The hostile reaction in opinion polls to UK Chancellor of the Exchequer Kwasi Kwarteng’s ideological “mini-budget” last week, therefore, has a historical template. Following market chaos, the Tories now trail the Labour party by a colossal 33 points ahead of their annual conference. No one wants to be the laboratory animal in a grand experiment conducted by politicians armed with a rigid caste of mind.
Liz Truss has been attacked as an opportunist for switching from the Liberal Democratic party to the Conservatives in her youth, but that’s not right. The prime minister has been a consistent ideological libertarian throughout her political career. She supports greater freedom for the individual, self-reliance and low taxes. Her views chime with the academically brilliant Kwarteng’s own small-state principles and free-market radicalism.
Up to a point, that’s admirable. Margaret Thatcher read the odd book by Friedrich Hayek and Milton Friedman too. Politicians need a political compass. Boris Johnson’s lack of fixed principles — or any principle for that matter — meant that his government had no political purpose after he “got Brexit done,” despite having the advantage of a large House of Commons majority.
But last week’s crash-and-burn mini-budget could have been done with less ideology and a bit more political craft. The government needed to trumpet the good news story of its “compassionate” £100 plus billion ($112 billion) cap on soaring energy prices. Instead all eyes were fixed on the £2 billion cut in the top rate of tax and end to the cap on “fat cat” bankers’ bonuses. Arguably, a lower top rate may bring in more revenue, but a cost-of-living crisis was hardly the time or the place to introduce it. “Above all, not too much zeal,” a wise Frenchman once said.
Failure to let the Office for Budget Responsibility publish an analysis on the chancellor’s fiscal framework was the worst error of them all. That’s the sort of reckless disregard for established institutions and common-sense finance that British voters would expect from an ideological socialist. It seems like only yesterday that the Tories hit bullseye with the accusation that Labour’s (last) radical leadership believed in a government “magic money tree” that could pay down any deficit. Now it’s Truss and Kwarteng who have the targets on their backs.
Even before the fiscal event was delivered, Truss’s libertarianism was sounding alarm bells. Out of an ideological distaste for “nanny state-ism,” she tried to rescind a sugar tax on food and drinks designed to combat obesity. Hers was a throwback to the cranky libertarian opposition to compulsory seat belts in cars and public smoking bans — pragmatic measures that have improved everyone’s quality of life.
If the Labour Party is gleeful at Truss’s discomfiture, then defeated supporters of Britain remaining in the European Union are positively jubilant — they believe that a self-inflicted economic crisis will also discredit the Brexit process for which this Conservative government largely stands. Pro-Europeans speak from experience. They, too, were the victims of their own inflexible ideology. The last time the markets overwhelmed a Tory government, it was the European cause that took a battering.
In the late 1980s, the pound’s exchange rate was fixed within the European Exchange Rate Mechanism (ERM) — the prototype for the euro — to provide stability against inflation. Many economists, however, thought that the exchange rate set for sterling against the old German deutsche mark was far too high. It made German exports cheap and UK goods correspondingly uncompetitive.
The pound eventually came under attack from the markets. The chancellor, Norman Lamont, and the Bank of England vainly raised interest rates to defend the value of sterling but traders kept piling up their bets against it. Strong-arming Lamont were powerful cabinet ministers who saw ERM as the forerunner to full British membership of a future European currency. Thatcher’s successor John Major had also pledged to sign the Maastricht treaty that transformed the European Economic Community into a fully fledged political entity, the European Union.
On “Black Wednesday,” Sept. 16, 1992, Lamont finally gave up the fight to defend the pound as interest rates reached dizzying heights. Sterling was allowed to float free (and down). The government never regained economic credibility. Ever after, many Tory MPs and voters blamed pro-Europeans for sacrificing British jobs on the altar of ideology. A straight line can be drawn from “Black Wednesday” — or “White Wednesday” as anti-Europeans soon called it — to the lost referendum on UK membership in the EU in 2016.
For a party that genuflects to the wisdom of markets, the Conservatives seem to get irrationally angry when City traders burst the bubble of their ideological pretensions.
After financier George Soros “broke the Bank of England” and made a billion dollars by betting against the pound in 1992, the air turned blue with Tory cabinet ministers’ fury. This week, similar vitriol was reserved for Crispin Odey, a City trader who made a killing shorting the currency in the wake of Kwarteng’s statement. Ironically, Odey is a Brexiteer who supports tax-cutting libertarianism — the chancellor once worked for his hedge fund, just as Soros was a keen supporter of British membership of the European Union. But business comes before ideological pleasure; neither Soros nor Odey was going to turn down the opportunity to make millions.
That’s a lesson for Truss and Kwarteng. Being “right” or “ideologically pure” is not nearly enough. The voters won’t thank them for it. At the ballot box, they will choose pragmatists who put safety first. Nervous Tory MPs may be tempted to preempt them.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Martin Ivens is the editor of the Times Literary Supplement. Previously, he was editor of the Sunday Times of London and its chief political commentator.
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