Tough times for the new UK Prime Minister
Tough times for the new UK Prime Minister
In the spring of 1945, after dominating the American political landscape for a generation, Franklin Delano Roosevelt died suddenly while in retirement in Warm Springs, Georgia. At the time, Vice President Harry Truman was on Capitol Hill, sharing a customary drink with congressional leaders at the end of a tough week (yes, opposing leaders were dating in those distant days).
Abruptly summoned to the White House, Truman clashes with the president’s wife, Eleanor, who breaks the news to him. Shocked at her basic decency in the Midwest, Truman asked if there was anything he could do for her. She wisely replied, “No, Harry, is there anything we can do for you?” ‘Cause you’re the one in trouble now.
I thought of this historic vignette last week when Liz Truss took over from the chaotic Boris Johnson as Prime Minister of the United Kingdom. When Britain’s official period of mourning for Queen Elizabeth comes to an end and government business resumes, rarely has a new political leader faced such a bulging and dangerous reception platter.
Following the semi-criminal failure of Europe and the UK to worry much about their energy policies over the past decades (indeed, just days before the start of the Ukrainian war, Berlin was doing continued pressure to get the Nord Stream 2 gas pipeline operational, which absurdly increased its energy dependence on Moscow), the knock-on inflation marching in step with stratospheric increases in energy prices has been the dismal 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 completely freed from its cage in Britain, sits at an unhealthy 10.1%. The specter of stagflation and a permanent crisis in the cost of living is beckoning us. Indeed, in terms of political risk, if Europe and the UK do not (and quickly) get the current economic crisis under control, the bleak reality of a global absolute decline awaits them.
Calmly (a blessed relief from Johnson’s rollercoaster tenure), Truss laid out a four-pronged strategy to deal with the calamity. First, his administration intends to freeze average annual household energy prices for the next two years at £2,100 ($2,400), including an already agreed energy rebate, with matching support for businesses for at least six months. The cost will be £150 billion. This unprecedented bailout dwarfs the £69billion COVID-19 bailout and will be funded entirely by new borrowing.
Unlike his opponents in the Labor Party, Truss refuses to introduce a windfall tax on energy companies, on the grounds that it would discourage their future investment in other energy projects. This massive spending bet is designed to allow the Bank of England to raise interest rates more slowly (mitigating the coming recession) and to limit overall inflationary pressures itself. From day one, Truss bet the overall success of his premiership on this overwhelming economic gamble. She’s all in.
Second, Truss wants to ensure that the UK never again finds itself trapped in its energy supply. Fracking, banned under Johnson’s tenure, will be permitted, in a bid to increase national energy production, as will drilling for oil and natural gas in the declining but still profitable fields of the North Sea.
Third, the new prime minister is betting on aggressive growth as the ultimate way out of the crisis. Despite the gigantic new borrowing, Truss is pushing for deep tax cuts amounting to £30billion to free the animal spirits of British business and lift the UK out of its precarious economic situation. She called on Jacob Rees-Mogg, the new Business and Energy Secretary, to drastically reduce government regulation and further free up Britain’s business sector.
Fourth, with rising Conservative Party star Kemi Badenoch as the new Trade Secretary, Truss will try to cash in on Brexit gains. I have long been exasperated by both sides of the Brexit debate locked in their deafening, self-serving theologies. In political terms, the question is simple. If, in the medium term, Britain manages to conclude free trade agreements with the parts of the world that are in full economic growth (India, United States, Anglo-Saxon countries), then Brexit will have been worth it, as the UK looks beyond a sclerotic Europe economic backdrop for its economic future. If he fails to do so, Brexit will have failed and Britain will have only alienated its biggest trading partner.
On these monumental political issues, Truss’ leadership will rise or fall. In his inaugural sitting of Prime Minister’s Question Time in the House of Commons, Truss’ tone was strikingly different from Johnson’s. Gone is the bombast, the showmanship, the sly humor and the loose relationship with the facts. In their place, sobriety, a discreet confidence, a reassuring calm. In both cases, the style of the two leaders belies reality. For all his audacity, Johnson’s real political agenda was incredibly boring; it was a vanilla Macmillanite, garden variety. On the other hand, beneath Truss’s monotony lies a radical, updated, Thatcherite political program that will either actually work or blatantly fail. In terms of substance, as it was for Truman, emotional days lie ahead.
• Dr. John C. Hulsman is President and Managing Partner of John C. Hulsman Enterprises, a leading global political risk advisory firm. He is also a senior columnist for City AM, the City of London newspaper. He can be contacted via johnhulsman.substack.com.
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