When governments run into trouble with the financial markets, they rarely survive an election

Liz Truss has to hope we really are entering a new era and that history will not repeat itself

September 23, 2022 3:20 pm(Updated 4:35 p.m.)

At first glance today’s “fiscal event” should be popular with voters. Everybody wants economic growth that makes Britain (and perhaps themselves) better off. It seems unlikely that many will object to tax cuts that are not accompanied by any reduction in public spending. Indeed, as we already knew, public spending is about to increase as a result of the capping of energy prices.

Why should voters look at a gift horse in the mouth?

However, the Government is running two risks. The first is that voters may question the fairness of the package. The second is whether it raises doubts in their minds about the Government’s economic competence.

One of the key messages from this week’s British Social Attitudes survey was that rather more now regard Britain as an unequal society – a reaction perhaps to a Covid pandemic that resulted in a higher level of morbidity and mortality among those who are less well-off as well as debates about improving the provision of free school meals for children from disadvantaged families.

For example, two-thirds (67 per cent) now agree that “ordinary people do not get their fair share of the nation’s wealth” – the first time the proportion has been this high since the mid-1990s. Similarly, 49 per cent agree that “the Government should redistribute income from the better-off to the less well-off”, again the highest figure for nearly 30 years.

Now does not look like a particularly propitious moment to introduce tax cuts that will mostly benefit the better-off, or to take off the cap on the bonuses paid to bankers, a highly-paid profession whose reputation was badly damaged by the financial crash.

The Government will have to hope the fact that most voters – though not those reliant on welfare – will get at least some benefit from the cuts in national insurance and income tax rates will help to assuage any concern they have about fairness. That said, as there was no mention of any reversal of Rishi Sunak’s freeze on the level at which people start to pay the basic and higher rates of income tax, voters may find that inflation drags them into paying more tax anyway.

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But why might the Government be taking a risk with voters’ perceptions of its economic competence? This has already taken something of a knock. According to YouGovLabor are now neck and neck with Conservatives when voters are asked who can best manage the economy, after having trailed them, often quite heavily, hitherto during this parliament.

Now, after reversing decisions to increase national insurance and corporation tax for which they once voted, ministers are at risk of being accused of, at best, inconsistency and, at worst, implementing a sharp U-turn, either of which perception could damage their credibility in the eyes of voters.

Meanwhile, in her wish to demonstrate that she is determined to introduce a “new era”, Liz Truss’s Government is at risk of raising doubts about the record of her party. For example, in describing the last decade as a “vicious cycle of stagnation’” a decade during which the Conservatives were in office, the Chancellor may find that he has given the opposition a stick with which to beat his party at election time.

More immediately, the financial markets have certainly reacted adversely to the Chancellor’s statement, with a fall in the value of sterling and an increase in the interest rate for government debt. The reputational damage suffered by governments that run into trouble with the financial markets means they rarely survive at the ballot box.

Liz Truss has to hope we really are entering a new era and that history will not repeat itself.

John Curtice is Professor of Politics, University of Strathclyde, and Senior Research Fellow, NatCen Social Research and ‘The UK in a Changing Europe’

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