Liz Truss cut a solitary figure in the cabinet room of 10 Downing Street, as she beckoned her chancellor to sit down. Kwasi Kwarteng, her old friend and ideological soulmate, the man who had delivered for her the most ambitious and disastrous budget in modern British history, would have to be sacrificed.
“You’re going to have to go,” the prime minister said.
“I know,” Kwarteng replied coolly. “I’ve seen it on Twitter.”
Kwarteng had been summoned back from an IMF meeting in Washington to attend his own political execution, of which he’d learnt en route from Heathrow back to Downing Street. The 47-year-old former financial analyst dropped off his overnight bag at his Number 11 residence, before seeing his boss for a bleak 20-minute meeting that marked the collapse of the Brexiters’ dream of turning Britain into a small-state, low-tax beacon of free enterprise. He had been in office for 38 days.
As Truss’s handpicked chancellor, overlord of the British economy, he had introduced the government’s “mini” Budget three weeks earlier on September 23. There was nothing small about it. It was, in fact, the biggest tax-cutting budget of modern times and had shocked markets, sparking a run on the pound, sending borrowing costs spiralling and forcing the Bank of England to intervene in the bond market. Although Kwarteng delivered it, the so-called “plan for growth” was very much Truss’s Budget.
In the quiet of the cabinet room, Kwarteng urged Truss to let him stay to try to repair the damage. In addition to the macroeconomic ramifications, the Conservative party’s poll ratings had cratered. He warned that he was a “firebreak” and that, once he was gone, Truss was next. “I said this would make her weaker, not stronger,” Kwarteng told the FT Weekend Magazine. “She said she was doing this to save her premiership.” Truss declined to comment.
Hours later, Truss started dismantling her economic plan — a neoliberal vision for Britain which imploded on first contact with reality — and appointed a new chancellor, Jeremy Hunt, who torched much of what remained of Kwarteng’s Budget. Over the following few days, Truss’s authority was shredded and her parliamentary support collapsed. After 44 chaotic days, she resigned, becoming Britain’s shortest-serving prime minister in history. As Kwarteng left his final official meeting with Truss, he thought she might last a few weeks. “But it was six days — six days!” This is the inside story of the events that led there, told by the people who witnessed them.
Truss and Kwarteng had been planning what they would do with power for years. In a 2012 book titled Britannia Unchained, they railed against a “bloated state, high taxes and excessive regulation” which, they argued, were holding the country back. The tract also included the observation that “the British are among the worst idlers in the world”, a jab that came back to haunt Truss in the media circus around her political downfall.
Both elected to the House of Commons in May 2010, the two quickly became friends, immersing themselves in the world of free-market think-tanks and rightwing seminars. Truss, born in 1975, grew up in a leftwing household where Margaret Thatcher was despised, but the rebellious future premier admired Thatcher’s economic stance and her willingness to stand up to the Soviet Union. Years later, Truss, like her heroine, rode atop a tank in an attempted show of defiance to Moscow.
Kwarteng was also born in 1975, to parents who emigrated from Ghana as students. His mother was a barrister and his father an economist, and Kwarteng excelled academically, attending Eton College, Trinity College, Cambridge (where he won a double first in classics and history), Harvard University as a Kennedy Scholar and Cambridge again, where he earned a PhD. He later worked at JPMorgan Chase and a hedge fund. Self-doubt was not part of his make-up.
The Brexit vote in 2016 gave the free-enterprise wing of the Tory party its chance to put Britain on a new path of low taxes and light regulation, dubbed “Singapore-on-Thames”. Boris Johnson became prime minister in 2019 with a vow to deliver on “the promise of Brexit” but, by the time his premiership collapsed in July 2022, growth remained sluggish. There was alarming evidence that Brexit made things worse. Truss, a born-again Leaver, was determined to put that right.
On July 9, just after Johnson’s defenestration, Truss and a small team of supporters gathered in the kitchen of her Greenwich house in south-east London to plot a strategy to beat her rival for the Tory leadership, Rishi Sunak. As chancellor under Johnson, Sunak had raised taxes to their highest level in 70 years to try to balance the books after the pandemic. Truss saw herself as the true inheritor of the Thatcher mission to shrink the state, overlooking the fact that the Iron Lady initially raised taxes. Kwarteng, a neighbour in Greenwich, dropped in to offer his support.
Tax-cutting would be the big dividing line of the Tory leadership contest. “It’s going to be me versus Rishi. Rishi is not cutting taxes,” Truss told assembled aides. “I don’t need to go nuts, but I need to cut a bit to set the parameters.” Many of the people who spoke to the FT for this article did so on the condition of anonymity in order to discuss private meetings. Truss eventually set out plans to reverse Sunak’s increase in corporation tax and national insurance, at a cost of about £30bn. When her rival objected, she portrayed him as having succumbed to the Kool-Aid of “Treasury orthodoxy”, an addiction to balancing the books which Truss described to the FT in an interview at the time as “abacus economics”.
Truss had other political axes to grind. In the case of Sir Tom Scholar, the finance ministry’s popular and respected permanent secretary, it was personal. Scholar and Truss had a dismal relationship during her time as a Treasury minister between 2017 and 2019. “She felt he was a mansplainer, dismissive of her,” said one member of the Truss team. “It felt to me like a personal vendetta.”
Now, Truss railed against what she saw as Scholar’s “low-growth” thinking. She added the Bank of England and the Office for Budget Responsibility (OBR), the official forecaster responsible for analysing public finances, to a list of culprits responsible for British economic malaise. Lord David Frost, a supporter, broadened the attack to include institutions such as the IMF, the Economist and the FT. “The decision to fire Scholar on day one was taken in July,” said one person involved in Truss’s leadership campaign. It was one of the decisions that would badly backfire.
Kwarteng was among the close advisers Truss gathered on Saturday, September 3, on the eve of her election as Tory leader. Her manoeuvring had put her candidacy on a sure footing, as Tory members were stirred by her promises of Thatcher revivalism. The late-summer sun washed over Chevening, the magnificent country retreat afforded to Britain’s foreign secretary, as the group discussed how to implement her rightwing plan and rout naysayers. Along with Truss and Kwarteng, there was Matthew Sinclair, former head of the TaxPayers’ Alliance, a small-state advocate ideologically aligned with the Institute of Economic Affairs (IEA),
Also in attendance were the free-market economists Andrew Lilico, Gerard Lyons and Julian Jessop. The three economists were supportive of Truss’s growth agenda, according to one person at the meeting, but they reminded the soon-to-be-PM that markets were in a febrile state and that any fiscal action would need to be seen as necessary, non-inflationary and affordable. Truss was advised not to do anything the markets didn’t expect.
Lyons and Jessop prepared a paper for Truss and Kwarteng ahead of the meeting, which warned: “The markets are nervous about the UK and about policy options. If immediate economic policy announcements are handled badly then a market crash is possible.” Explaining policy clearly and precisely targeting any action taken was crucial, the document went on.
Attendees said Truss was on the ball and had clearly read the material, while Kwarteng had it in front of him during the discussion. “The meeting was confident, perhaps even overconfident,” Jessop said. “They were very gung-ho about what they would be able to do. I suspect that may have led them to do too much too quickly.”
On September 5, Truss was elected leader of the Conservative party by Tory members. A day later, she met a seriously ill Queen Elizabeth at Balmoral Castle in Scotland and was asked to form a government. Truss appointed Kwarteng chancellor on her first day in office.
Their first task was to deliver an energy bailout to help households and companies cope with soaring gas prices. Kwarteng sounded a cautious note, arguing that if the state spent billions of pounds subsidising consumers’ costs in the short term, it should plan to clawback some of the money through a surcharge on customers’ bills in the long term — a way to lessen the move’s budgetary impact. But Truss rejected the idea in favour of a straight state handout. Her mantra, according to multiple people, was: “Go big or go home.”
Those involved in the discussions said that Truss had become obsessed by the fact that, as chancellor, Sunak had borrowed £400bn during the Covid crisis without causing a market meltdown and that the markets would be equally sanguine about her own policy, which might initially cost £150bn or more. “She kept on saying that we had a lower debt-to-GDP ratio than other G7 countries, so we should let the balance sheet do the work,” said one member of Truss’s cabinet.
Two days after taking office, Truss stood in the House of Commons and announced the energy package. Her tax-cutting “plan for growth” would follow a few days later, she vowed, as Kwarteng looked up at her from the bench. It should have been a triumph after months of Tory disunity and inertia. The moment Truss sat down, she was passed a note informing her the Queen was on her deathbed. A chill descended over the chamber. The monarch died several hours later, beginning a 10-day period of national mourning. And it was during that quietude that Truss’s economic plan veered off-course.
With politics on hold, Truss and Kwarteng began drawing up reforms which the Tory right had been dying to enact for years. Instead of sticking to the £30bn of tax cuts set out in her Tory leadership campaign, which had been controversial enough, Truss and Kwarteng started adding new unfunded tax cuts to the package, all driven by the prime minister’s conviction that the markets would wear it. “It was very exciting, you felt you were part of a project,” Kwarteng said. Although the former chancellor now claims Truss moved too quickly, he accepts he was fully signed up to the plan they came up with.
The EU cap on bankers’ bonuses was to be scrapped, so too the 45 per cent top tax rate on earnings of over £150,000. On entering office, Truss had stopped commissioning opinion polling — she said she was fed up with politicians agonising about “optics” — so her team had no real idea of exactly how unpopular such measures might be. Advisers who warned about creating a perception of a “Budget for the rich” were shut out of the room. “People got carried away, myself included,” Kwarteng said. “There was no tactical subtlety whatsoever.”
Truss, fuelled by her favourite double espressos, was described by one aide as being “over caffeinated”. Another cabinet minister said: “She was in this mode where everything had to be done immediately. I was worried she was going to blow up. She kept on saying she only had two years to do things,” referring to the fact that an election had to be held by January 2025.
The prime minister wanted to throw everything at the growth plan. As well as coming up with new unfunded tax cuts, ministers were asked to come up with schemes to boost growth at breakneck speed. Anne-Marie Trevelyan, transport minister, was asked to come up with 100 road-improvement projects that could be accelerated once planning and judicial constraints were eased. But this work takes time, particularly if it’s evidence-based. “Officials worked on it over the weekend, but the machine couldn’t cope,” said one Whitehall official. “The whole system had a panic attack.”
A series of reforms dubbed “operation rolling thunder”, covering issues as diverse as financial services, childcare and farming, had to be put on hold because Whitehall was unable to deliver on Truss’s timetable. “The strategic goal was right. Her insight and diagnosis of the problem was right,” Kwarteng said. “Where we fell woefully short was to have a tactical plan.”
On his first day as chancellor, Kwarteng sacked Scholar, the Treasury official Truss had clashed with. As work shaping the “mini” Budget continued, the Treasury was increasingly sidelined. The proposal took shape in the prime minister’s Downing Street flat, where Truss, Kwarteng and Sinclair worked along with deputy chief of staff Ruth Porter, formerly of the IEA. “It became a Christmas tree,” said one insider close to the discussions. “It got bigger and bigger.”
Eventually, Truss and Kwarteng arrived at a debt-funded tax-cutting package costing £45bn, to be unleashed at a time when inflation was above 10 per cent. “We got carried away, there was a kind of euphoria,” admits one person involved. “Liz’s phrase was shock and awe.” She had become focused on the ambitious task of raising Britain’s GDP growth rate above that of its G7 rivals, an economic prize she hoped to brandish in a future general election. “She was self-aware enough to know she wouldn’t be popular personally,” said one aide. “She wasn’t a good orator; she didn’t have much charisma. Everything rested on the economy.”
If the markets were always likely to be alarmed by an extra £45bn of borrowing every year, they were in for an even bigger shock. Truss did not want the OBR to produce any forecasts about her Budget’s impact. When Kwarteng proposed spending cuts to offset some of the tax cuts, Truss refused, arguing again that the government balance sheet could take the strain. “There were no forecasts, no spending measures, no scoring. It was kind of nuts,” said one cabinet minister. “It was hubris. She felt invincible, almost regal.”
Cabinet ministers were as surprised as the markets when Kwarteng detonated his Budget bombshell in the House of Commons on Friday, September 23. “We weren’t told anything,” said one minister. “As Kwasi spoke, eyebrows were going higher and higher. There was a mood of shock among our MPs, a feeling ‘Whoa . . . is that really what we’re doing?’” Outside the chamber, traders were feeling equally queasy. The pound dropped sharply and government borrowing costs spiked.
According to financial analysts and traders, it was not so much the fact that Kwarteng’s Budget contained more borrowing than expected, as it was that the government did not seem to care what anybody — including the Treasury, the OBR or the Bank of England — might think.
“They didn’t talk to anyone. They gave absolutely no indication they cared what the markets thought,” said James Athey, a bond portfolio manager at Abrdn. “The tax cuts looked like bad politics and bad economics. The market had to contend with the idea that this government didn’t know what it was doing.” One senior government figure said measures such as the abolition of the 45p tax rate — shaving £2bn off the tax bills of Britain’s wealthiest individuals — spooked the markets “because people thought: My God, if they can do this, what else might they do?”
It didn’t help that the financial establishment had lost one of its contacts within the government. “It all fell apart because of Tom Scholar,” said one cabinet minister. “He was the one who had the contacts in the City, all the phone numbers.” Others in the Truss camp dispute whether Scholar’s sacking was that pivotal, but it certainly deprived the government of the experience of a man who had helped to see Britain through the 2008 global financial crash and the Covid crisis.
Kwarteng dismissed the turmoil that Friday, telling the FT “markets move all the time”. He later retired to the Two Chairmen pub in Westminster for a pint with staff, apparently unfazed by the market. Afterwards, Kwarteng went on to a drinks party with Tory donors, where he was given a “hero’s welcome”, according to someone present. One senior Tory who was there said: “It felt as if he had delivered the Budget the party had always wanted.”
Later that weekend, Kwarteng caused further concern when he suggested there was more to come. “We have only been here for 19 days,” he boasted to the BBC on Sunday. “That was a disaster,” said one Number 10 official. Kwarteng was cryptically referring to a specific anomaly in the tax system — where earnings from £100,000 to £125,140 are taxed at 60 per cent — but few outside his inner circle knew what he was talking about. Instead, his statement added to the confusion and sense of panic, hours before the markets reopened.
The hangover from the Budget that Monday was painful. Government gilt yields, the interest rate paid by the UK on its debt, rocketed, at one point pushing up the cost of a new mortgage above 6 per cent. Within days, the Bank of England was forced to intervene to save the pensions industry from collapse. “The strength of the market reaction absolutely astounded us,” said one Number 10 official. “Once the market reacted that way, no amount of comms or spin could save the situation.”
A ragged retreat began, with Kwarteng announcing the restoration of the 45p top tax rate at the start of a Conservative party conference in Birmingham on October 3. But that failed to calm markets. The country’s central bank, forced to step in with a £65bn bond-buying programme, said it had to avoid “the prospect of self-reinforcing ‘fire sale’ dynamics” in the gilt market, caused by Truss’s economic policy.
During the Tory conference, strains in the Truss-Kwarteng project began to show. Kwarteng’s U-turn on the top rate of tax made Truss look weak and, worse, did not do enough to calm the markets. Soon, the rest of the Brexiters’ deregulation agenda started to crumble. The National Trust, a mass-membership organisation representing middle Britain, was among the conservation bodies threatening street protests over Truss’s plans to loosen nature protections. Business secretary Jacob Rees-Mogg was forced to backtrack on plans to curb workplace rights, including repealing the EU’s 48-hour maximum working week, as Truss tried to stem collapsing Tory support.
By mid-October, Truss was faced with the dilemma of what to do with her chancellor and her collapsing economic policy. Despite the turmoil, Kwarteng insisted that he travel to the IMF meetings in Washington, telling Truss it would cause even more panic if he did not attend. While he was away, the revitalised forces of “Treasury orthodoxy” were at work in Downing Street, urging the prime minister to ditch her economic plan.
Simon Case, the cabinet secretary, egged on by the Treasury, pleaded with Truss to change tack. “It was Case who finally got through to Liz,” said one ally of the former prime minister. “He said if you don’t start to reverse some of these measures, there will be an economic catastrophe.” Kwarteng believes that Case and others “got to Liz” while he was away, according to his supporters. Case declined to comment.
That Friday, Kwarteng was sacked and Truss, obviously fatigued, gave a bizarre eight-minute press conference during which she binned the tax cuts that had been the centrepiece of her Tory leadership bid. By the following Monday, the new chancellor, Jeremy Hunt, had scrapped two-thirds of the tax cuts in Kwarteng’s Budget. Only the expensive cuts to national insurance and stamp duty — politically difficult to reverse because they had already been approved by MPs — survived.
No one questions that Britain has a chronic growth problem. Truss’s supporters insist that her mistake was simply in failing to grasp that tax cuts should come after inflation and debt are under control. It would not work the other way round. “As Morecambe and Wise might have said, the notes were right. It’s just that they were in the wrong order,” said one supportive member of Truss’s cabinet. Matthew Elliott, a political strategist and Truss supporter, agreed: “She was absolutely right in her diagnosis and events will prove it.”
Others believe that Kwarteng’s September 23 “mini” Budget was a watershed moment in British politics and that the collapse of Trussonomics marked the end of the Brexit fallacy that leaving the EU would clear the way for a new type of economy. “It was a nail in the coffin,” said former deputy prime minister Lord Michael Heseltine. “It demonstrated the vacuity of the whole process. The emptiness of their promises has become slowly more evident. Liz Truss was the last gasp of a dying body.” Sir David Lidington, Tory prime minister Theresa May’s deputy, said: “Those who thought Brexit was going to unleash a hidden or suppressed dynamism in the British economy were wrong. Simply believing that your problems are solved if you break free from the EU and talk confidently about the future is nonsense.”
Some free-market Tory MPs admit Truss’s premiership has caused serious damage to their mission. “She has screwed our agenda for a generation,” said one. Rees-Mogg said: “It’s a big setback. We now have the highest taxes for 70 years, and there is no challenge to that. There’s a long way to go for people with my beliefs to win this argument.”
Mark Littlewood, director-general of the IEA, still holds to the free-market, low-tax ideas his think-tank helped Truss and Kwarteng push, but he admits things went terribly wrong. “You might have the recipe for making the most perfect and delicious pizza, but if the chef is hubristic, or crazy, or incompetent, you are not going to end up with a particularly tasty pizza. Does that mean you shouldn’t eat pizza again? No, it just means you shouldn’t eat pizza cooked by that chef.”
In the next general election, Labour is likely to argue against this point of view, contending that Britain’s problems stem from a prolonged lack of business and government investment, regional inequality, underfunded healthcare and education, and, of course, the implementation of Brexit itself.
Sunak, now prime minister, and Hunt, still chancellor, are locked on a course dictated by the very economic establishment that Truss wanted to knock down. Hunt’s Autumn Statement on November 17 was replete with the kinds of moves Truss and Kwarteng would have abhorred during their short time in office: tax rises to make the sums add up and judicious spending cuts. Government borrowing costs have fallen back to below the levels at the time of Kwarteng’s “mini” Budget. Scholar has been replaced by a Treasury veteran, James Bowler, as the finance ministry’s permanent secretary. The OBR is back producing forecasts, and the Bank of England is becoming increasingly assertive.
Truss is said by friends to have been initially “very low” after her resignation, but has now bounced back, telling allies “I lost a battle, but I haven’t lost the war”. As for Kwarteng, he insisted last month that he and Truss were still “friends”. But he has spent several weeks analysing what went wrong. “My biggest regret is we weren’t tactically astute and we were too impatient,” he said. “There was a brief moment and the people in charge, myself included, blew it.”
George Parker is the FT’s political editor, Sebastian Payne is the Whitehall editor, Laura Hughes is the political and diplomatic correspondent
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