Tough times ahead for Britain’s new PM

In the spring of 1945, after towering over the American political landscape for a generation, Franklin Delano Roosevelt died suddenly at his retreat in Warm Springs, Georgia. At the time, Vice President Harry Truman was up on Capitol Hill, sharing a customary drink with the Congressional leadership at the end of a hard week (yes, opposing leaders actually socialized with one another in those faraway days).

Abruptly summoned to the White House, Truman ran straight into the president’s wife, Eleanor, who told him the news. Shocked into his basic Midwestern decency, Truman asked if there was anything he could do for her. She wisely replied: “No, Harry, is there anything we can do for you? For you are the one in trouble now.”

I thought of this historical vignette last week as Liz Truss succeeded the shambolic Boris Johnson as prime minister of the UK. When Britain’s period of official mourning for Queen Elizabeth comes to an end and the business of government resumes, rarely will a new political leader have been confronted with such a bulging and dangerous in-tray.

Following the semi-criminal failure of Europe and the UK to worry much about their energy policies for the past few decades (indeed, just days before the Ukraine war began, Berlin was still pushing to get the Nord Stream 2 gas pipeline operational, which would have preposterously increased its energy dependence on Moscow), knock-on inflation marching in tune with stratospheric energy price rises has been the doleful result — both on the continent and in the UK.

 

The new prime minister is betting on aggressive growth as the ultimate way out of the crisis

Dr. John C. Hulsman

 

The beast of inflation, now fully loosed from its cage in Britain, sits at an unhealthy 10.1 percent. The specter of stagflation, and a permanent cost-of-living crisis, beckons. Indeed, in political risk terms, if both Europe and the UK do not master (and quickly) the current economic crisis, the grim reality of overall absolute decline awaits them.

Calmly (a blessed relief from Johnson’s rollercoaster tenure), Truss has set out a four-pronged strategy for dealing with the calamity. First, her administration intends to freeze average annual household energy prices for the next two years at £2,100 ($2,400), including an already agreed-upon energy rebate, with equivalent support for businesses for at least six months. The cost will be a monumental £150 billion. This unprecedented bailout dwarfs the COVID-19 furlough bailout of £69 billion, and will be paid for entirely through new borrowing.

Unlike her Labour Party opponents, Truss refuses to implement a windfall tax on energy companies, on the ground that it would discourage their future investment in further energy projects. This massive spending gamble is designed to allow the Bank of England to more slowly raise interest rates (mitigating the coming recession) and to cap overall inflationary pressures themselves. On her very first day, Truss has wagered the overall success of her premiership on this one, overwhelming economic bet. She is all in.

Second, Truss wants to make sure the UK never again finds itself the prisoner of its energy supply. Fracking, outlawed under the Johnson premiership, will be allowed, in an effort to increase domestic energy production, as will further drilling for oil and natural gas in the waning but still profitable North Sea fields.

Third, the new prime minister is betting on aggressive growth as the ultimate way out of the crisis. Despite the mammoth new borrowing, Truss is pressing for large tax cuts amounting to £30 billion to free up the animal spirits of British business and extricate the UK from its parlous economic state. She has called upon Jacob Rees-Mogg, the new business and energy secretary, to drastically cut government regulation and further unshackle the British commercial sector.

Fourth, with rising Conservative Party star Kemi Badenoch the new trade secretary, Truss will try to bank the winnings from Brexit. I have long been exasperated by both sides of the Brexit debate, locked as they are in their deafening self-regarding theologies. In policy terms, the issue is simple. If, in the medium term, Britain manages to secure free trade deals with the parts of the world that are actually economically growing (India, the US, the Anglosphere countries), then Brexit will have been worth it as the UK looks beyond an economically sclerotic Europe for its economic future. If it does not manage to do so, then Brexit will have failed, and all Britain will have done is alienate its largest trading partner.

On these monumental policy issues, the Truss leadership will rise or fall. During her inaugural session at Prime Minister’s Question Time in the House of Commons, Truss’s tone was strikingly different from Johnson’s. Gone was the bombast, the showmanship, the sly humor, and the loose relationship to the facts. In their place were sobriety, a low-key confidence, a reassuring calmness. In both cases, the style of the two leaders belies reality. For all his gaudiness, Johnson’s actual policy agenda was incredibly boring; he was a vanilla, garden-variety Macmillanite. On the other hand, beneath Truss’s dullness lies a radical, updated, Thatcherite policy agenda that will either actually work or obviously fail. In terms of substance, as was true for Truman, stirring days lie ahead.

• Dr. John C. Hulsman is the president and managing partner of John C. Hulsman Enterprises, a prominent global political risk consulting firm. He is also a senior columnist for City AM, the newspaper of the City of London. He can be contacted via johnhulsman.substack.com.