Final Thought

Jim O’Neill: What Liz Truss Must Do

With Conservative Party members having chosen Foreign Secretary Liz Truss to succeed Boris Johnson as their leader, the United Kingdom will have its third prime minister since voters decided in June 2016 to leave the European Union. Truss has just two years and a few months to go before another general election must be held. To survive, she will need to tackle a long list of policy challenges, unify her deeply divided party, and win over more of the public. Given that her predecessor was ousted two and a half years after winning an 80-seat majority, her task will not be easy.

n courting the Conservative Party’s

I180,000-odd members, Truss presented herself as a modern-day Margaret Thatcher, advocating lower individual and business taxes and less regulation – the classic center-right recipe for boosting economic growth. But since there are many more immediate issues facing the UK population, it remains to be seen whether she will, can, or even should follow through on these promises.

As many political commentators have suggested, Truss’s performance and political future will be judged on an extremely shortterm basis. Forget the usual window of the “first 100 days”; this prime minister needs to be thinking about how she can make her mark within the first month.

Truss has served in various government roles since 2010, and one attribute that stands out in her record is adaptability. After supporting Remain in the Brexit campaign, she switched sides and managed to hold on to positions in two strongly pro-Brexit cabinets, first under Theresa May and then under Johnson.

She proved her adaptability once again in the Tory leadership campaign. When asked how she would respond to this year’s energy and costof-living crisis, Truss repeatedly suggested that she was not in favor of handouts. Yet in her last interview before the vote, she indicated that she would provide a specific policy response within a week, and rumors are that she plans to announce an energy-price freeze. Not only would that policy cost the Treasury another £100 billion ($115 billion); it also happens to be what the main opposition parties have been advocating all summer. An energy-price freeze clearly comes with big fiscal risks, especially if Truss still intends to cut the national insurance tax, cancel a planned corporate-tax increase, and boost defense spending to 3% of GDP. Politically, however, it is probably the smart thing to do if she wants to start out on the right foot.

Truss also demonstrated flexibility when she was quizzed in her final campaign interview about interest rates and the Bank of England. After berating the BOE throughout the campaign and implying that she would push for a change to its mandate, she offered a much more conventional answer, suggesting that it wasn’t her job to comment on the right level of interest rates (that being the preserve of the independent central bank). On the eve of her party leadership victory, she sounded much more prime ministerial.

But if Truss wants the broader electorate to view her as a capable leader deserving of reelection in late 2024 (or earlier), she will have to do more than simply remain adaptable. She will need to embrace policy positions backed by rational analysis, and that will almost certainly require her to abandon her narrow campaign program of lower taxes and deregulation.

"As many political commentators have suggested, Truss’s performance and political future will be judged on an extremely short-term basis."

Moreover, she cannot secure a majority for her party in a general election without winning some seats in the so-called Red Wall (traditionally Labourleaning) districts of the Midlands and Northern England and Wales. These voters will have very different policy preferences than the small cohort of committed Tories who put her in charge. Many doubtless would support more regulation and higher taxes to improve public services.

If I were Truss, I would remain open-minded on these issues. She can still be in favor of lower taxes and less regulation; but she should not let these preferences preclude necessary action on more immediate problems like the cost-ofliving crisis. If she is honest about it, Tory voters should understand that the circumstances forced her hand.

Of course, if Truss wants to address the country’s most pressing needs, rather than simply pandering to voters, she would focus squarely on boosting productivity, especially in the many areas where it has been persistently weak. If she could manage that, she could end up serving longer than even Thatcher or Tony Blair did.

Perhaps that is wishful thinking. But since she has only just begun, there is still hope. In today’s increasingly uncertain world, Truss’s demonstrated flexibility in the face of big economic and geopolitical developments may turn out to be just what the country needs. i

ABOUT THE AUTHOR

Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK treasury minister, is a member of the Pan-European Commission on Health and Sustainable Development.

"But if Truss wants the broader electorate to view her as a capable leader deserving of re-election in late 2024 (or earlier), she will have to do more than simply remain adaptable."