The markets have taken back control: so much for Truss’s Brexit delusion of sovereignty
Hard to believe now, when we’re in the middle of the maelstrom, but one day this too will be the past. And when it is, when we’re out of the hourly psychodrama – no longer staring at the screen, watching Kwasi Kwarteng’s plane do an actual U-turn in the sky en route to his being fired on touchdown, for the crime of doing what his boss wanted him to do – it may not look all that complicated.
Historians will look back and see a point of origin to the current madness, one that explains how a new prime minister could see her administration fall apart in a matter of weeks, even if we struggle to name that cause out loud right now. When the textbooks of the future come to the chapter we are living through, in the autumn of 2022, they will start with the summer of 2016:
Brexit and the specific delusion that drove it.
They will point to the obvious impact of Britain’s decision to leave the European Union, and the role that played in upending a country once renowned for its stability. They might begin with the basics. Exit, they will write, shrank the UK economy thanks to a 5.2% fall in GDP,a 13.7% fall in investment and a similar drop in the trade in goods. That self-inflicted contraction helps explain why Britain felt international shocks – surging inflation, for example – harder than most. If your economy is smaller, you either have to tax people more to pay for the services they expect, or you cut those services, or you borrow. There are no other ways out.
Unless you resort to magical thinking. Which brings us to the second causal connection between the craziness of now and the turning point of 2016. Brexit broke the link between governance and reason, between policy and evidence. Until Brexit, politicians
only rarely got away with defying the empirical facts or elementary logic. But in 2016 they pretended that a country could weaken its trading ties to its nearest neighbours and get richer, which is like saying you can step in a bath of ice and get warmer. Once the taboo on magical thinking was broken, once fantasy became a Conservative habit, Trussonomics became inevitable – smilingly insisting that you could cut taxes for the richest, make “absolutely” no cuts to public services and control borrowing, all at the same time.
But there is a less obvious way in which Brexit made the current great unravelling a political death foretold. It turns on the idea that powered the urge to leave the EU more than any other: call it the sovereignty delusion.
The leavers’ slogan, “Take back control”, urged Britons to shake off the constraints of Brussels and become a proud, sovereign nation once more – a nation that, alone, would decide its fate. After Brexit, they promised, Britain would be the sole master of its destiny, unburdened by the need to consult or even accommodate anyone else.
The three weeks since Kwarteng delivered his mini-budget have seen the shattering of that delusion. For Truss and her now ex-chancellor were given the rudest of reminders that in our interdependent world there is no such thing as pure, untrammelled sovereignty. No government can do what the hell it likes, heedless of others. In this case, the restraint on sovereignty was not the EU: it was the money markets. But their verdict was as binding as any Brussels edict; in fact it was more so. They ordered the removal of a chancellor after just 38 days in office and the cancellation of the government’s economic strategy. It is the financial markets that have taken back control.
None of these events should be a surprise. There were plenty who warned this would happen, not least Truss’s summer opponent, Rishi Sunak. But Truss and Kwarteng went ahead anyway, issuing their proclamations as if they were the sole actors on the stage, oblivious to the fact that you can’t just announce £43bn of unfunded tax cuts without those whom you expect to lend you the money expressing a view – in this case by triggering an instant spike in the cost of borrowing. You cannot simply bypass the official spending scrutineer, the Office for Budget Responsibility, without the markets concluding that you’ve become unpredictable and, therefore unreliable, a bad risk.
As remainers were mocked for pointing out six long years ago, there is no such thing as unfettered sovereignty in the 21st century: every country has to accommodate its neighbours, the global economy, reality. But the leavers, and their zealous convert Truss, refused to hear it. When Sunak tried to spell out these rudimentary facts, Conservative party members thought he was being a spoilsport. The Treasury permanent secretary, Tom Scholar, was seen as the embodiment of such boring, reality-based thinking, and so Truss fired him.
This week Sanjay Raja, chief UK economist of Deutsche Bank, told a Commons committee that Britain was facing a unique form of trade shock: “We haven’t seen this kind of trade deficit since 1955, since national account records began.” It was odd, because I too had been thinking about the mid-1950s, specifically the Suez crisis of 1956. The failure of that military adventure is now seen as the moment when a bucket of cold reality was thrown into Britain’s face, a humiliation that stripped the country of its imperial delusions, forcing it to accept that it was no longer a global superpower that could act alone. For a while, Britain learned that lesson: just five years after Suez, the country was knocking on Europe’s door, asking to join the club.
But some, especially in the Conservative party, never shook off the old delusion. By 2016, it was back, the Tories high on Brexit talk of a global Britain once again sailing the world’s oceans, free of the constraining hand of the EU, ready to return to its rightful grandeur. The Tories have been breathing those fumes for six years, and the Truss-Kwarteng mini-budget was the result: the Suez of economic policy, a disastrous act of imagined imperial sovereignty.
As several economists have noted, Truss was acting as if Britain were the US, issuer of the world’s reserve currency, with markets falling over themselves to lend it money. Like Anthony Eden before her, she could not accept that Britain’s place is not what it was: it can never be sovereign like a king in a fairytale, able to bend the world to his will. That kind of sovereignty was always a fantasy, one that both fed Brexit and was fed by it.
Now she has had to make a concession to reality, laying down the political life of her friend and abandoning what had been a signature policy. She is not in charge of events; she is not even in charge of her own government. Jeremy Hunt was an appointment forced on her. Her demeanour in her afternoon press conference on Friday – shellshocked, brittle – suggested she has not absorbed the full meaning of what has just happened.
She is finished, a hollow husk of a prime minister. But this is bigger than that. The Brexit bubble has burst. The country has seen that the Tory hallucination of an island able to command the tides was no more than a fever dream, and a dangerous one at that. We can pronounce Trussonomics dead. Bring on the day we can say the same of the delusion that spawned it.
Jonathan Freedland is a Guardian columnist