The constitutional causes and consequences of the Truss-Kwarteng budget crisis

Within weeks, Liz Truss’s premiership was plunged into economic and political turmoil due to Kwasi Kwarteng’s ‘mini budget’. But this crisis, suggests Meg Russell, has distinctly constitutional roots. Building on Boris Johnson’s legacy, Truss chose to sideline expert officials and regulators, and shut out her own MPs. The consequences that have since befallen her are a compelling advertisement for respecting – and rebuilding – appropriate constitutional checks and balances.

The Conservative Party conference, indeed the entirety of Liz Truss’s new premiership, has been severely destabilised by the market reaction to Chancellor Kwasi Kwarteng’s ‘mini budget’. Far from securing Truss her desired reputation for acting on the energy crisis and boosting the economy, and a positive bounce in the polls, Kwarteng’s 23 September ‘fiscal event’ saw the pound plunge, lenders withdraw mortgage products, and Labour achieve record poll leads. Faced with a mass rebellion by Conservative MPs, Kwarteng performed a U-turn on abolition of the top rate of income tax, while other parts of the package may face further such trouble ahead.

Fiscal policy is well beyond the usual scope of the Constitution Unit blog, or of this author. But the extent to which the unforced economic and political crisis built on foundations of poor constitutional and governance practice is striking. Boris Johnson played fast and loose with many constitutional norms, and Liz Truss seems quickly to have followed suit. But her now catastrophic position – with some Conservative MPs calling for the Prime Minister’s removal after less than a month in the job – demonstrates just how shortsighted and dangerous such behaviour can be.

The Johnson legacy

The list of constitutional controversies under Boris Johnson’s premiership is lengthy. He arrived in office during the tumultuous Brexit period. Replacing Theresa May after she had failed to find parliamentary support for her deal with the EU, Johnson promised to stop at nothing to ‘get Brexit done’ (a highly dubious claim, as explored elsewhere). This meant strengthening the political executive (i.e. ministers) against other parts of the system – a direction that he further signalled on page 48 of the 2019 Conservative manifesto, and pursued in handling the COVID-19 pandemic.

There were many constitutional characteristics of the Johnson regime; but three are particularly notable in the context of the current crisis:

  • First, ministers’ often troubled relationship with the senior civil service. At one level, tensions with the impartial civil service are nothing new. Ministers have often suspected civil servants of ‘small c’ conservatism and of holding back their plans. But most come to appreciate civil servants’ complementary role in policy development, including carefully thinking through implementation, and highlighting possible risks. The Johnson period was marked by an unusual string of senior civil service departures, not least the resignation of Jonathan Jones, the Head of the Government Legal Department over ministers’ planned breaches of international law.
  • Second, the period saw high tensions over the role of various constitutional regulators. The Electoral Commission was threatened with abolition, and controversially made subject to ministerial direction. Recommendations from the House of Lords Appointments Commission on the propriety of new peers were for the first time ignored. Not just one but two holders of the post of Prime Minister’s independent adviser on ministers’ interests (often dubbed the ‘ethics adviser’) resigned over his behaviour. Concerns were expressed by the Committee on Standards in Public Life.
  • Third, Johnson faced repeated controversies over his government’s handling of parliament. This began with the unlawful prorogation of 2019, followed by the bypassing of parliament over COVID-19 regulations, ministers avoiding scrutiny by select committees, and primary legislation being rushed through with minimal oversight – notably including the National Insurance increase that Kwarteng has just reversed. Rather than listening to parliamentarians, Johnson’s preferred approach was to shut them out – or even to strip dissenters of the whip, in disputes over Brexit, and subsequently.

All of this, and more, demonstrated a consistent reluctance by Johnson’s government to face challenge and oversight of its policy plans. Its preferred view seemed to be that the political executive knew best, while constitutional checks and balances largely got in the way. Consequently Johnson even came to be seen as one of a new breed of international ‘strongman’ leaders, noted for their rolling back of constitutional constraints and threatening of democratic standards.

Of course, concerns about standards were central to Johnson’s ultimate departure, as cited by numerous ministers in their resignation letters in July. But these themes attracted disappointingly little attention in the subsequent leadership contest. Notably, Liz Truss refused to commit to appointing a new ethics adviser, on the basis that she had ‘always acted with integrity’, and suggested that she supported scrapping the Privileges Committee inquiry into allegations of Johnson misleading parliament.

The roots of the budget fiasco

The fiscal announcements of 23 September were the first major policy intervention by the new Truss government following the funeral of the Queen. Truss had consistently promised tax cuts during the leadership contest, with particular reference to reversing Rishi Sunak’s increases to National Insurance and Corporation Tax. The changes to the top rate and basic rate of income tax announced on 23 September had not been hinted at, and came as a complete surprise.

In reviewing this episode, the same key elements highlighted above were very visible:

  • First, Kwasi Kwarteng’s very first act on the day that he was appointed Chancellor was to sack the long-serving Permanent Secretary to the Treasury, Tom Scholar. One commentator described Scholar as having ‘an unrivalled track record of managing the economic fallout of crises’. After 30 years of work in the civil service, the Truss government’s primary concern was said to be his adherence to Treasury ‘orthodoxy’.
  • Second, Kwarteng chose to bypass the independent assessment by the regulator the Office of Budget Responsibility (OBR) which would usually accompany a budget. These arrangements were put in place by Conservative Chancellor George Osborne in 2010 to act as a check on politicians’ overoptimistic assessments of their own plans for the public finances. Experts at the Institute for Government have noted that excluding the OBR was ‘reckless’ and showed ‘the perils of disregarding economic institutions’. Former Bank of England governor Mark Carney publicly expressed concerns about Truss and Kwarteng ‘undercutting’ such institutions. The OBR and the Bank are both arms-length, independent regulatory bodies, with a similar status to the more obviously constitutional bodies frequently undercut by Johnson.
  • Third, Kwarteng was widely criticised for minimising parliamentary scrutiny of his proposals. A budget would normally be debated for several days; the ‘mini-budget’ was scheduled for a Friday, with only two hours for debate, before the Commons broke up for a fortnight’s conference recess. Admittedly, the lack of public and parliamentary consultation on budget matters is always a problem, well out of step with consultation on other areas of policy. But this exclusion of parliament was, again in line with Johnson’s habits, unusually extreme. And also perilous – like financial markets, MPs can impose real punishments if their concerns are unreasonably ignored.

It was the surprise extent of unfunded tax cuts, with no independent assessment, that alarmed the markets, such that the pound quickly fell to its lowest rate against the dollar for 37 years, and there were calls for urgent action from the Bank of England to stabilise matters. In subsequent days the Bank stepped in, at significant cost, to safeguard pension funds. By the following weekend – on the eve of the Conservative Party conference – the Times reported that Number 10 staff were ‘going round saying, “Why weren’t we warned?”’. The rather obvious answer appears to be that all of those whose proper role it was to issue such warnings had been deliberately swept out of the way.

Again, this smacks of an attitude that independent checks and balances are unnecessary, because ministers know best. The Institute for Government’s Hannah White has remarked on Truss’s ‘worryingly evident… willingness to break with expected standards of scrutiny and evidence-based policy-making’. Events could have been even more disturbing had the timing been only slightly different. Had the government’s ‘shock and awe’ plans, rather than being delayed due to the Queen’s death, been delivered immediately beforehand, there might have followed an extremely difficult period of simultaneous market turmoil and national mourning.

The added problem of the leadership contest

The Truss plans, of course, were devised during a Conservative leadership contest, where candidates sought to appeal to the party’s grassroots. Former Chancellor Rishi Sunak warned with significant accuracy of the risks of large-scale unfunded tax cuts, but the majority of members were unconvinced. Sunak had led at every stage of the preceding MP ballot, with Truss knocking Penny Mordaunt narrowly into third place only in the final round. Had MPs had the final say, many Mordaunt supporters might well have switched to Sunak, leaving him the winner. Fewer than a third of Conservative MPs (113 out of 355) cast a vote for Truss.

This raises constitutional questions of its own, with the prospect of a party leader unable to command the confidence of their own MPs (as applied to Labour’s Jeremy Corbyn). There have been increasing calls to remove members’ power over picking party leaders (e.g. Lord (Daniel) Finklestein in the Times and Robert Saunders in the New Statesman). Even William Hague, who introduced the member ballot system as party leader, yesterday announced his support for change.

The instability caused by a leader who lacks parliamentary party support has been piled upon the market instability in the case of Truss. It remains to be seen where this will end.

Conclusion

Recent events around the so-called ‘mini budget’ are not isolated ones, and build upon a legacy of disregard for appropriate checks and balances that was established under Boris Johnson. There are strong, principled reasons to argue for checks and balances – of subjecting policies both to independent expert scrutiny and democratic scrutiny by elected MPs. These are core principles in advanced liberal democracies, which we erode at our peril. But such principles are not just romantic or idealistic, they are also profoundly pragmatic. The debacle over the ‘mini budget’, and the damage that it has wrought both economically and politically, is a clear illustration of what can go wrong if policies go untested. The messages to take from this episode are not just economic, but also fundamentally constitutional. Robust systems of oversight and scrutiny are essential to successful policy, and stable government.

A key lesson, therefore, is that we need to nurture and rebuild these processes post-Johnson. The Truss episode may also lead parties to reconsider the wisdom of grassroots members picking leaders over the heads of their MPs.

About the author

Meg Russell FBA is Professor of British and Comparative Politics and Director of the Constitution Unit.

The featured image for this blog is: Prime Minister and Chancellor finalise their growth plan (CC BY-NC-ND 2.0) by UK Prime Minister.

32 thoughts on “The constitutional causes and consequences of the Truss-Kwarteng budget crisis

  1. Pingback: Monitor 82: attaining a brand new regular for the structure? | law

  2. Pingback: Monitor 82: achieving a new normal for the constitution? | The Constitution Unit Blog

  3. Pingback: How Sunak can restore integrity, professionalism and accountability | The Constitution Unit Blog

  4. Pingback: Chaos in Westminster: why Liz Truss finally lost control of MPs ⋆ The EU Times

  5. Pingback: why Liz Truss finally lost control of MPs | Latest News & Top Stories - Plymouth News Today

  6. Pingback: why Liz Truss finally lost control of MPs | Aberdeen News Today

  7. Pingback: why Liz Truss finally lost control of MPs | Northampton News Today

  8. Pingback: why Liz Truss finally lost control of MPs | Nottingham News Today

  9. Pingback: why Liz Truss finally lost control of MPs | Manchester News Today

  10. Pingback: why Liz Truss lastly misplaced management of MPs | Glasgow News Today

  11. Pingback: why Liz Truss finally lost control of MPs | Birmingham News Today

  12. Pingback: why Liz Truss finally lost control of MPs | Sheffield News Today

  13. Pingback: why Liz Truss lastly misplaced management of MPs | Stoke News Today

  14. Pingback: why Liz Truss lastly misplaced management of MPs| Sunderland News Today

  15. Pingback: why Liz Truss finally lost control of MPs | Bristol News Today

  16. Pingback: why Liz Truss finally lost control of MPs | Bradford News Today

  17. Pingback: why Liz Truss finally lost control of MPs | Reading News Today

  18. Pingback: why Liz Truss finally lost control of MPs

  19. Pingback: why Liz Truss lastly misplaced management of MPs | Hull News Today

  20. Pingback: Protecting constitutional principles: what are they and why do they matter? | The Constitution Unit Blog

  21. Pingback: Headaches in the boardroom | Financial Times – Inverse Zone

  22. Pingback: Headaches in the boardroom | Financial Times | NEWYORK CENTRAL POST official

  23. Pingback: Headaches in the boardroom | Financial Times - Notesry

  24. Pingback: Headaches in the boardroom - Trend Fool

  25. Pingback: Headaches in the boardroom | Financial Times | Kharghar News

  26. Pingback: Headaches in the boardroom | Financial Times – Animemovie – Best site to to get latest news.

  27. Pingback: Headaches in the boardroom - DUK News

  28. Pingback: Headaches in the boardroom • CAPTIS

  29. Pingback: Headaches in the boardroom | The New York Ledger

  30. Pingback: बोर्डरूम में सिरदर्द | वित्तीय समय - News Archyuk

  31. Pingback: Headaches In The Boardroom - UK Prime News

  32. Pingback: Headaches In The Boardroom - Daily News Era

Comments are closed.