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Kwasinomics are easily explained… he’s bet the whole of Britain on red at the roulette table

DAN HODGES

THE most telling thing was the silence. ‘The whips were sending round these frantic messages saying, “We need to cheer on the Chancellor”,’ one Tory MP revealed to me. ‘But it didn’t have any effect. Everyone just sat there. The party are nervous and unhappy. They don’t think Liz and Kwasi have got this right.’

A Labour Shadow Minister emerged from the chamber with a big smile on his face. ‘Tax cuts for the richest? Christmas has come early,’ he said cheerily.

The Treasury deemed it ‘a fiscal event akin to a Budget’. Others dubbed it a ‘mini-Budget’. But such dry and understated descriptions fail to do the statement justice. Kwasi Kwarteng’s first major outing as Chancellor represents nothing less than the biggest economic gamble taken by a British Government in peace-time.

Over the next few days, experts will attempt to explain and rationalise his strategy. There will be tables and graphs. And lots of talk of the Laffer Curve (which shows that if income taxes are reduced, the incentives to work become greater and more wealth is created.)

In truth, all this can be dispensed with. Kwasinomics is much more easily explained. He has essentially walked into the bank, and secured a loan against the full value of his house. Then he’s entered the nearest casino, and placed the entire amount on a single spin of the roulette wheel. If it comes up red, he will be rich beyond his dreams. If it doesn’t, he will be broke. And, more pertinently, so will Britain.

Senior Tory sources claim it’s the sheer audacity of his plan that muted the Tory benches. ‘They were stunned by how bold and ambitious it was,’ one claimed, ‘and how Conservative it was. They’ve become used to a decade of anaemic economic growth.

But Liz and Kwasi just aren’t prepared to settle for that.’

It’s certainly true that Truss and Kwarteng’s first moves have upended conventional wisdom. The critique levelled during the Tory leadership contest was that Truss and her team had no plan for dealing with the cost-ofliving crisis, and no clear vision for tackling the nation’s wider malaise.

No one is claiming she lacks clarity now. ‘She genuinely believes a pro-growth, supplyside-reforming, low-tax approach is the best way to make people’s lives better,’ an ally explained. ‘Say what you like about her, but there’s a very clear intellectual and philosophical spine to this Government.’ It’s also evident that her opponents are struggling to grasp the true scale of what Truss and Kwarteng have unveiled.

In the run-up to Friday’s Commons statement, Labour spokesmen and social-media outriders were trying to define the mini-Budget as a return to the ‘trickle-down’ economics of the Thatcher years.

But their unprecedented dash for growth is not based on allowing a gradual trickle of money into the system, so much as turning on a fire hose. £150billion for support with soaring energy bills. £45billion of tax and duty cuts.

The acceleration of 130 major infrastructure projects, including motorways, by-passes, railways, trams and nuclear power plants. An ongoing injection of NHS cash, despite the axing of the National Insurance hike that was supposed to fund it.

‘It’s hard to argue the status quo has been anything other than failure, so logic dictates we need a new approach,’ a No10 source said. Despite this decidedly unConservative profligacy, Treasury sources insist there is an economic rationale underpinning the strategy. ‘If you look at the energy bill support, it doesn’t just help families, it also reduces inflation by five percentage points,’ one official insisted, ‘and unless we can generate growth, we won’t be able to sustain employment, maintain wages and secure the tax receipts necessary to support public services.’

All of which may be true. But where some see boldness, others see recklessness. And those who are concerned about the Government’s dramatic lurch away from fiscal probity go beyond the usual One Nation backbench suspects. ‘Everyone keeps saying the Prime Minister is pursuing a Thatcherite agenda,’ one former Cabinet Minister said. ‘But she isn’t.

‘This isn’t Thatcherism. It’s got nothing to do with sound finance. The problem is, people such as Liz Truss always like to play the old Thatcher tunes. But none of them actually knows the words.’ Another growing concern among Tory MPs is the way Team Truss appears to be building a political strategy based upon casting aside the basic rules of politics.

Red Wall MPs expressed incredulity at the decision to double down on raising the cap on bankers’ bonuses, then triple down by announcing the abolition of the top rate of income tax.

One who is broadly supportive of the overall fiscal plan said: ‘There are some challenging optics with this, and we’re going to need to get on top of it. I understand what we’re doing, and we need to be a bit less populist, but the timing is problematic

Tory MPs were stunned by how bold and ambitious it was

The view was that we either go big or we go home

and I’d avoid it. Many colleagues feel more strongly than me, and are seriously opposed.’

But what amazed MPs on all sides was the decision of Truss and Kwarteng to openly rubbish the past 12 years of Tory Government. ‘We will turn the vicious cycle of stagnation into a virtuous cycle of growth,’ Kwarteng boldly declared, in a statement that was seized upon by Shadow Chancellor Rachel Reeves, and delighted Labour strategists.

‘We didn’t really push the ‘12 wasted Tory years’ line when Boris was there,’ a Starmer aide confided, ‘because it wouldn’t have worked. Boris was the archetypal political outsider. He’d just brush it off with a sly wink. Liz Truss can’t do that. She’s sat in every Cabinet since 2014, including spending a lot of time in the Treasury.’ Truss’s aides insist none of this froth about ‘optics’ and ‘trickledown theory’ matters. They believe that if the strategy succeeds in igniting the economy, no one will care how many new Ferraris appear on the driveways of the fat-cat City brokers. ‘The view was that we either go big or we go home,’ one admitted.

But these economic fundamentals are also spooking – actually, they’re basically terrifying – Tory MPs in marginal seats. They have been alarmed by the negative response of the financial markets. They worry about the inflationary impact of the Kwasinomic tax-and-spending bonanza. And most of all, they worry about the impact of rising interest rates. ‘Losing control of interest rates saw us kicked out of office for 13 years,’ one told me. ‘If we lose control of them again, we could be out for a generation.’

To be fair, Liz Truss and Kwasi Kwarteng are well aware of how high the stakes are.

During the leadership election, Truss was fond of claiming ‘Britain’s best days are ahead of us’. But she didn’t actually believe it. In her mind the country was heading for the economic abyss. The impact of Covid. War in Ukraine. The cost-ofliving crisis.

The Prime Minister felt that, without dramatic action, they would drag Britain down. And like it or not, what she and her Chancellor have unveiled is dramatic in both scope and ambition.

If Kwasi Kwarteng’s ricocheting roulette ball lands on red, it will transform the economy, and his party’s political fortunes.

However, if it lands on black, it will destroy the nation’s finances and see his party cast into the political wilderness.

It is no exaggeration to say that Liz Truss’s premiership will live or die by the biggest fiscal gamble in post-war British history. But at least she won’t die wondering.

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2022-09-25T07:00:00.0000000Z

2022-09-25T07:00:00.0000000Z

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