The straw that broke the camel’s back for Liz Truss’s premiership was a collapse in confidence among Tory MPs, but the underlying cause is an economic crisis she initially ignored, then aggravated, and which will henceforth define the mandate of his successor.
The Conservatives are about to discover that they can change leaders but not the economic hole they dug, nor the ideological divides that did much of the work.
Mrs Truss entered number 10 on the promise of “growth growth growth,” much to the delight of fellow small-state free marketers who only coalesced around her candidacy at the last moment.
His decision to realize that ambition by offering extravagant unfunded tax cuts without the ballast of an Office for Budget Responsibility (OBR) forecast proved fatal, spooking markets and shattering his prospectus for the government.
While she’s gone, her emergency chancellor Jeremy Hunt remains its priority to regain economic credibility and financial stability.
This process began on Monday with the reversal of most mini-budget tax plansand a clear signal of tax increases and spending cuts to come.
Investors are reassured for now – as Ms Truss has fallen, the cost of government borrowing in the long-term gilt markets and the reinforced pound – But this is only the beginning.
Next week, as the Conservative parliamentary party holds a five-day leadership election, Mr Hunt and the Treasury will finalize the budget statement which could have a much bigger impact.
This declaration must currently be made on monday 31 octoberafter the selection of the new prime minister and a postponement cannot be ruled out despite the risk of market disapproval.
If that timeline holds, however, the calculations and decisions that will shape public spending for the next five years will have to be made as the candidates fall.
The black hole in public finances has been calculated at at least £60billion, deepening to nearly £70billion after the mini budget pushed up borrowing costs and the price of service existing debt.
Typically, the OBR produces five forecasts in the run-up to a budget statement, containing its five-year view of the outlook for economic growth and the cost of public spending.
Next Tuesday he is due to deliver the fourth draft, which will reflect the tax write-offs announced on Monday and presumably the cost of maintaining the triple pension lock confirmed by Ms Truss on Wednesday, as well as any new measures that are not yet public.
The fifth and last version, containing possible additional measures, must be delivered on Thursday.
The reversal of tax cuts has narrowed the gap by around £30billion, but there is still much to be found, and the search for policy measures that could boost growth has helped fuel the chaos of the week last.
The resentful resignation of Suella Braverman as Home Secretary Wednesday offered some insight. While she cited an innocent violation of communications protocol, her allies pointed to a fundamental difference of opinion on immigration Politics.
They claim she opposed plans by Ms Truss and Mr Hunt to liberalize immigration restrictions allowing more highly skilled workers.
There are also pushes to expand the Shortage Professions List, which grants an exception to post-Brexit visa restrictions, across a range of professions including engineers to help meet the government’s high targets. debit.
Both would boost the growth side of the OBR’s ledger, dampening demand for reduced spending, but this economic reality collides directly with Brexit ideology.
There are several other pro-growth strategies that are running into trouble among Conservative MPs. Planning reform to allow more development and housing construction is problematic in the leafy southern constituencies, onshore wind is only marginally more popular and fracking delivered the final seismic blow to Ms Truss on Wednesday night.
As the Tory row and the markets await the OBR and the Chancellor, businesses watch in dismay, uncertain whether what they hear today will still apply tomorrow.
The CBI, shop stewards of Britain’s big business and traditionally close to the Tories, delivered an unusually heavy-handed response to the Prime Minister’s departure, without a single word for Ms Truss herself.
“The politics of recent weeks have undermined the confidence of individuals, businesses, markets and global investors in Britain. This must now stop if we are to avoid further damage to households and businesses,” said the general manager Tony Danker.
“Stability is essential. The next Prime Minister will have to act to restore confidence from day one. He will have to present a credible medium-term fiscal plan and a plan for the long-term growth of our economy as soon as possible.”
They are not the only ones to be of this opinion.