On 6 September 2022, Liz Truss was appointed prime minister of the United Kingdom. With her appointment, Government business will resume after the inevitable hiatus caused by the Conservative Party’s internal election process.
PM Truss has been busy – making her first speech (in which she set out her priorities); taking her first set of Prime Minister’s Questions in the House of Commons; and appointing her Cabinet and junior Ministers as well as the support staff in her own Office. These actions provide the first reliable indicators of her strategic vision for the country – and of her capacity to deliver it.
Truss’s first speech was aspirational but short on strategic vision for her government. The speech did set out a statement of intent in focusing on boosting economic growth, tackling the energy crisis and investing in the National Health Service, but there was no plan for how these goals will be delivered.
However, Truss’ Cabinet appointments perhaps provide a much clearer guide as to the nature and intentions of her government. She has surrounded herself with Ministers and Senior Advisors who share a common intellectual framework and ideology. Almost all are alumni of think-tanks and policy groups that are on the right-wing of the Conservative Party: the Adam Smith Institute, the Institute for Economic Affairs, and the Taxpayers’ Alliance. All espouse reducing the size of the state, increasing competition, enabling free markets, and reducing taxation.
Potential Destabilising Factors
In principle, this ideological coherence should reduce decision-making friction within Truss’s cabinet and among the Prime Minister’s close advisors – this should result in stable government. However, a number of other factors suggest that there is a chance that some degree of political instability could continue:
- Although the Cabinet’s ideology is consistent, it lacks a popular mandate. Truss and her cabinet have not entered government after a general election. There may be tensions between what her government wishes to do and the Conservatives’ 2019 General Election mandate on which her MPs were elected. These tensions may make it harder for the government to pursue its legislative agenda than its large parliamentary majority might suggest.
- Truss lacks a strong personal mandate as prime minister: she came second in the selection process among her own party’s MPs and enjoys lukewarm support from Party members. Her reputation for changing her mind may make it harder for her to claim moral leadership. Truss appears to be attracted to economic views outside the consensus. Her lack of popular or personal mandate could make it difficult to carry people with her when those views clash with reality
- In one of her first decisions in her new office, she disbanded the Prime Minister’s Delivery Unit (the team of advisors and civil servants which seeks to ensure that the Prime Ministerial vision is delivered). This decision risks making it more difficult for her to keep her government aligned with her policies – unless her personal persuasive abilities and charisma can compensate for lack of process control.
- Her cabinet is inexperienced. Truss is one of the most experienced members of Cabinet – having been a Minister since 2012. Only two of its members have ever been in Opposition (Ben Wallace and Chloe Smith), which demonstrates how new the others are as MPs, let alone as Ministers. Many have little experience of working with civil servants and have had even less time to get to grips with the realities of implementing policy.
- Aftershocks of the Johnson government will rumble on, including a Parliamentary Inquiry into his conduct in the House of Commons and a Statutory Inquiry into the United Kingdom government’s handling of the pandemic. That may combine with the potential ambitions and influence Johnson continues to exert over certain parts of his Party
- The United Kingdom will be increasingly impacted by the climate emergency, energy supply constraints, and a deteriorating global economy. The continuing uncertainty caused by Brexit risks amplifying these external factors. Domestically, the United Kingdom faces a period of severe industrial unrest that looks set to worsen as inflation erodes workers’ spending power.
- Frictions with the EU and in Northern Ireland may well overheat. Truss has recently suggested that she will seek to negotiate with the European Union rather than invoke dispute resolution mechanisms under Article 16 to the Northern Ireland Protocol. However, in a move which may indicate the sort of leader Truss intends to be (the soft glove of negotiation drawn over the iron-fist of hardline politics), she has simultaneously appointed Chris Heaton-Harris (leader of the European Research Group from 2010 to 2016) as Secretary of State for Northern Ireland and Steve Baker (also a former ERG leader) as Northern Ireland Minister. At the same time, she has made no attempt to halt the progress through the House of Lords of the Northern Ireland Protocol Bill which seeks unilaterally to disapply the Protocol. Another hard-line Truss appointment – that of Suella Braverman (an ardent opponent of the European Convention on Human Rights) as Home Secretary – further signals a readiness to take a combative stance towards the European Union.
All of these factors suggest that there is a risk, at least, that internal divisions within the Conservative Party and the harsh external, global headwinds could distract the Truss Government from the task of effective administration. This is potentially worrying for business which needs certainty, continuity and long-term strategic planning at the best of times, but even more so with recession and potentially long-term high inflation on the horizon.
Implications for business
What does this mean for businesses in the United Kingdom?
- Deregulation and regulatory divergence. The composition of her Cabinet and its ideological coherence mean that the Truss government’s deregulatory programme will benefit from greater focus and resourcing. There is an imperative to demonstrate that Brexit will deliver divergence from the EU and that this divergence will deliver economic and competitive advantage. We should therefore expect the pipeline of regulatory change to start pumping – increasing, rather than decreasing, the complexity of doing business. Companies will thus need to be aware of regulatory change and even more conscious of how to make their concerns register early on with those devising the new rules.
- Focus on comparative advantage. The Truss Government genuinely believes in free markets. It will seek to create the conditions for the United Kingdom to succeed in those areas in which it is already the most competitive such as professional, financial and digital services, aerospace, pharma and medicinal products, and food and drink – and those are likely to be the areas where we will see most rapid divergence from EU regulation (albeit somewhat constrained by the EU’s power to regulate its own market). It will be less interested than some may have hoped in supporting and fostering national champions unless these align with the country’s strengths. Businesses in those sectors may find a warmer reception for their concerns and objectives.
- A lower tax, higher-interest economy. Kwasi Kwarteng, the new Chancellor, has indicated that he favours fiscal loosening but that the government’s emphasis will be on tax cuts rather than on increased public spending. The cap on energy bills, promised cuts to corporation tax and national insurance are certain to happen, as will increased spending on defence – all financed by debt (just as interest rates are rising to combat inflation), rather than taxation. Expect continued high (possibly entrenched) inflation, tensions with the Bank of England and negative implications for Sterling and interest rates.
The Truss government is genuine in its belief that it will enable business to exploit new opportunities which it expects to create. But the scene is one of increasing uncertainty for business. Covington’s mixed teams of regulatory and public policy experts is well-placed to advise how to operate and succeed in this increasingly complex environment.