Liz Truss’ victory celebration as the new Tory party leader and thus new Prime Minister of the United Kingdom will be short. The UK is facing major problems in the coming weeks – the consequences of Brexit and the controversial Northern Ireland Protocol are just one of them. And what can the financial sector on the island expect from the former foreign minister post-Brexit?
His – then somehow surprising, if self-inflicted and laughable (“Hasta la vista, baby!“) – exit after two years and 348 days in office make Boris Johnson one of the shortest serving prime ministers in Britain’s recent history. Liz Truss, his successor as leader of the ruling Conservative Party and new head of government in the United Kingdom, could face an even shorter term. The next general election in the UK must take place in January 2025 at the latest. So Truss does not have much time to turn the tide for her party and the, more than any other G7 nation, crisis-ridden United Kingdom.
Truss cannot hope for a grace period in her new office: Already in October, energy bills for private households will rise by 80 per cent and for some companies by up to 600 per cent. Inflation is expected to exceed 13 per cent and possibly even 22 per cent early next year. Government debt has reached almost 96 per cent of GDP has already reached a level that makes all election campaign promises (tax cuts) rather unlikely.
Both Truss and her last rival for the post of party leader, ex-Chancellor Rishi Sunak, are supporters of Brexit. In the internal contest for the post at No. 10 Downing Street, which Truss won with 57.4 per cent of the votes cast, Britain’s exit from the EU hardly played a role. But that can change quickly in view of the ongoing problems around the Northern Ireland Protocol. And what does Truss’s victory mean for the British financial industry, which has been waiting for an Equivalence Agreement with the European Union waiting?
Hard swing from left-liberal to national conservative
Mary Elizabeth Truss, known only by her middle name “Liz” since childhood, has undergone a drastic political transformation during her life: Raised in a left-liberal home (she described her own family as “to the left of Labour“), she was first active in the Liberal Democrats before becoming a member of the Conservative Party in 1996. Truss started her political career in 1998 and has been a member of the British Parliament since 2010. The 47-year-old worked under three prime ministers: David Cameron, Theresa May (briefly as the first female finance minister) and Boris Johnson.
Truss voted against Brexit in the 2016 referendum, but subsequently made a radical U-turn on this issue as well. She was Trade Minister in the Johnson cabinet from 2019 to 2021, and Foreign Secretary since September 2021. Truss initiated the “Trade Act 2021”, under which the UK establishes trade relations with other countries. Her biggest success: a trade agreement with Japan, which she described as a “historic moment“, but which is essentially a copy of the relationship the EU already has with Japan. In addition, the Kingdom has concluded further agreements with Australia, Iceland, Liechtenstein, New Zealand and Norway.
In December last year, when her predecessor David Frost quit the job in frustration, Truss also took on the job of negotiator with the EU – but has made few friends there so far. She is responsible for the passage of the Northern Ireland Protocol Bill in the British Parliament, which unilaterally ignores parts of the controversial Northern Ireland Protocol because – as English Truss says – trade between Northern Ireland and Britain must “flow freely“.
This earned the UK accusations of breaking international law and prompted the EU to take legal action against the Kingdom by return. The majority of people in Northern Ireland (55%), on the other hand, are satisfied with the protocol and even see the construct that keeps Northern Ireland in the trade union with the EU as a benefit to the economy (53%).
Few friends on the international stage so far
Truss – except for the Baltics and Eastern Europeans because of her tough stance against Russia – has gained sympathy from few leaders, neither in the EU nor in the US or China. This is not surprising given her intransigence, which some call sheer stubbornness, on the one hand, and her impulsiveness in foreign policy on the other. Particularly vis-à-vis France and its president, Truss seems more bent on confrontation than cooperation, as evidenced by her undiplomatic “friend or foe?” remark about Emmanuel Macron at an election rally.
Critics also accuse the Oxford-born politician of having lost touch with the reality of ordinary Britons because she (still) rejects direct financial aid for the population suffering from high inflation and rising living costs.
Tighten the reins on the central bank and financial supervision
With the announcement that the mandate of the Bank of England (BoE) would be scrutinised more closely, Truss undermined the independence of the British central bank, is another accusation. Truss had criticised the central bank for not doing its job quickly enough since the outbreak of war in Ukraine.
Truss is also considering merging the three financial regulatory agencies into a single new authority. The Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA), based at the Bank of England, and the Payments Systems Regulator (PSR), with around 5,500 employees, are not only responsible for supervising large banks, insurers and asset managers. They also regulate about 60,000 financial services firms in the country. Truss accuses the authorities of not paying enough attention to economic growth.
In addition, Truss wants British courts to be the court of “last resort (casting doubt on the jurisdiction of the European Court of Justice, as agreed in the Brexit deal) and has promised to abolish or replace EU laws that allegedly hindered the British economy by the end of 2023.
“Brexit remains the dilemma of all previous British prime ministers almost two years after leaving – caught between the EU on one side and their own MPs on the other.”
But even if Truss – despite her brusque approach so far – should reach out to the EU: “The big question is how much she will cater to the Brexiteers in the party,” said a Conservative parliamentary colleague. This describes the dilemma of all previous Tory heads of government on the Brexit issue: caught between the EU as the most important partner on the one hand and the pressure of anti-European backbenchers in their own party on the other.
It is to be feared that a Prime Minister Truss in her first days in office will give in to this pressure and start a new dispute with the EU instead of dealing with the problems of the British people, which are truly not small.
