Liz Truss already facing a critical few weeks that will define her premiership

·13-min read

You didn't have to wait for the result of the Conservative Party ballot to find out who would be the next prime minister. Liz Truss's purposeful stride into the hall ahead of the public announcement gave the result away.

Her acceptance speech was short and her message was simple: I will deliver for the British people.

While the hall applauded, there is deep scepticism within her party - let alone the public - about whether she can, as she grapples with the worst in-tray facing any prime minister in over four decades.

Politics Hub: Polling signals trouble for Truss

But for all the challenges, Ms Truss will savour the moment. While her victory appeared nailed on for weeks, with members' polling showing a seemingly unassailable lead, and senior colleagues - from cabinet ministers Ben Wallace and Sajid Javid to leadership contenders Penny Mordaunt and Tom Tugendhat - breaking for Ms Truss, her path to Number 10 was by no means assured.

One key ally told me: "She was underestimated by colleagues who didn't think she would or should reach the final two. Those early days were a bit nip and tuck, Mordaunt did really well, we knew we just had to get Liz into the final two."

Or, as one-time Sunak backer and former universities minister Chris Skidmore, who switched to Truss during the campaign, put it to me back in July: "I think Rishi versus Liz is going to be the most feared contest [for Sunak], that will be a battle of ideas."

Victory - but a convicing one?

This is an extra sweet victory for a politician who, as trade secretary in 2019, didn't have the support to even attempt a run at leadership (Matt Hancock, Sajid Javid and Dominic Raab did).

She also wasn't the first choice of parliamentary colleagues this time round (113 votes - 31.8% - against 137 - 38.6% - for Mr Sunak in the parliamentary part of the contest, although her support from MPs by the end stood at 41.7%).

For context, Boris Johnson won 51.3% of the parliamentary party in 2019.

The margin of victory with members was not what her supporters were hoping for either, as Ms Truss picked up less support from members than Mr Johnson and David Cameron, winning 57% support against 43% for Mr Sunak. And that equivocation for Ms Truss from MPs and, to a lesser extent, party members could well make her job harder still in the coming weeks and months.

For if Monday is a moment for celebrations - reportedly a quick lunch with husband Hugh and her closest political allies and aides - it will quickly give way to the gravity of the situation facing the country and its leaders.

'The hardest in-tray since Thatcher'

Inflation hit a fresh 40-year high of 10.1% in July and is now forecast to peak as high as 18%, or even 22%, according to Goldman Sachs.

Household energy bills will rise 80% in October to an average of £3,500 a year, while countless businesses not protected by a price cap could be forced to shut up shop because they can't afford to turn on the lights.

It's hard to fully comprehend the scale of the crisis, but it is truly horrifying for millions.

One cabinet minister told me this weekend that a local pub had emailed asking for help: their electricity bill had gone from £600 a month to £4,500.

These bill spikes, combined with inflation and tepid wage growth, will see British households face their biggest squeeze on living standards in a century. Household incomes are set to fall by 10%, equivalent to £3,000, by the middle of next year, according to research out last week by think tank Resolution Foundation, which described the situation as "frankly terrifying".

"The hardest in-tray since Thatcher's in 1979," is how one cabinet ally put it to me at the weekend.

"Liz knows there is a lot to do in a very little amount of time. The immediate priorities will be cost of living, energy supply and investment for growth. She will be working at pace."

Is a 'big bang' energy package on the way?

Ms Truss and her team know that how she handles the energy crisis will set the tone of her premiership.

Get it right and she could well enjoy a poll bounce and some breathing space, get it wrong and she may never recover from a stuttering start, with pressure for an election almost certain to build.

Ms Truss has promised to outline a plan to help people with energy bills in the first week of her government, before another mini-budget - which could come on 21 September - by her expected chancellor Kwasi Kwarteng.

What we know is that Ms Truss will scrap green levies - saving £152 - and she could also take from Mr Sunak's plan to cut VAT on bills (a further saving of £169). But with bills set to rise to an average of £3,549 a year next month, such changes are nowhere near enough - as the Truss camp privately acknowledges.

"There needs to be support for people this winter," is how one person familiar with the plans put it to me. "We have record high gas prices and we need an equally substantial response. Liz and Kwasi appreciate this."

Another key ally tells me they expect the package to be big and bold.

"I think it will be a shock and awe moment," said the senior figure. "Knowing Liz well, she'll want a big bang package bigger than people expect and that won't just be about energy, it will be about resisting Treasury orthodoxy. She'll want to show the public she hears them."

UK likely to suffer 'brown-outs' this winter - cost of living latest

Ms Truss's team, led by Mr Kwarteng, is already working with the Bank of England to provide better liquidity in the wholesale energy market. Her team is also asking suppliers on old-style contracts to switch themselves to new arrangements to reduce the price of power.

Such moves could shave £400 to £500 off bills - but won't be ready until next winter.

So action now is needed as the Truss team considers a range of options. Some have been drawn up by the current chancellor, Nadhim Zahawi, such as VAT and business rate relief, like the COVID-style support back in 2020.

Mr Sunak's targeted approach to cover the rising energy bills for up to 16 million vulnerable people and cut VAT on bills would cost up to £10bn.

Another option is to steal Labour's popular policy to freeze energy bills at £1,921, the April price cap, which will cost £38bn according to the Institute for Fiscal Studies and could easily rise to £90bn or more if extended into the first and second quarters of 2023.

Such a move would certainly be a shock and awe approach, but on top of promised tax cuts would signal eyewatering sums of borrowing that could risk unsettling the markets (let alone dozens of Tory MPs).

Will Sunak be proved right on the economy?

How she handles energy bills will feed into the bigger question of the Truss approach to the economy.

For Mr Sunak, Ms Truss's plans are "fantasy economics", while his most prominent cabinet backer Dominic Raab described her plans as an "electoral suicide note" that risks bankrupting Britain.

But for the next prime minister, the approach of Mr Sunak (and his predecessors) has served only to drive up taxation to the highest level in decades while not promoting growth.

The Truss camp believes it is time to take on "Treasury orthodoxy" and take a different approach by cutting taxes to boost growth rather than trying to address the UK's bulging debt load.

The Sunak camp believes this is the wrong approach, risks further stoking already galloping inflation, could push up interest rates and unsettle the markets. Pledges on taxation, defence spending and energy bills, they say, could end up topping £100bn.

"Between the £60bn to £70bn of tax cuts and the perhaps £20bn, £30bn, £40bn of energy support, you're talking about borrowing of £100bn," said one Sunak supporter. "It's going up and up and stoking inflation."

Ms Truss and her supporters dismiss the fears over her economic plans and believe it is time for a different approach of tax cuts coupled with swift supply-side reform (cue lots of deregulation).

But the risk for the new prime minister is the jump in borrowing to fund billions on energy bill support, coupled with promised reversals to tax rises for National Insurance and corporation tax and spending pledges on defence, could further stoke inflation and spook the markets.

Paul Johnson from the IFS told me the "tax cuts are very hard to understand, not least because they are being given to all of us in a cost of living crisis".

"Quite a lot of money - £200bn - was saved over COVID and cutting taxes for high earners, it risks fuelling inflation," he said. "This idea that we are able to compensate [on energy bills] and cut taxes and make everyone better off is just not feasible. This obsession with tax cuts is irrelevant to the things that matter at the moment."

Does help with bills put the green agenda at risk?

Alongside help on bills will be a longer-term strategy for energy supply.

Truss supporters insist that the commitment to net zero by 2050 will stay, but green levies on energy bills will be cut, which has raised concerns from some Conservatives such as Michael Gove.

What businesses and consumers should expect in the short-term is more oil and gas licences for the North Sea and the ban on fracking to be lifted as the government tries to boost energy supplies while investing in longer-term renewables and nuclear.

"There's a realisation that to get to net zero we need fossil fuels in the meantime, and they are no demons, they are contributors to keeping the lights on in the future," said one cabinet supporter. "Oil and gas won't be demonised under Liz Truss."

For senior backbenchers, net zero should not be something PM Truss seeks to prioritise, at least for now. One tells me: "I wouldnt preclude continuing net zero but we really need to prioritise the production of affordable energy."

Another from a different wing of the party said: "I'm not against the target as such - I still think we will hit that. It's more a case of not desperately trying to hit it straight away, which is pointless."

The other pledge the new prime minister and her chancellor are determined to keep is no new taxes - and that, I'm told, will include no windfall taxes on energy companies, however unpopular that policy might be.

"A windfall tax is probably the most popular thing you could do - more popular than Domino's Pizza or the Monarchy, but we can't do it," says one figure familiar with plans. "Businesses don't like knee jerk political random taxes that come out of nowhere."

'Anyone but Liz' - how can Truss lead a divided party?

Tensions over economic approach and spending will be difficult to manage in a parliamentary party deeply divided on how to steer the country through turbulent economic times.

Mr Sunak has all but said he could not sit in a Truss cabinet given their fundamental disagreements on the economy, while one of his key backers and former cabinet heavyweight Mr Gove said last week that he could not promise to support Ms Truss's mini-budget later this month, saying only he will look at her measures to cut taxation.

Mark Harper, former chief whip and Sunak backer, also hinted at trouble for the new prime minister when he was asked on Sky News if he could get behind her plans. "I think the problem with plans is that they also have to reflect reality," he said.

Even aside from such profound policy differences, her backers acknowledge that Ms Truss is going to face an uphill battle in the Commons. Many MPs are unreconcilable to a Truss premiership. The "anyone but Liz" movement in the parliamentary party hasn't dissipated, while some of her supporters believe the Sunak backers will embark on a "scorched earth" approach when MPs return, rather than rallying around their new leader.

Some of this will depend on how she chooses her cabinet, with MPs watching to see if she adopts a Johnson approach of excluding anyone who didn't back her or takes a more inclusive view in an attempt to knit the party back together.

Chancellor, home, foreign, health, and justice will go to her key allies (I expect it to be Kwarteng, Braverman, Zahawi, Coffey, Lewis), with Ben Wallace staying on in defence. Those who carried out personal attacks, such as Dominic Raab, will be out.

There will be many big beasts on the backbenches, although her allies insist that some Sunak supporters will be in the cabinet and ministerial posts. "Liz has consistently said the priorities for her cabinet will be loyalty and competence," says one cabinet minister.

An influential MP tells me the "single biggest question" is how Ms Truss seeks to manage the "big beasts" who will in all likelihood be moved to the backbenches. Their view is that "a lot of noses will be put out of joint" when it comes to her cabinet reshuffle.

But some senior party figures not of the Truss camp are deeply unimpressed with what they see. "We have a third-rate government in Boris Johnson and it looks like we could have a fourth-rate one under Liz Truss," says one former cabinet minister.

"Thatcher's right-wingers used to complain that she had so many left-wingers in her cabinet - Willie Whitelaw, Carrington. But it was about balancing out the party at the top of government. I fear this is not what we are getting out of Truss. It's rather getting a polemical interest group together. Add to that the sense of her as continuity Boris Johnson and it doesn't work for backbenchers."

Is a winter of discontent on the way?

What hasn't been discussed much in the leadership campaign but will be a huge issue into the winter is managing the NHS, schools and public sector pay.

Nearly one in eight people in the UK are waiting for care, while ambulances are taking nearly an hour on average to reach heart attack and stroke victims, with 12-hour waits at A&E hitting record levels.

Nurses and teachers are balloting to go on strike - and the backdrop looks set to get worse, not better. Inflation puts further pressure on hugely stretched budgets. As the IFS's Johnson points out, in the spending review earlier this year, inflation was assumed at 3% against its current level of 10%+.

Add to that the public sector pay pressure and the possibility of strikes across the NHS, schools and the wider public sector and it really is looking like a winter of discontent with huge demands for additional spending.

"We are looking at a year of crises ahead," says one former cabinet minister. "And they are not going to have the bandwidth in terms of new policies in education, for universities; I hope I am wrong but I fear it is going to be a disaster."

Ms Truss's allies for their part argue that this is a politician who has been consistently underestimated, only to come out on top and beat all her rivals to No 10. How she handles these first weeks will be critical and could buy her time. But given the headwinds she's facing, it still might not be enough.