Europe, supposed to restart over the weekend. It didn’t. So on Monday, while U.S. markets were closed for Labor Day, in the European markets, wholesale gas prices were up about a third. All of that could mean further revisions.

That’s what the plan looks like now — some £100 billion worth of support to shield households from a dramatic rise.

TN: Energy prices tend to have an impact on food and other prices across the board, as you’ve reported, Nikhil. Truss said Tuesday that these measures will help people ride out the storm. Anand, how has this been received — or will it be received — in the academic world or by other policymakers?

AM: It depends on what precisely she proposes. The initial reaction from places like the Institute for Fiscal Studies, which is a very respected economic think tank, has been that if you’re really planning to cap everyone’s gas bill, and you’re going to spend £100 billion, which is the low end of the estimates, it is regressive in the sense that you’re helping the better off more than the worse off, because the wealthy spend more on fuel.

One big question is whether the government finds a way to help the worse off more than the better off, partly as a way of saving money, but partly as a way of signaling a sensitivity to the fact that there are some people who, as I said, are choosing whether to heat or eat, and other people who just have higher bills.


ADVERTISEMENT

The other key thing is what the plan is for the fiscal deficit. We have high and rising inflation in this country. We have rising interest rates. One of the fears is that if Truss goes ahead with the other thing that she promised during the campaign, which is ambitious tax cuts, that these could prove to be inflationary.

And ultimately, there’s a cost-of-borrowing issue. As interest rates are going up, if we keep on reducing the tax intake and increasing state spending, there’s going to be question about paying these things back.

It’s quite a delicate situation. It’s worth saying as well that the bigger picture in the U.K., apart from the economic issues, we’re facing a raft of public and private sector strikes over the autumn from doctors, nurses, lawyers, train drivers. That’s adding to that sense of crisis. More and more people are starting to compare what’s going on in the U.K. to what was happening in the 1970s. And that’s not a particularly optimistic comparison.

Truss will have to balance political philosophy with practical realities

TN: I was going to take you back not quite that far, but to the 1980s, Margaret Thatcher’s tenure. Liz Truss is of course head of the Conservative Party, and I gather that she has been a rather staunch proponent of less government involvement. But she comes into power at a moment when huge government outlays may be in order. You’ve both mentioned £100 billion minimum for this energy cap. You’ve just put on the table the idea that other measures may be needed to make it not seem that regressive. How to square those things?

AM: Firstly, it just dawns on me that these labels of left and right are spectacularly unhelpful right now. Claiming to be right wing at a time when we’ve got one of the highest tax burdens we’ve had for about 70 years in this country because we’re paying for covid, and we’re about to splash out a huge amount of money on help for energy prices — that doesn’t strike me as particularly orthodox right-wing economics.

ADVERTISEMENT

I think the politics behind this are interesting. Liz Truss came to power and got the votes of Conservative members on the back of a pledge to cut taxes. For U.S. listeners, it’s a bit like the distinction between a primary and a general election: She’s won the primary, which was made up of party members who tend to be older, more prosperous, and more right wing than the general population. She won that vote. Now the question everyone’s asking is the degree to which you tack toward the center when your next test is the general.

What we don’t know, therefore, is whether the tax cuts will be token-like. She can tick the box and say, “I promised them, here they are. They might not be very big, but we’re in a time of crisis.” Or whether she’s actually going to be bold and ambitious about it. That, I think, is a key question for this government.

The second question behind that is: If she isn’t as aggressive with her tax cuts as she might have claimed during that leadership contest, do her MPs in Parliament back her? The other massive problem the prime minister faces is not just substantive issues in her in-tray, which is overflowing, but the fact that she presides over a parliamentary party, the majority of whose members didn’t vote for her and didn’t support her, and which is incredibly divided over economic policy. She’s not guaranteed the support of her own side in trying to put through whatever measures she does.

TN: What do you think, beyond the energy cap measure, would be economic policies that might right the ship? What would you suggest that the new prime minister tackle first, in this extreme moment?

AM: I think the focus is going to be, first and foremost, on the energy crisis. Beyond that, we’ve got an issue with public services in this country, and particularly with the health service. The reason for that is a combination of the strains that were put on the health service during covid and the fact that many people are behind in terms of appointments.

ADVERTISEMENT

There’s a massive strain on the health service, which was already under strain pre-covid because for the first part of the last decade, we had this policy of austerity, which essentially starved public services of funds. We had public services that were pared back to the bone by 2015, 2016. Then we had to experience covid, and are now producing very, very bad results. Every day, you turn on the television news and you get stories about ambulances taking two hours to arrive, or people dying while they were waiting to get into hospital. I think the fundamental priority, apart from the cost of living. has got to be the health service.

The problem is that, like the cost of living, the answer is partly money, which again, raises the question as to where this money is going to come from, and who ultimately is going to pay for it.

TN: Nikhil, Liz Truss announced her top aides Tuesday, and that’s a quite diverse group, at least relatively and historically speaking. Several people of color in top ranks, Deputy prime minister is a woman. Is this as eye-opening as it may be from a distance? Or is she just choosing the most competent people?

NK: I think the competency might depend on which side of the political divide you sit on, but you’re right. It is striking from the outside. There is a diversity there. The home department, the Treasury, which is the finance ministry, and the foreign office, you do see a lot of diversity. But they’re also very similar in some very important respects, particularly in the U.K. context, which is that people have been pointing to the class that they come from. Something like 70 percent of the cabinet were privately educated. And class still matters so much in this country.

TN: Anand, maybe picking up on that, can I ask you for your own take on the basic competence and the extent to which her announcements have resonated thus far?

ADVERTISEMENT

AM: The simple answer is we don’t know. Because, apart from everything that Nikhil just said, this is a cabinet massively lacking in governmental responsibility.

The longest-serving person is the prime minister herself, who, as you said, was foreign secretary, a brief spell in the treasury, but not that much ministerial experience. This is a very inexperienced bunch of people when it comes to running government departments, so we really have nothing to judge them by in terms of track record.

TN: A question about the war — one we’ve grappled with a bit in our own reporting — has to do with the degree of military support, financial support, and just moral support for the Ukrainians and the resistance. Do any of these things in the U.K. stand to fray that support a little, given all these issues? Is there any constituency behind the notion of, “Why don’t we stop this if it’s going to perhaps help ease our energy bills?”

AM: I think the short answer is no. There’s broad unity within the Conservative Party, and there’s broad unity between the big parties, between Labour and the conservatives. Perhaps a bit of political history is in order here.

Bear in mind that we had the Salisbury poisonings in this country where Putin’s agents carried out assassinations on British soil. That became a big dividing line in British politics because the Labour Party at that time was led by Jeremy Corbyn, who was very, very slow to condemn Russia. In fact, I don’t think he did condemn Russia. That was one of the key reasons why Labour did so poorly in the 2019 general election. So, there are good political reasons to be tough on Russia.

ADVERTISEMENT

At the moment, I see no prospect of that position changing, partly because we aren’t dependent on Russian gas. People don’t see the link between cost of living and the Ukraine War as clearly as you’d see it if you’re in Berlin.

Boris Johnson is expected to stay in the public eye, but in what way?

TN: Boris Johnson’s era is over, but he didn’t leave quietly, and who would have expected him to? What’s in the cards for him? He just doesn’t seem like a guy who will drift off into the background.

AM: I think the mixture of hubris and self-pity in his closing remarks was utterly unsurprising.

Boris Johnson likes to be the center of attention. It is inconceivable that he will just disappear because he’s always thrived on publicity, on being the center of attention.

Whether he chooses to do that by writing books, going on a speaking series, or whether he chooses to do that by becoming a pain to the prime minister, we’ll wait and see. My hunch is he has a political strategy that is to be very loyal to her because that’s a far better look than being complicit in her downfall.

The only path back to power for Boris Johnson is if Liz Truss does very, very badly. If either before or after the next election, conservatives come to the conclusion that this is intolerable because we can’t win elections with her, and they’ll think, “Oh, hang on. We have a backbench MP who’s proven quite good at winning elections,” and Boris Johnson comes to power that way.

Even that being said, and while not many are saying so out loud at the moment, the scale of the loss of faith in Boris Johnson on the part of his own MPs was really quite remarkable. It is conceivable that he will make some sort of comeback. I don’t think it is the most likely scenario to be honest.

NK: Boris Johnson does have something waiting in his inbox. In 2016, he sold a book to publishers here for half a million pounds about Shakespeare, which he never got to complete because the Brexit vote happened and so on.

So, he finally has time to do that. He had to give up his lucrative journalism career when he moved into Downing Street. He might need that.

AM: And the other thing to say about Boris Johnson is he does like money. He made £250,000 a year for his newspaper column. He’s on record complaining a lot to friends and confidantes while he was prime minister about salary. I think one of his priorities, at least in the short term, is to be going out and making as much money as he can as quickly as he can.

TN: A question about the queen. She is 96, and this was the first time that the investiture happened and she did not do so at Buckingham Palace. Anand, will her departure from the scene, when it comes, have any bearing on the turbulence of economics and politics in the U.K.?

AM: I suspect it will have an impact because we’re living through a time of tremendous change in the U.K. There’s the economic uncertainty, the uncertainty still associated with Brexit and what the future holds here. There’s a war going on in Europe. There are tensions within the union, whether that be in Northern Ireland or in Scotland, where the Scottish National Party is agitating for another referendum to leave the United Kingdom.

This feels like a moment of profound fragility in our country’s history. The one clear obvious source of continuity and stability is within the person of Queen Elizabeth. So, I suspect that even for people who don’t necessarily approve of the monarchy or don’t really care who succeeds her to the throne, there will be a degree to which her passing is profoundly unsettling to the British people.

I’m surprised to hear myself saying this in a way. I just think, given the moment we find ourselves in as a country, were this is to happen relatively soon, that it would be unsettling.

TN: Back to your phrase “grim foreboding.” Do you see any silver lining? Six months from now, is there a way in which we might be looking back and saying this was a low point for the U.K.? What might have to happen?

AM: The next six months are going to be tough. There’s no doubt about it. A lot depends on what happens to inflation, because the other side of the story is if inflation continues to be high, and the Bank of England responds to tax cuts by saying they have no choice but to raise interest rates, that brings in a whole new problem in a country where homeownership is so totemic, and people are so dependent on their mortgage rates.

You’ve got to hope that the mixture of targeted support plus tax cuts achieves its ambition of both holding inflation down and stimulating a degree of growth in the economy, at which point in six months’ time, we will indeed be in a position to be a little bit more positive.

Thanks to Dave Tepps for copy editing this article.

  • Tom Nagorski
    Tom Nagorski

    Global Editor

    Tom Nagorski is the global editor at Grid, where he oversees our coverage of global security, U.S.-China relations, migration trends, global economics and U.S. foreign policy.

  • Nikhil Kumar
    Nikhil Kumar

    Deputy Global Editor

    Nikhil Kumar is the deputy global editor at Grid, reporting on global affairs.