No matter how much they talk about global economic forces or try to present the energy cost
intervention as a sign of how they are focused on the needs of working people, the current
government has lost credibility with both the British electorate and lenders.

Last Friday the Prime Minister and her Chancellor launched a “special economic operation”,
which was to lead a national charge to growth, securing this within sufficient time for it to
pay for the reductions in taxes that were needed to achieve it. It was not a budget, so there
was no need to have it independently reviewed by the Office for Budget Responsibility,
despite its enormous scale.

To be fair, it was not a budget. Anyone who looks at a household budget knows it has two
sides. One side is about expenditure and the other about income. And as Mr Micawber in the
Charles Dickens novel David Copperfield said: 
“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six,
result happiness. Annual income twenty pounds, annual expenditure twenty pounds
nought and six, result misery. “

We seem to have gone for the latter option, although we have added many, many noughts to
the excess of expenditure over income.

Elsewhere, I have made the point that there are fundamental differences between national
finances and household finances, the most obvious being that households do not print money,
governments do, via banks. Governments can run up significant deficits and even fund some
of these which is what Quantitative Easing is partly about.

However, governments that simply print money are destined for high, higher and eventually
hyper inflation. So some recourse to the reality of the money markets is necessary, and this
means borrowing money from investors. And, like all credit agreements, the small print, or
quickly delivered “terms and conditions apply”. This means lenders will charge a premium if
they feel your ability to repay or, more broadly, your credibility as a borrower is weak.
If your strategy for repaying the loan is based on a recoupment of investments at Aintree,
Cheltenham, Newmarket or Goodwood they may feel obliged to charge a significant
premium.

If we look back when Liz Truss was selected as Conservative Party leader she announced,
after one week, a massive support package for domestic energy consumers costing tens of
billions of pounds.

This did not spook the markets. Investors could see that urgent action was needed and that
any responsible government would have to respond to the twin problems of genuine hardship
for its citizens and economic damage to its businesses.

What spooked the markets was that this logical action was followed by radical tax cutting,
further expenditure, and an explicit statement that this would all be covered by borrowing
with no evidence-backed explanation at all as to how it would be paid for.

It seemed growth was the problem but it was also the solution. However, the magic formula
that had eluded governments around the world about how you secure the transition from
problem to solution was not forthcoming.

But worse than this, the people who may have been able to provide an assessment of the
credibility of the borrower were either sacked, as in the case of Tom Scholar the most senior
civil servant in the Treasury with direct experience of dealing with the 2008 financial crisis,
or told their help was not needed (the Office for Budgetary Responsibility, obviously the clue
is in the name) or denigrated as slow to act (the Bank of England).
It seems that they did not want to study the form, listen to the tipsters, or even count the legs
on the horses. They just wanted to go all in and bet the farm on black. Unfortunately, what
came up was red; red warning screens in the currency markets, the inflation predictions, and,
worst of all, in the cost of government borrowing.

The scale of the incompetence triggered a problem in the pensions industry as the Liability
Driven Investment strategies had the rug unceremoniously pulled out from under them. The
response of government spokespeople that this was an arcane technical issue in the structure
of the pension funds ignores the fact that it relates to some £1.5 trillion. That is a big number.
Roughly, two thirds of GDP.

The risk attached to this was so significant it could have spread problems to other parts of the
global financial markets. And we know how quickly problems can snowball once they start in
finance which is all about trust. The International Monetary Fund (IMF) was already
concerned about contagion.

Liz Truss must have had the shortest honeymoon period of any Prime Minister. In less than a
month she has lost the trust of the financial markets, lost the trust of the British people, with
polls giving Labour a 33% lead over the Conservatives, and she is fast losing the trust of her
MPs.

Boris Johnston was not Donald Trump and Liz Truss is not Vladimir Putin. The latter
individuals are in a class of their own in terms of moral degradation. In terms of
incompetence however, the PM is giving Putin a run for his money.

It has taken Putin eight months to destroy any trust the West had in him. His “special military
intervention”, which began life as a dash for Kiev, failed. He has been forced to change his
objectives but stubbornly persists in a strategy which is ruining his economy. And now he is
starting to loose the trust of the Russian people who are leaving the country in droves. Despite
being a ruthless autocrat his chances of remaining in power reduce by the day.

Constancy of purpose and determination are good things in leaders. Unless, of course, that
constancy and determination are focused on doing the wrong thing. If you dismiss those who
are experts, precisely because they are experts, or see those who challenge you as closet lefties simply trying to undermine your strategy, you may be right, but you may be wrong.

And when you are playing with a nation’s future you need to be damned sure you are right.
It looks as though Liz Truss is wrong. Worse, she does not seem to see this or is not willing
to recognise it.

There are only two credible options. One is to reverse the tax cuts in a humiliating
climbdown. The second is to implement another round of austerity which would be breaking
promises and is probably impossible to deliver politically.

Whether this would recover the PM’s credibility with the markets is a moot point. It is
unlikely to recover the trust of the citizens of the UK. This means it is unlikely to recover the
trust of the Conservative’s Parliamentary Party other than the extreme fringes of the right.

Either, Liz Truss knows something that the vast bulk of those that ought to know about these
things (the Treasury, the Bank of England, the IMF, the economics profession) do not know,
or she is wrong. Are those who think she is right willing to bet their house on it?

Rather than a triumph of determination leading to a national growth rate of 2.5% per annum,
last Friday is likely to be seen as the day the Conservative party lost the trust of the British
people in their economic competence. And it may be the day which marked the start of their
loss of Truss.