Yesterday the Queen appointed Liz Truss as Prime Minister. Following a brutally contested leadership contest which saw senior members of Britain’s governing party tear chunks out of each other and their shared party’s legacy, Truss won with 57% of the vote.
Below we’ll take a look at what our new Prime Minister’s policy statements, comments and actions could mean for the markets across the UK.
A damaging leadership election
One thing is clear, the Conservative Party has spent the last 2 months focused internally on itself during the worst economic crisis in recent years.
Instead of proactively looking for solutions, the party has spent its time and effort engaging in ideological factionalism and personal in-fighting.
It has seen senior government figures in effect trash their own legacy and that of previous Tory leaders. It has seen blistering personal attacks and has led to the opposition holding a steady 10 point plus lead over them.
This is important because divided political parties never make for effective governments. At a time when the new Prime Minister needs to take bold, urgent action, she has to first unite her party and heal some of the open festering wounds that the party has inflicted on itself.
Unless she does this then despite her inherited significant parliamentary majority of 70+, she faces a serious challenge in getting any real legislation passed. There are large numbers of Conservative MP’s who either feel ideologically distant from the new PM or personally attacked by her campaign (and in some cases both.)
Whilst the market is crying out for action, it could prove incredibly difficult for her to actually make any meaningful change.
Tax Cuts, Tax Cuts and more Tax Cuts?
The biggest divide in the leadership campaign appeared to be around ‘tax cuts now vs tax cuts later.’ Truss spent the campaign decrying a whole range of tax rises introduced under Boris Johnson’s leadership, in particular the increase in National Insurance and the increase in Corporation Tax. For Truss, the best way to tackle economic crises is to cut tax straight away which in theory would give people more money in their pay packet. (Rishi Sunak took a more hard line and said they were unaffordable now, but they promised they would come later.)
It is expected that the new Government will scrap the NI and Corporation Taxes right away as a priority as well as scrapping green energy levies. The new Government could also reduce VAT and raise tax thresholds.
The tax-cutting approach has received a considerable amount of criticism both internally and externally and it looks like virtually any decision the new Government takes on the economy will be met with stringent opposition. As mentioned above, it will take a considerable amount of effort to get some of these policies pushed through Parliament.
Another snap election?
When any new Prime Minister comes into office without having personally led the previous election campaign, there is speculation that they could or should call a ‘Snap election.’
In 2007 Gordon Brown planned to hold one (but stopped at the last minute.) In 2017 Theresa May called one less than a year into the job (one in which she lost her majority) and in 2019
Boris went to the country to get a mandate for his Brexit plans just a few months after becoming PM. We can expect that there will be pressure from some corners to call one, especially if the first few months of the new Truss Government are rocky and the Tory party fails to rally around their new leader.
Markets hate elections that have unclear outcomes and the result of a snap-election is not a foregone conclusion for any side. Recent years have seen too many surprises to discount any potential result. Whilst Labour may be ahead in the polls, it has a considerable amount of work to do on a constituency level to overturn a hefty Conservative majority. At the same time, the Conservative Party is thoroughly unpopular, is haemorrhaging support in many of the key constituencies it needs to retain and Liz Truss is nowhere as popular amongst key voters as Boris Johnson was/is.
We continue to live in unprecedented times, with unprecedented domestic and international crises. As such politics as usual would never have cut the mustard.
It’s too soon to tell what will happen in the coming weeks and months. What’s clear though is that the new government has to manage one of the most uncertain and perilous winters in recent history. How it acts during this period has the potential to fundamentally make or break Britain’s new Prime Minister and the government that she leads.