Liz Truss, the next Iron Lady?


Even if Liz Truss cannot change something, she says what she wants. In that, she will be setting the tone for modernization and reform.

What should liberals make of the new UK Prime Minister, Elizabeth (‘Liz’) Truss? Any leader whose first policy announcement is that her government will borrow £100 billion to cap energy prices might seem like an unreformable socialist. But the opposite is true. Truss’s government is undoubtedly the most ideological pro-freedom, pro-market administration that the UK has since Mrs. Thatcher. The rest have been headline-focused managerialists. But Liz Truss actually believes in free market principles and has constructed her government (mostly) from people who think the same way.

No Prime Minister I can remember has come into office with such low public expectations. The country is still scarred, and deeply in debt, due to the Covid experience — particularly the disruption to business caused by Boris Johnson’s two lockdowns, which many of us are now concluding were not just damaging but probably unnecessary. Inflation is running at around 10% and is forecast to touch 20% at some point. Taxes are higher than any time since the 1950s. Food prices are soaring because of the war in Ukraine. Energy prices are soaring because of that too — but also because of inept past policy mistakes, like closing nuclear power stations and not building new ones, introducing regulations that make fracking effectively impossible, not bothering to build enough gas storage capacity, and much more. Six years on from the Brexit vote, little seems to have been done to capture the possible gains through deregulation, tax reform and trade. Waiting lists for treatment in the state-run National Health Service are over 5 million and may rise to double that; some 30,000 patients a month having to wait over 12 hours even to get accident and emergency treatment. And that is in summer: a harsh winter would put it under even greater strain.

With things so bad, and expectations so low, if Liz Truss comes out of the summer with lower inflation and lower taxes — two things she is targeting — she would be seen as almost superhuman.

Truss’s opponent in the leadership race, Rishi Sunak, thought that to get out of its financial hole, the government had to raise taxes. So he proposed a rise in National Insurance — originally a social insurance levy but now basically a tax on jobs — plus rises in company taxes and much else. Truss’s view, which is shared by her finance minister, Chancellor of the Exchequer Kwasi Kwarteng, is that the only way out of debt is to earn more money. They are going for growth, and in a big way.

Certainly, there is the pragmatism that all governments must display if they are to keep the public onside. Hence the energy price freeze. Hence the relative lack of talk about cuts to government spending (though Truss’s government remains committed to her predecessor’s ambition to reduce civil service numbers). The big change is that the new government is fed up with the tax rises and regulatory expansion of recent decades and see them as depressing growth and thus the country’s ability to pay its own way through difficult times.

They are right. Ask people who are thinking of starting small businesses what the main obstacles they face are, and they will talk about land-use planning problems and regulations. But the thing that really kills their ambitions is taxation. Starting or expanding a business is a risky enterprise — you might have to mortgage your home or borrow from friends and family — and higher taxes simply increase that risk. Your business has to earn more just for you to earn the same. And predicting returns from a new business is not easy anyway.

What has changed is that Truss is quite willing for the government to borrow to fund the tax cuts that, she believes, will stimulate growth and new business creation. Her gamble is that the financial markets accept the wisdom of that approach. Indeed, the signs are they already have. Perhaps there is little alternative: with markets falling, people are looking for safe bets; governments are among the safest bets, and the UK government is one of the safest of those, so there seems no shortage of people willing to buy UK government bonds.

I am sure that Liz Truss hates government borrowing as much as any member of her Conservative Party does. But she sees it as essential to stimulate growth — not by spending on government programs but by cutting taxes and funding deep institutional reforms. And that reform agenda is very prominent in her pronouncements so far. She strongly supports cutting the regulatory and bureaucratic burdens on business, especially small business, and she has appointed a fellow-thinker in that, Jacob Rees-Mogg, as Business Secretary.

It is significant that another early announcement from the government is that it is thinking of ending the cap on bankers’ bonuses imposed after the financial crash. Bank bonuses are unpopular because they are often very large and because the public doesn’t understand that low incomes with big bonuses are a good way of keeping talented employees through bad times and good. Yes, the cap puts UK banks at a disadvantage to others and costs us economic growth. But the real motivator of the reform is that wage and price caps of any sort interfere with markets. We can expect more such reforms.

Truss also thinks that workplace regulation is more suited to the 1950s economy than the Uber-riding, Airbnb-staying, Deliveroo-eating ‘gig’ economy of today. As are tax rules: the Treasury hates self-employed people, who its civil servants imagine are all fiddling their taxes. So there may be bureaucratic — and trade union — opposition. But reform has to come, and she is keen to bring it on.

Planning reforms are another target. Once again, the UK’s planning policy is largely governed by an Act of Parliament from 1947, when things were very different. Town expansion is strangled by no-build ‘green belts’ that are usually far from green (and the ones that are green are usually industrial farmland that delivers no public amenity at all). Height restrictions mean that towns cannot expand upwards either, with multi-level apartment blocks like those in the centers of Europe’s capitals. With supply held back, and demand fuelled by a rising population, migration and a decade of near-zero interest rates, house prices are soaring, young people cannot afford accommodation, and workers have to live far from where their employment. A few tweaks would solve the problem — if Truss can get them through her own Party, many of whose members are homeowners and very content with the situation.

With only two and a half years at most, Liz Truss has precious little time to push through these and the many other reforms that she is talking about. And there is opposition to overcome. But, like Mrs Thatcher, even if she cannot change something, she says what she wants. In that, she will be setting the tone for modernization and reform. So different from the managerialists of the past three decades.



  • Eamonn Butler

    Dr Eamonn Butler is the Director of the Adam Smith Institute. Eamonn is the author of books on the pioneering economists Milton Friedman, F A Hayek, Ludwig von Mises and Adam Smith. He contributes to the leading UK print and broadcast media on current issues.

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The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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