British Truss and Allies Long Dreamed of Libertarian Agenda

"LONDON -- A few days after Liz Truss first was elected to Britain's Parliament in 2010, she visited the Institute of Economic Affairs, a libertarian think tank in a cramped Georgian house a stone's throw from Parliament in central London.

There she met an old college friend, Mark Littlewood, director-general of the IEA, and pitched an idea. "Mark, we are going to set up a caucus of free-market MPs," Mr. Littlewood recalls her saying.

It was the start of a journey that saw Ms. Truss lead a tightknit band of libertarian Conservative lawmakers from the edges of her party to 10 Downing Street, where she launched an audacious experiment in Reaganomics for the world's sixth-largest economy -- calling for sweeping tax cuts paired with big spending increases aimed at boosting economic growth.

Her plans, against a global backdrop of high inflation and rising interest rates, were greeted by a fierce reaction in markets. The pound dropped sharply against the dollar and investors sold off British government bonds. The central bank intervened. And Ms. Truss was pushed out by Tory lawmakers.

"That libertarian view is unlikely to return to the U.K. for some time," predicted Charlie Bean, former deputy governor of the Bank of England. "That vision has been pretty comprehensively blown out of the water by the events of the last few weeks."

Ms. Truss's program was set for three stages: The first was a shock-and-awe campaign of tax cuts, to be followed months later by sweeping supply-side measures including deregulation, and capped, months after that, by a closer look at government spending, with an eye to keeping public finances stable.

The government, however, was quickly forced to retreat halfway through stage one, particularly because the tax cuts that would reduce government revenue were paired with a huge new spending program to subsidize energy prices, straining government finances.

"It's a bit of a nightmare," said Mr. Littlewood, who said he feared the blowback against Ms. Truss's plans, and her ouster as prime minister, could set back the libertarian agenda for years or longer.

Since Margaret Thatcher left office in 1990, libertarian, deregulatory ideology in Britain was often talked up by Conservative governments but seldom enacted.

An aging population and a push toward green energy had economists forecasting a bigger British state rather than a smaller one.

Groups like the IEA, which was lauded by Thatcher, were sidelined and spent their time mostly criticizing the government of the day for spending and taxing too much.

"Since the reforms that Mrs. Thatcher brought in, we've got huge amounts of regulation that have been added mainly from the European Union and marginal tax rates have steadily gone up," says Patrick Minford, professor of applied economics at Cardiff Business School, who backed Ms. Truss's tax plan. "So this is all very damaging to entrepreneurial incentives."

For years, the lawmakers' group created by Ms. Truss and Mr. Littlewood -- calling itself the Free Enterprise Group, or FEG -- toiled at the margins of the U.K. government, publishing pamphlets and holding intimate dinners championing the small state. They urged their fellow Tories to be more radical, arguing that Britain was getting caught in a negative loop of higher taxes, which would hurt economic growth, weaken the government's tax take, and prompt even higher taxes.

Opportunity finally came this summer, when Boris Johnson quit as prime minister and paved the way for Ms. Truss to pitch her vision of a smaller state to Tory members, emerging as the winner from the party's internal leadership contest.

Within days of that victory, former members of the FEG were appointed to senior cabinet posts, including her closest libertarian ally, Kwasi Kwarteng, as chancellor. Together, the pair rolled out a broad plan of tax cuts and deregulation. Crucially, the plan would be paid for not with spending cuts, but with debt. For Ms. Truss and Mr. Kwarteng this was a change in ideology.

In recent days, Ms. Truss watched as her new chancellor, Jeremy Hunt, a Conservative moderate, said he was ripping up the fiscal plan she had spent over a decade advocating as he pushed the tax burden back up to the highest rate since the 1950s.

Ms. Truss apologized to her cabinet, saying her plan "went too far, too fast" for markets." [1]

1. World News: Truss and Allies Long Dreamed of Libertarian Agenda
Colchester, Max; Luhnow, David. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 22 Oct 2022: A.10.