Battered by financial markets and besieged by MPs whose constituents’ mortgage payments are set to rocket, Liz Truss must now navigate a serious economic crisis of her government’s own making. Does she stick, twist – or gamble again? Rating the likelihood of what might happen from one to five, here are some of her options in the days ahead. (Spoiler: none of them are good.) Style it out Truss was reportedly reluctant for Kwasi Kwarteng to issue an emergency statement earlier this week, aimed at reassuring financial markets. She preferred to stand firm. The mini-budget was closely aligned with Truss’s own ardently free-market vision, and she is unlikely to want to be forced into a humiliating U-turn so early in her premiership. As many of her intellectual outriders have suggested, she is also relatively relaxed about somewhat higher interest rates, believing the Bank of England should have acted sooner against inflation. Some in government appear to believe markets overreacted so dramatically in recent days because they did not understand the full context of Kwarteng’s plans, and what he and Truss are hoping to achieve. Truss intends to remedy that by rushing out other aspects of what she firmly believes to be a pro-growth set of policies – from childcare reform to immigration – in the hope of reassuring investors. She could then use her conference speech next week to try to instil a sense of determined calm. But with the bond markets giving journalists an instant readout of how well she is going down with the audience that really matters, that looks a bold – not to say mad – strategy. 🎲🎲 U-turn on tax cuts, with or without sacking Kwasi Kwarteng In its pointed statement on Tuesday evening, the International Monetary Fund (IMF) dropped a heavy hint it would like to see the chancellor withdraw some of his tax-cut plans, when he sets out his fiscal plan on 23 November.
Long before that, the intense market pressure could yet force Truss to change course, unpicking some aspects of the £45bn package Kwarteng announced, on top of the costly energy price guarantee. Some of the tax cuts could be delayed, for example – as Rishi Sunak insisted was necessary during his leadership campaign – or some of the more contentious policies, such as the cut in the 45p rate, could be scrapped altogether. Truss hastily dropped plans for regional setting of public sector pay during her leadership campaign, after it became clear that if implemented, they would cut the salaries of key workers such as nurses. Truss could attempt to blame Kwarteng for the chaos and force him out, though MPs are of the firm belief that it was Truss’s mini-budget just as much as it was his. She would then have to find another right-hand man or woman, solid enough to reassure the markets, but willing to serve in her deeply ideological cabinet. 🎲🎲🎲🎲 Announce spending cuts Kwarteng has promised the markets – and his own MPs – more details on how he plans to ensure that debt as a share of GDP is falling in the “medium term”, despite his vast unfunded spending plans. One way to try to make those sums add up would be to announce spending cuts in the years ahead, with the welfare budget a likely victim. Sunak promised in his budget earlier this year that benefits would be uprated in line with inflation in April, for example, after the 3.1% rise this year left many struggling. Kwarteng has refused to repeat that pledge, and it could be abandoned. Promising cuts would please some of Truss’s backers, who see a smaller state as integral to their vision of a leaner, more competitive economy. But with public services, from ambulances to courts, already struggling badly, it is not obviously an election-winning approach. 🎲🎲🎲 Resign and give someone else a go In theory, the fabled “men in grey suits” of the 1922 Committee (and most of them are men), looking at the dramatic impact of Truss’s short premiership on financial markets, could decide she is permanently trashing her party’s reputation and urge her to go. But the party’s leadership rules, as they stand, give Truss 12 months before she can face any formal challenge. With the strong support of her party’s membership in the summer ballot, she has a mandate to dig in her heels and crack on with implementing her radical plans. She may also suffer a crisis of self-doubt and resign – but anyone who has met her believes that to be extremely unlikely. 🎲