Truss tax cuts were ‘not right approach’ before tackling inflation, says Shapps
Liz Truss’s tax-cutting agenda “clearly wasn’t the right approach” before the government had tackled inflation, the business secretary, Grant Shapps, has said in a retort to an essay by the former prime minister.
Truss, in her first major intervention since leaving office, wrote that she had “not [been] given a realistic chance to enact my policies by a very powerful economic establishment, coupled with a lack of political support”.
She said she had expected her mandate as prime minister to be respected but admitted mistakes had been made, including that the fallout from her mini-budget had left the UK close to not being able to fund its own debt. But she also said that Conservatives had “failed to make these arguments enough since 2010” about growth and low taxes.
Shapps, who had been a critic of Truss as prime minister but served as home secretary in her administration for a few days towards the end of her premiership, said many Conservatives did agree the tax burden should not be as high.
“She makes a perfectly valid point that somebody’s obviously got to be agitating for making the good arguments for the reasons why a lower-tax economy in the longer run can be a very successful economy,” he said. “I think you’ve got to set this within an international picture, which is Ukraine was invaded, energy prices went through the roof.
“We’re in a situation, for example, where we’re paying a third of people’s energy bills, and that is unprecedented right after the whole coronavirus [pandemic], where we have had to spend vast fortunes and, of course, taxes have had to rise.”
Writing in the Sunday Telegraph, in the first of a series of interventions before the spring budget, the former prime minister said her “soul-searching has not been easy”.
Related: Liz Truss says she didn’t get ‘realistic chance’ to enact tax-cutting agenda
However, she said scepticism about the growth potential of the British economy was “sadly endemic at the Treasury”, blaming pessimism as a barrier to changes including planning reform and deregulation of financial services, and said Brexit was seen as a “damage-limitation exercise rather than a once-in-a-generation opportunity”.
Shapps told Sky’s Sophy Ridge on Sunday programme: “You have got to deal with the fundamentals first. You have got to reduce inflation, which is the biggest tax cut anybody can have.
“I notice she said they hadn’t prepared the ground for these big tax changes. What you have got to do is deal with the big structural issues first, deal with inflation first, deal with debt, and then you look towards tax cuts.
“I completely agree with Liz’s instinct to have a lower-tax economy. We also know that if you do that before you’ve dealt with inflation and dealt with the debt, then you end up in difficulty. You can’t get the growth out of nowhere.”
Truss claimed no one had made her aware of the effect her changes might have on pension funds – “a problem that would ultimately bring my premiership to an abrupt and premature end because of the panic it induced”.
She claimed no one had raised concerns about the liability-driven investments that posed a risk to bond markets, until the Bank of England governor wanted to make a statement on the Monday after the mini-budget.
“Dramatic movements in the bond market had already begun, meaning the mini-budget faced a very difficult environment. Only now can I appreciate what a delicate tinderbox we were dealing with in respect of the LDIs,” she said.
But she said the government also became “a useful scapegoat” for problems that began to hit ordinary families, including rising interest rates and mortgage costs.
“Knowing what I know now, undoubtedly I would have handled things differently. I underestimated the extent to which the market was on edge and, like many others, was not aware of how fragile our system had become,” she said.
She said she was given the “starkest of warnings by senior officials that further market turmoil could leave the UK unable to fund its own debt”.
She said she knew after sacking her chancellor, Kwasi Kwarteng, and reversing most of her positions that she would be unlikely to be able to stay as prime minister.
“Fundamentally, I was not given a realistic chance to enact my policies by a very powerful economic establishment, coupled with a lack of political support,” she said.
“I assumed upon entering Downing Street that my mandate would be respected and accepted. How wrong I was. While I anticipated resistance to my programme from the system, I underestimated the extent of it.”
The former Conservative party chair Sir Jake Berry told BBC One’s Sunday with Laura Kuenssberg that he did still agree with “Liz’s diagnosis of the disease that is facing the country and I think she accepts in this story that the prescription that we wrote – [for] which I have to take part of the blame – wasn’t delivered in the correct way.
“But I think her point of, we need to lower taxes, we need to create a growing economy, that’s what people want.”