UK’s new Prime Minister Liz Truss faces nation in crisis
Ahead of her is a task that promises to be even harder than her idol Margaret Thatcher faced in 1979, after the Winter of Discontent.
The difference is that for Truss, another winter of discontent is ahead of her.
And how she handles the energy crisis will seal the fate of the Truss prime ministership.
On Monday gas prices jumped at the news Russia would no longer supply gas through the Nord Stream 1 gas pipeline to Europe, extending the shutdowns.
Last week Brits were told that the average household energy bill would jump from £1971 ($3328) to £3549 from next month, threatening literally millions of Brits with fuel poverty.
Just how will this small-government, low-tax, low-spend Prime Minister, backed by supporters with similar ideology and great expectations, quell the crisis? Especially when Truss appears to have boxed herself in during the campaign against rival Rishi Sunak by ruling so many things out: no new taxes, no energy blackouts, no windfall taxes. And she remains committed to reversing the plan to raise company tax from 19 to 25 per cent.
In contrast, Rishi Sunak did not rule out rationing power that would risk blackouts and as Chancellor he introduced a £5bn windfall tax on energy companies in May.
In the last week Bloomberg reported that UK Treasury estimates for the incoming PM show British gas producers and electricity generators will make over £170bn in excess profits over the next two years.
This week German Chancellor Olaf Scholz announced a windfall tax on energy companies to help with household energy bills, part of a €65bn to deal with Germany’s cost of living crisis.
Truss says she will act immediately on energy bills and supply in a package that could cost even more than the pandemic furlough wages of £70bn. “I don’t think we should be predicting a sort of Armageddon scenario,” she told the BBC. “I think we are in a good position to deal with what are very tough challenges.”
The speculation is that Truss and her soon-to-be appointed chancellor Kwasi Kwarteng will introduce a bill freeze, financed by loans underwritten by the Treasury. But how this will work and to whom it will apply is unclear.
The cost of funding is rising as the British economy struggles to stay out of recession.
In Australia, if the RBA raises the cash rate by 0.5 per cent on Tuesday, it will reach 2.35 per cent – with inflation expected to peak at 7.75 per cent by year end.
In Britain inflation clipped 10.1 per cent in July and is expected to peak at 13 per cent. Citi expects the peak to be a whopping 18 per cent in early 2023.
On energy supply, Liz Truss wants to give the green light on fracking to release shale gas in the north of England to increase energy security.
Energy is the clear and present danger but the country faces public sector strikes and is heading into winter, with the threat of another Covid surge and further pressure on the hospital system.
In all this Truss must keep the red lines she has imposed by ruling out options. If she cannot, the party must hope that the severity of the crisis will be enough to convince voters that a change of policy is justified.
The Tory party policy of levelling up Britain that helped Boris Johnson smash the Red Wall of the north in the last election is struggling to deliver.
On foreign policy, the in-tray is equally daunting. A converted Brexiteer, Liz Truss will need all her experience as foreign secretary. Within just a few days Prime Minister Truss will be in New York for the UN General Assembly where the Ukrainian crisis will dominate.
She and Joe Biden will be working to convince European leaders far more dependent on Russian gas than Britain to continue to hold fast. But on Brexit, Liz Truss has a battle to win over President Biden. She wants changes to the Northern Ireland Protocol signed as part of the Brexit agreement – changes fiercely opposed by Brussels.
The Protocol keeps the land border between Northern Ireland and Ireland open but effectively has moved the border (and customs checks) to the Irish Sea between Britain and Northern Ireland.
The pro-Irish Biden was anti-Brexit and the US threatens to thwart a free trade deal between the two countries if Britain interferes with the Protocol.
Britain’s relations with China will also be a watch and act.
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On Tuesday Liz Truss walks through the door of Number 10, Britain’s 56th Prime Minister.