Truss leaves the opposite legacy of what she promised

In her short valedictory speech after less than 50 days as prime minister, an unrepentant Liz Truss could not bring herself to say sorry for her mistakes. She reiterated her belief in her bold pro-growth strategy. Her legacy will not be what she said outside 10 Downing Street – lower national insurance bills and help with energy costs, the latter already diluted because of last month’s disastrous mini-Budget. Her real legacy will be austerity 2.0, with deep cuts to public services, and higher taxes – on both counts, the opposite of what she promised. In next Monday’s medium-term fiscal plan, Jeremy Hunt, who is expected to be reappointed chancellor by Rishi Sunak, will aim to fill a hole of up to £40bn in the public finances to show the financial markets that debt will start falling as a percentage of GDP in five years. The hope is that this persuades the Bank of England to raise interest rates by less than it might have done on 3 November, meaning lower than expected mortgage bills and lower costs of servicing government debt.

Yet the need to satisfy the markets might result in an over-correction that brings a deeper recession than would otherwise have happened. Truss did have a point about the need to boost economic growth, even if her reckless approach never gave her plan a chance.

As Tony Danker, director general of the CBI, told BBC Radio 4 this morning, Hunt’s plan must offer more than austerity.  He said: “If all there is is tax rises and spending cuts, and there is nothing in there about growth, the country could end up in a similar doom loop where all you have to do is keep coming back every year to find more tax rises and more spending cuts because you have got no growth.”

The irony of Truss’s reign is that it strengthened the very institutions she attacked and whose power she wanted to dilute: the Office for Budget Responsibility (OBR), the Treasury and the Bank of England. They stood up to her and won.  For now, the watchdogs are the masters. The politicians will be wary of them. However, some politicians insist that recent events do not show the markets have become all-powerful. One former cabinet minister told me: “It’s not really about the markets having too much power. They have always shown tolerance and elasticity, but under Truss the combination was too great. The markets just couldn’t bear the lack of seriousness.”

The return of “Treasury orthodoxy” might offer us a sense of security because it rescues us from Truss’s dangerous experiment. Yet market forces will not necessarily be good for the country in future.  The markets seem to have supplanted the focus groups as the politicians’ guiding star, but at least these much-criticised discussions by small groups of voters are based on the public’s views rather than what’s best for the City of London.

For the foreseeable future, our politicians will surely feel in thrall to the markets, and that will include Labour if it wins the next election. Of course, Labour will never let us forget the Truss legacy, defining it as permanent damage to the economy with a heavy price paid by the British people. The public will believe it. The 930,000 people whose mortgage costs will rise because of the mini-Budget will feel it.

Keir Starmer argued at the weekend:  “I’ll tell you what will stabilise the markets, it is an incoming Labour government, with Rachel Reeves as the chancellor, with absolutely clear fiscal rules.” Before Truss became PM, Starmer and Reeves were already doing the hard yards on economic credibility and fiscal responsibility. But with Labour reluctant to propose significant tax rises, will Truss’s bruising experience limit the party’s already small room for manoeuvre because it will be looking over its shoulder at the markets?

The Truss era leaves other legacies. Pro-Europeans in all parties hope its passing means the death of “Singapore-on-Thames”– a post-Brexit vision of a low-tax, low-regulation nation which diverges from the EU.  Hopefully, they are right. But we don’t yet know how many bones Sunak will toss the noisy band of hardline Brexiteers to stop them wrecking his premiership, as they did Theresa May’s.