Friday, Oct 21, 2022 • 30min
The Rapid Downfall of Liz Truss
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Prime Minister Liz Truss of Britain has resigned after only 44 days in office. Hers is the shortest premiership in the country’s history.
What led to her downfall, and why has Britain entered a period of such profound political dysfunction?
Guest: Mark Landler, the London bureau chief for The New York Times.
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Mark Landler
Michael Barbaro
Liz Truss
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Break
Michael Barbaro
00:36
Hey, it's Michael. We're gonna start today's show in just a minute. But before we do that, I want to tell you about a new podcast from
The Times
, it's called Hard Fork. They're gonna have to listen to figure out exactly why it's called that. But here's why I like the show so much.Share
00:50
It's really like eavesdropping on the smartest possible conversations about what's really becoming the biggest force in our lives right now, which is technology. A lot of it in ways we're just beginning to understand: Crypto artificial intelligence, the metaverse Twitter, Elon.
Share
01:08
It's co hosted by somebody you already know,
Kevin Roose
a Daily regular and a Daily guest host and his co host is somebody else.Share
01:16
I really admire the technology writer Casey Newton for me, Kevin, Casey and their guests have demystified subject after subject and I'm gonna be honest, they make me laugh a lot. The show again is Hard Fork and encourage you to look for it as they say, wherever you get your podcasts, which wild guests might be exactly where you're listening to us. Okay, let's start today's show.
Share
01:43
From
the New York Times
, I'm Michael Barbaro. This is The Daily.Share
01:54
After just 44 days in office, British Prime Minister,
Liz Truss
has resigned, making hers the shortest premiership in the country's history.Share
02:07
Today, my colleague London Bureau Chief
Mark Landler
on what led to her downfall and why Britain
has entered a period of such profound political dysfunction.Share
02:26
It's Friday, October 21.
Share
02:37
Hey, Mark.
Share
Mark Landler
02:38
Hey, Michael, how you doing?
Share
Michael Barbaro
02:41
I mean, Good Lord, what a hot mess that country is.
Share
Mark Landler
02:45
It's really amazing.
Share
Michael Barbaro
02:48
So we want to talk about how it is that the Prime Minister of the
UK
touched off an economic crisis and self immolated. So tell us the story behind Liz Truss’
downfall and what I think will be going down as the most disastrously short Prime Ministership in the history of written.Share
Mark Landler
03:13
Well, to really get to the beginning of this, you have to go back to the summer when
Boris Johnson
was forced out of office after a series of scandals. And there's a contest within The Conservative Party
to decide who's going to replace him.Share
03:28
The two candidates who ultimately emerge are of course,
Liz Truss
and a guy named Rishi Sunak
.Share
03:35
Truss
was the Foreign Secretary under Boris Johnson
. She served in the Parliament
for many years and she's a real die hard conservative who is trying to fashion herself as the next Margaret Thatcher
, as sort of a free market evangelist, very much in the Thatcher
mode right back on the other hand, is this wealthy former hedge fund manager and he's actually served as the equivalent of Treasury Secretary under Johnson
but resigned from Johnson's
cabinet in the midst of all these scandals. And what was the defining dynamic of the Truss
soon ac contest?Share
04:13
Well, it really broke down - if you want to get to the most simple terms - to the question of taxes.
Share
04:20
Liz Truss basically said, “I'm going to cut your taxes, I'm gonna cut corporations taxes and in doing so, I'm going to unleash this new era of much faster economic growth. ”
Share
04:35
Rishi Sunak
said, “wait a minute. I'm not opposed to reducing taxes, but we are in a period of double digit inflation. Interest rates are going up. ” “We need to tame inflation before we can start talking about reducing taxes. ”Share
Michael Barbaro
04:50
And Mark, can you just explain for the economically challenged, why cutting taxes in the minds of people like
Sunak
would be a problem in an inflationary period. Why he told her and the country that this was a bad idea?Share
Mark Landler
05:07
Well, basically when you're in an inflationary situation, when prices are high and rising and you cut people's taxes essentially you're putting more money into their pockets, and you're, in a sense fueling the inflation because people are going to spend more, and rather than curbing inflation, you're actually adding to it.
Share
Michael Barbaro
05:27
Right.
Share
Mark Landler
05:27
And indeed in addition to soon knock you had lots of economists and investors and others who were also saying that
Liz Truss
policies were in the words of Sunak
, “a fairy tale”.Share
Michael Barbaro
05:44
Nevertheless,
Truss
beats Sunak
and the reason she does has to do with the peculiarity of parliamentary law in Britain
, because Truss
is replacing a sitting prime minister, she doesn't need to win in a general election. She only needs to win in this intraparty contest, which in this case involves winning the votes of roughly 100 and 60,000 rank and file members of the party.Share
06:12
And who are these people? Well, they tend to be older, wider, richer and more conservative than the country at large. These are people for whom a tax cut is uniquely attractive. So that message is really tailored to them and they respond to it and she wins the contest. So…
Share
Liz Truss
06:32
Good afternoon, I have just accepted Her Majesty The Queen's kind invitation to form a new government.
Share
Mark Landler
06:41
Truss takes office.
Share
Liz Truss
06:43
I have a bold plan to grow the economy through tax cuts and reform.
Share
Mark Landler
06:48
On Tuesday September 6th.
Share
Liz Truss
06:51
I am determined to deliver. Thank you.
Share
Mark Landler
06:58
And two days later,
Queen Elizabeth
dies. This is a momentous, you know, deeply emotional moment for the whole country. And Liz Truss
becomes overnight one of the mourners in chief for Britain
.Share
07:14
So it's a moment of extremely high visibility for the new prime minister, but it also has the effect of taking her completely off what was going to be the rollout of her economic program.
Share
07:26
And the country really needs to wait almost for a full two weeks before the government can get back to the business of governing.
Share
07:34
So when
Parliament
does finally reconvene.Share
07:38
I know, called the Chancellor of the Exchequer to make a statement. Chancellor!
Share
Mark Landler
07:42
Liz Truss
sends her Chancellor a guy named Kwasi Kwarteng,
the equivalent of the Treasury Secretary to the House Of Commons,
to roll out this package of tax cuts.Share
Kwasi Kwarteng
07:52
Now, Mr. Speaker, we come we come to tax, central to solving the riddle of growth.
Share
Mark Landler
07:59
And it's a stunner.
Share
Kwasi Kwarteng
08:04
I can announce today that we will cut the basic rate of income tax to 19 pence.
Share
Mark Landler
08:10
It's even more radical and sweeping than she talked about during the summer.
Share
Kwasi Kwarteng
08:15
That means a tax cut for over 31 million people in just a few months time.
Share
Mark Landler
08:21
There are tax cuts for ordinary people.
Share
Kwasi Kwarteng
08:26
Will not rise to 25%, it will remain at 19% and we will have the lowest rate of corporation tax in the G20.
Share
Mark Landler
08:35
Tax breaks for corporations.
Share
Kwasi Kwarteng
08:37
I have another measure, Mr Speaker. Take the additional rate of income tax at 45%, it is currently higher.
Share
Mark Landler
08:46
There is also a tax cut for the wealthiest earners.
Share
Kwasi Kwarteng
08:49
But I'm not going to cut the additional rate of tax today, Mr Speaker, I'm going to abolish it altogether.
Share
Mark Landler
08:57
And the cumulative value of all of these tax cuts runs into the tens of billions of dollars.
Share
Kwasi Kwarteng
09:03
Our growth plan has delivered all those promises and more Mr. Speaker.
Share
Mark Landler
09:19
And what's particularly startling about it is these are unfunded tax cuts which means the government's not offering corresponding cuts and spending to pay for this. They're just announcing it kind of in the classic style of supply side economics, that these tax cuts will somehow pay for themselves through increased economic growth.
Share
Michael Barbaro
09:42
So this is a plan that is very much in keeping with
Liz Truss
is free market Reagan-style
approach but ends up going much further than anyone expected and therefore costs even more than anyone expected.Share
Mark Landler
09:58
That's right. And it really rattles international financial markets because of course it's not just the UK. that's dealing with inflation. It's a problem around the world.
Share
10:09
Everyone is also trying to figure out how to deal with the impact of
Russia's
war in Ukraine
. So this is the last thing that anyone wants or needs to hear that the United Kingdom
, a major global financial player, is about to plunge itself into a deep hole of debt.Share
10:27
So the rejection of
Liz Truss
is economic program in the financial markets is instant and ferocious. And in the following week all hell breaks loose.Share
10:39
First the city of
London
woke up to a currency crisis.Share
10:43
The pound dropped in value to just $1 and not 10.34 cents early Monday morning taking the currency to its lowest level since the early seventies.
Share
Mark Landler
10:52
The pound plummets against the dollar.
Share
10:54
The decline against the common currency highlighted how the pound's recent fall, reflects concern about
Britain's
economy.Share
Mark Landler
11:01
And it makes life more expensive for brits, right?
Share
Michael Barbaro
11:05
Because when the value of your currency is lower, then everything gets more expensive at a moment when inflation is already a huge problem.
Share
Mark Landler
11:11
And the next thing that happens is…
Share
11:13
And we're seeing epic bond market declines.
UK
rates climb as much as 50 basis points…Share
Mark Landler
11:19
That the price of British government bonds slumps and the yield on those bonds spikes upwards. And that has two major effects.
Share
11:27
Worried about the credibility of the Chancellor's plans, traders have been selling government bonds, the instruments it uses to borrow money, forcing the government to pay much more in interest to borrow funds over the long term.
Share
Mark Landler
11:39
One is that it makes it more expensive for the British government to borrow money, which makes the fiscal hole caused by the tax cuts even larger.
Share
11:48
Investors fear the big market moves are a particular threat to pension funds and could cause spillover damage across the financial sector.
Share
Mark Landler
11:56
The other is that because
UK
pension funds are tied to government bonds, there's suddenly a risk that there's not going to be enough cash to keep them afloat.Share
12:07
Where the Bank Of England has made an emergency intervention, which it says is needed to maintain financial stability.
Share
Mark Landler
12:16
Finally…
Share
12:17
I've said before, I'm worried there's a ticking time bomb on mortgages.
Share
Mark Landler
12:20
The interest rates for mortgage loans start to increase.
Share
12:24
And then last week that went up to a peak 6.1% I'll show you in a second…
Share
Mark Landler
12:28
This is really important in
Britain
because unlike in the US where a lot of people have 30 year fixed rate mortgages, many more people in the UK
have either variable rate mortgages or five year, two year at most 10 year mortgages.Share
12:44
So when interest rates go up on mortgage loans, people begin to feel that right away.
Share
Michael Barbaro
12:56
And all of this just to be clear, is because of the announcement of this massive unfunded tax cut program.
Share
Mark Landler
13:05
Yes, that's right. I mean, even though it appears to be almost impossible to imagine so much could spin out of one announcement. That announcement has the effect of really in a moment, completely undermining investor confidence in the British economy.
Share
13:25
And so for millions of people in
Britain
who are negatively affected by all this, it quickly becomes clear who's to blame: it's Liz Truss
and her tax cuts. And so suddenly this brand new prime minister is in a great deal of political trouble.Share
Michael Barbaro
13:49
We'll be right back.
Share
Break
Michael Barbaro
15:05
So, Mark, what does this very embattled Prime Minister,
Liz Truss
do once she realizes that her economic plan has plunged her entire country into financial chaos?Share
Mark Landler
15:16
Well, her initial instinct is to be really defensive.
Share
Liz Truss
15:19
Look, I understand it's difficult times for people and we're facing a difficult winter.
Share
Michael Barbaro
15:24
She puts the blame on a lot of other people. She says, you know…
Share
Liz Truss
15:29
Interest rates have always been set since 1997 by the
Independent Bank Of England
.Share
Mark Landler
15:35
We don't have anything to do with that.
Share
Liz Truss
15:37
Politicians don't get involved in setting interest rates.
Share
Mark Landler
15:40
She blames inflation on.
Share
Liz Truss
15:42
We have a very very difficult economic global situation because of the war that
Vladimir Putin
has perpetrated in Ukraine
.Share
Mark Landler
15:51
Vladimir Putin
.Share
15:52
But this isn't this isn't Putin, this isn't just about Putin. I mean, your Chancellor on Friday opened up the stable door and spook the horses so much you can almost see the economy being dragged behind them!
Share
Mark Landler
16:02
And she sort of doesn't take any responsibility for having influenced any of these things with her own policies and she sort of says, you know, change is hard, people are going to resist it, but everyone is going to benefit in the long run because the economy is going to grow so much faster.
Share
16:22
So it's a very defiant stay the course, you know, don't give an inch kind of response and this goes on for a few days, but the markets continue to gyrate, interest rates continue to spike and she realizes that she's going to have to backtrack on something
Share
16:40
Big, breaking news for you that will impact almost all of us. We're hearing that
Liz Truss
is preparing to scrap Plans to remove the 45 p top rate of income tax for the highest.Share
Mark Landler
16:52
So what she and quasi karting do is they decide to do a U turn on one of the big tax cuts.
Share
Liz Truss
17:00
The fact is that the abolition of the 45 p tax rate became a distraction.
Share
Michael Barbaro
17:06
The one on the super wealthy.
Share
Liz Truss
17:07
That is why we're no longer proceeding with it. I get it and I have listened.
Share
Mark Landler
17:16
And that sort of calms the waters for a little while, but everyone realizes that tax got only accounted for a very small part of the total cost of this program. So the markets are pretty much back to being unstable within a day or two. So what she does another week or so later is she calls
Kwasi Kwarteng
arguably her closest associate in the government.Share
17:41
You'll be Chancellor and
Liz Truss
will be prime minister this time next month.Share
Kwasi Kwarteng
17:44
Absolutely 100%. I'm not going anywhere.
Share
Mark Landler
17:46
She fires him.
Share
17:50
He gets thrown under the bus and that's the first major high profile casualty of this whole affair. And she hopes that by basically giving the market Kwasi Kwarteng, she can kind of calm the waters.
Share
Liz Truss
18:06
My priority is making sure we deliver the economic stability that our country needs. That's why I had to take the difficult decisions I've taken today.
Share
Mark Landler
18:18
But guess what? It didn't work. She had to do something more and she did that in the form of selecting
Jeremy Hunt
to be the new Chancellor.Share
18:29
Why do you want to work with this government?
Share
Jeremy Hunt
18:31
Because I want to do the right thing for the British people.
Share
Mark Landler
18:34
Jeremy Hunt
is a long time well known conservative politician. He opposed Liz
Trust during the leadership campaign. Indeed, he ran his own very short lived an unsuccessful campaign for the job.Share
18:48
He was a supporter of
Rishi Sunak
and an arch opponent of her economic programShare
Michael Barbaro
18:54
Fascinating.
Share
Mark Landler
18:54
And almost as soon as Hunt takes the job.
Share
18:57
Good morning
Liz Truss
is first Chancellor lasted 38 days this morning we'll hear from the NEW one.Share
Mark Landler
19:04
He goes on TV and he begins peeling away planks of her agenda.
Share
Jeremy Hunt
19:09
We are going to have to take some very difficult decisions both on spending and on tax.
Share
Mark Landler
19:16
Saying you're not going to get a tax cut.
Share
Jeremy Hunt
19:19
Taxes are not going to go down as quickly as people thought and some taxes are going to go up.
Share
Michael Barbaro
19:23
Corporation taxes are actually going to increase.
Share
Jeremy Hunt
19:25
So it's going to be very, very difficult. And I think we have to be honest with people about that.
Share
Mark Landler
19:30
Basically the reverse of what
Liz Truss
ran for office promising to do!Share
19:35
And then you've got this vivid tableau where.
Share
Jeremy Hunt
19:39
We've therefore decided to make further changes to the mini budget immediately.
Share
Michael Barbaro
19:43
Monday morning rolls around and
Jeremy Hunt
goes to the House Of Commons
to confirm before lawmakers that this is now the government's policy.Share
Jeremy Hunt
19:54
We've decided on the following changes to support confidence and stability.
Share
19:58
Firstly, the Prime Minister and I agreed yesterday to reverse almost all the tax measures announced in the growth plan three weeks ago.
Share
Mark Landler
20:06
And while he is delivering this message…
Share
Michael Barbaro
20:08
It is a deeply held conservative value, a value that I share that people should keep more of the money they earned
Liz Truss
is sitting behind him on the front bench with a sort of a far away smile on her face, you know, looking for all the world like a bystander in her own government.Share
Jeremy Hunt
20:28
But at a time when markets are asking serious questions about our commitment to sound public finances, we cannot afford a permanent discretionary increase in borrowing worth £6 billion a year.
Share
Michael Barbaro
20:42
Right. I watched that scene, Mark. And suddenly the question became, “who exactly is Prime Minister here? Is it
Liz Truss
or is it Jeremy Hunt
? ”Share
Mark Landler
20:51
Yeah, I mean particularly for someone who ran primarily almost exclusively on this free market economic message. It really felt like
Liz Truss
all of a sudden didn't have much of a reason to be Prime minister anymore. And as that realization dawns on people, it almost quickly becomes a political death watch.Share
21:15
And the British media in their typically dark, humorous way of looking at things, begin to look for metaphors to capture just how tenuous Truss the situation is.
Share
21:27
And the most memorable of these is in the tabloid
The Star
where they actually get a head of lettuce from a local supermarket chain, and they put it next to a picture of Liz Truss
and they ask which of these has a longer shelf life.Share
Michael Barbaro
21:43
Right. But what is the shelf life, Mark? Or a head of lettuce?
Share
Mark Landler
21:48
Well, Michael, I'm going to confess, I don't exactly know what the shelf life of a head of lettuce is. But I think we can safely assume it's measured in days and not weeks.
Share
Michael Barbaro
21:59
Right.
Share
Mark Landler
21:59
And that turns out to be a pretty good bit of foreshadowing because over the next 48 hours
Liz Truss
is Prime Ministership begins to unravel really quickly.Share
22:14
So on Wednesday Trust goes to
the House Of Commons
for an exercise called Prime Minister's questions.Share
22:21
The leader of the opposition.
Share
Mark Landler
22:25
That's where members get to grill the Prime Minister on whatever topic they want.
Share
Keir Starmer
22:30
A book is being written about the Prime Minister's time in office. Apparently it's going to be out by christmas. Is that the release date or the title?
Share
Mark Landler
22:42
And she comes under immediate attack.
Share
Keir Starmer
22:45
I've got the list here 45 P tax cut gone, corporation tax cut, gone! 20 P tax cut, gone! So why is she still here?
Share
Mark Landler
22:55
The leader of the Labor Party,
Keir Starmer
essentially asks her why she's still in office.Share
Liz Truss
23:01
Mr Speaker. I am a fighter and not a quitter!
Share
Mark Landler
23:06
She insists that she's going to stay the course, but within hours there's even more chaos engulfing her government. She's forced to fire her Home Secretary. That's now the second major cabinet minister she's fired in a week!
Share
Liz Truss
23:21
Order, order!
Share
Mark Landler
23:24
And the craziest thing happens on Wednesday evening when there's a vote in Parliament over whether the government should ban fracking.
Share
23:33
Conservative lawmakers are beginning to rebel against the government. They don't want to cast this vote. And there are these really surreal scenes in the
Parliament
where…Share
23:46
I saw members being physically manhandled into another.
Share
Mark Landler
23:51
Lawmakers are being physically manhandled by senior cabinet ministers to come in and cast this vote backing the Prime Minister.
Share
24:01
To be perfectly honest, this whole affair is inexcusable.
Share
Mark Landler
24:05
So by the end of Wednesday night, you have this situation where it's clear that
Liz Truss
has not only lost control of her legislative agenda.Share
24:15
Tory MP of 17 years, it is pitiful reflection on the Conservative Parliamentary Party at every level.
Share
Mark Landler
24:23
She's lost control of her party and she's lost control of the government.
Share
24:27
I think it's a shambles in a disgrace. I think it is utterly appalling.
Share
Mark Landler
24:38
So by yesterday morning, the game was well and truly over. Conservative lawmakers were coming out one after the other saying it was time for her to step down. It was clear that if she didn't negotiate some sort of exit, she likely faced a vote of no confidence.
Share
24:57
And shortly after 1 PM the Prime Minister's Office put out a statement saying she would speak to the nation, and the podium was put up in front of the famous number 10 door, and at about 1, 30.
Share
Liz Truss
25:11
I came into office at a time of great economic and international instability.
Share
Mark Landler
25:18
Liz Truss
came out and said:Share
Liz Truss
25:20
Given the situation, I cannot deliver the mandate on which I was elected by the Conservative Party.
Share
Mark Landler
25:27
I've called king Charles and I've told him of my intention to step down.
Share
Liz Truss
25:33
I will remain as prime minister until a successor has been chosen. Thank you.
Share
Michael Barbaro
25:41
So in the end, she did not outlast the head of lettuce.
Share
Mark Landler
25:46
She did not outlast the head of lettuce. She also set a record for being the shortest serving British prime Minister in history. 44 days from the day she moved in to the day she announced she was leaving. If I remember my math correctly, it's for
Scaramucci
is if you want to go back and look at Anthony Scaramucci
, he's famous record as White House Communications Director.Share
Michael Barbaro
26:09
So Mark, it feels worth zooming out here for a moment, because when we think about what's happened to
Liz Truss
and more importantly, what's happened to the British economy, it feels like there are two big lessons that emerge.Share
26:24
The first, and I'm thinking back to the warnings that were delivered during her campaign, about this tax cut is that you can't defy the basic laws of economics and of inflation.
Share
26:36
You can't cut taxes and borrow a bunch of money at a time when prices are already at a record high and hope that somehow the market and consumers will embrace that, that's just not how it works.
Share
Mark Landler
26:50
Yeah, that's right. I mean, this was an economic program that was basically built on magical thinking and magical thinking doesn't work in a world where the markets are as powerful as they are.
Share
27:02
So even if she had managed to win over the population and summer knows that the economic experts, she was never going to convince the markets that this was in any way credible. The only country that can really get away with unfunded tax cuts with ballooning the deficit is the
United States
. And the reason for that is the sheer size of the US economy.Share
27:27
The fact that the U. S. Dollar is still the world's reserve currency. It gives the U. S. a freedom of maneuver that really no other economy has and certainly not the British economy, which for all its strengths is much smaller. And so to pursue a
Ronald Reagan
style tax cutting program in Britain
doesn't really make any logical sense. And that's what Liz
Trust learned over a couple of very bruising weeks.Share
Michael Barbaro
27:59
And it feels like the second lesson Mark, is that when you're elected Prime minister by a tiny portion of the electorate, as
Liz Truss
was because of the peculiar system you outlined, you're likely to get an agenda that favors that small sliver of voters and not feel especially accountable to everyone else because after all, they didn't vote for you. So there's a lesson here about the very nature of British democracy.Share
Mark Landler
28:28
Yeah, that's a big topic of conversation in
Britain
right now, because after all, this country is about to elect its fourth prime minister through this very peculiar system. And when you set up elections this way, it naturally leads to more extreme positions.Share
28:49
Because after all, as we said earlier,
Liz Truss
knew exactly what she was doing in appealing to these Conservative Party members. And when she got into office, she actually delivered what she had promised this was to that extent a crisis foretold.Share
29:11
And the problem with having such a slender mandate is that when things go wrong as they did in this case, you have no popular support to fall back on. When the market's turned on
Liz Truss
the public turned on Liz Truss
even more ferociously, and that's why she wilted faster than that head of lettuce.Share
Michael Barbaro
29:42
Oh Mark, thank you very much.
Share
Mark Landler
29:44
Thank you Michael.
Share
Michael Barbaro
29:52
Members of Britain's Conservative Party are expected to choose
Liz Truss
successor by the end of next week.Share
30:00
Among the likely candidates are
Rishi Sunak
the lawmaker who had warned that Truss’ tax cuts would backfire, and improbably Boris Johnson
, whose resignation as prime minister brought Liz Truss
to power.Share
30:31
We'll be right back.
Share
30:37
Here's what else you need to know today.
Share
30:40
A new poll has found that the majority of the American public is prepared to keep paying high energy costs in order to help
Ukraine
win its war against Russia
.Share
30:52
60% of Americans overall told pollsters from the University Of Maryland that they will tolerate the higher costs, including 80% of Democrats and 48% of Republicans.
Share
31:06
The result suggests that
Russia's
hope that surging energy prices will undermine Western support for Ukraine
and ultimately help Russia
defeat. Ukraine
is so far not working in the United States
.Share
32:01
See you on Monday.
Share
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Michael Barbaro
Mark Landler
Liz Truss
Kwasi Kwarteng
Jeremy Hunt
Keir Starmer