Liz Truss took over the Conservative Party as a free-market evangelist in the vein of Margaret Thatcher and Ronald Reagan. Photo / AP
Liz Truss took over the Conservative Party as a free-market evangelist in the vein of Margaret Thatcher and Ronald Reagan. Photo / AP
After a blowback over her budget-busting tax cuts, Britain’s prime minister has junked her free-market plans and adopted several measures favoured by Labour.
A month ago, Prime Minister Liz Truss rejected calls by the opposition Labour Party to impose a new windfall profits tax on energy firms in Britain. “Wecannot tax our way to growth,” she said.
A week ago, she hammered Labour’s leader, Keir Starmer, for refusing to support the Conservative government’s two-year cap on energy prices rather than the six-month cap proposed by his party.
Now, having junked her free-market agenda under pressure from financial markets and rebels in her own party, the prime minister has embraced a six-month energy price cap and opened the door to a fresh windfall profits tax. She has abandoned a tax cut for high-earning people and is moving ahead with an increase in corporate taxes, two other fiscal measures favoured by Labour.
Six weeks after Truss took over the Conservative Party as a free-market evangelist in the vein of Margaret Thatcher or Ronald Reagan, her economic agenda bears more than a passing resemblance to that of the Labour Party.
The shift is stark evidence of how the turmoil of the past few weeks has upended British politics. It is also highly significant for Britain’s future, given that Labour has amassed a huge lead over the Tories in opinion polls.
By adopting Labour’s policies, the government is giving legitimacy to the opposition as a future governing party. But it is also depriving the opposition of the chance to draw sharp policy differences with the Conservatives.
On Monday in Parliament, Truss’ new chancellor of the Exchequer, Jeremy Hunt, tried to exploit that fact by asserting that, posturing aside, the Labour Party’s shadow chancellor, Rachel Reeves, had not “disagreed with a single one of the decisions” that he announced as he buried Truss’ policies.
Such is the scale of Britain’s economic challenge that the new chancellor of the Exchequer, Jeremy Hunt, has no choice but to make unpalatable decisions, analysts say. Photo / AP
As if to prove his point, Reeves told the BBC on Tuesday that she accepted Hunt’s contention that now was not the right time to proceed with a reduction in the basic rate of taxation, something Labour had supported.
Still, the government’s policy reversals are generally good news for Labour, which historically has trailed the Conservatives on economic competence in polls but is now ahead on this metric, as well as practically every other one.
“Sometimes opposition parties worry about the government stealing their positions,” said Jonathan Powell, who served as chief of staff to a Labour prime minister, Tony Blair. “But people don’t vote for parties because of their individual policies. They vote because of an overall impression.
“They’ll vote against the Tories,” Powell said, “because they have hurt a great deal of people over a long period of time.”
Blair’s case illustrates the advantages of adopting opposition policies. Elected in 1997 after Labour had been out of power for 18 years, he won after promising to keep in place the budget rules of the departing Conservative government for two years to reassure investors and voters, many of whom viewed Labour as fiscally irresponsible because of its role in the economic stagnation and public finance crises of the 1960s and ‘70s.
Twenty-five years later, it is Conservatives who are facing a credibility gap. Truss is adopting fiscal measures championed by Labour to reassure the markets after the blowback over her budget-busting tax cuts.
Truss announced plans to lift the limit on bankers’ bonuses, a move that Labour called a concession to the rich when ordinary Britons are facing a cost-of-living crisis. Photo / Alex Ingram, The New York Times
The steadier trading of the pound and government bonds Tuesday seemed to vindicate that strategy, even if her own political survival still seemed in question amid continued plotting among Tory lawmakers.
There are still clear differences between Labour and the Conservatives.
In one of her first moves, Truss announced plans to lift the limit on bankers’ bonuses, a move that Labour called a concession to the rich when ordinary Britons are facing a cost-of-living crisis. Labour also wants to end a Conservative policy that allows people to claim nonresident status in Britain and avoid paying British taxes on overseas income.
Rishi Sunak, the former chancellor, who lost to Truss in the party leadership contest last summer, became a symbol of that tax loophole because his wife, Akshata Murty, who is the daughter of an Indian technology billionaire, used so-called nondomicile status to avoid paying millions of pounds in taxes.
Such is the scale of the challenge faced by Hunt that he has no choice but to make unpalatable decisions, like adopting policies that Truss had, until recently, derided. As a potential candidate for party leader, Hunt himself proposed cutting the corporate tax rate to 15 per cent. Now it will rise to 25 per cent.
“Whether it’s Labour’s ideas or anybody else’s ideas, the best he can do is to steady the ship to stop it sinking further,” said Steven Fielding, emeritus professor of politics at the University of Nottingham. But he added, “It’s a win-win for Labour because anything that the Conservatives do that looks like they are stealing Labour’s clothes adds credibility to Labour.”
Because Labour looks increasingly likely to win the next general election, the party is now facing more scrutiny in the news media over how it would balance the books. In addition to the windfall profits tax on energy firms and the end of concessions to taxpayers, Reeves also talks about trying to recover government money lost to fraud during the pandemic. But that seems unlikely to raise significant amounts.
In a speech at his party conference last month, Starmer warned that an incoming Labour government would face tough choices in an era when money for government spending programs will be tight. While Labour’s members are demanding a quick general election, they are doing so with the confidence that the Tories are so far behind in the polls that they will never agree to it.
“Labour must be praying that the Conservatives aren’t going to be mad enough to call an election, and they are probably hoping that Jeremy Hunt can sort out at least some of this mess before they take it over,” Fielding said.
“They need a period of Conservative consolidation to at least take some of those problems off the table,” he added.
