Chancellors don’t cut short visits to the IMF, and bond markets are not normally on the must-watch list for a Friday afternoon. But, after two of the most extraordinary weeks in British political history, the PM has removed the Chancellor and his deputy and has indicated a big shift in direction. This is a significant economic and political event, the likes of which we haven’t seen in decades.

Chancellor sacked

The removal of Kwasi Kwarteng as Chancellor is a major moment. The PM has pushed her political soulmate of nearly 20 years under the bus to try to save her own skin. Remember that the plans for massive tax cuts in the ‘mini budget’ were not only a joint endeavour between Kwarteng and Truss, they formed the biggest part of Truss’ campaign for the leadership during the summer. In large part, they’re the manifesto on which the party members elected her. The two questions for No10 are now 1) is sacking her Chancellor and rowing back on the most extreme parts of the mini budget enough to calm the markets and MPs, and 2) is there any way for Liz Truss to now credibly lead the Conservative Party and the country?

More u-turns to come?

In her press conference this afternoon, along with the changes to her Cabinet, the Prime Minister announced that the increase in corporation tax proposed by the former government would be kept. The ‘mini budget’ promised to ditch the rise and Truss keeping a key policy laid out by her leadership rival, Rishi Sunak, will be seen as a humiliating climb down – particularly given his warnings during the leadership campaign about Truss’ economic plans. What surprised some commentators, and the markets, was that more of the ‘mini budget’ wasn’t reversed today. Is the increase in corporation tax (remember, it’s just for some so doesn’t actually raise that much more tax) to 25% enough to plug the hole in the ungrounded tax cuts announced by Kwarteng? Almost certainly not. Today was Truss testing the water, seeing how much of her plan she could hold onto; it’s inevitable that she’ll have to row back on more next week, particularly once her new Chancellor has set out his stall.

On the Hunt

No one would have predicted before today that Jeremy Hunt – a One Nation Conservative, a “Cameroon”, a Rishi-backer – would have even been on Truss’ reserve list to replace Kwarteng as Chancellor. It’s difficult to think of two senior Tories as ideologically opposed as Truss and Hunt. And yet, in a final roll of the dice to stay in the job she’s wanted her whole career and having alienated anyone who didn’t show her unswerving loyalty during the leadership contest, the Prime Minister is widening the tent. Some will say this shows Truss is listening and is being more inclusive; in reality, it shows just how far she’s come in the space of only a few weeks from seeing herself Thatcher’s heir to being the lady who was, in fact, for turning.

Hunt’s first big test

Hunt’s immediate focus is to calm markets. His bookish, centrist, ‘safe pair of hands’ demeanour, business experience, and experience in Cabinet will likely go down well in the City. But the mess left by his predecessor and his current boss is immense. The next fiscal event had been planned at the end of November, then was moved to Hallow’een. It now seems almost inevitable that it will be moved forward again, although Hunt and new Chief Secretary to the Treasury, Ed Argar, who replaced Chris Philp, will need time to get to grips with the situation and formulate a credible plan.

17 days to save her job?

Truss has faced the worst week of polling of any new PM in history and, despite today’s changes, that’s unlikely to change much. The Daily Mail splashed this morning that the October 31st fiscal event gives the PM ‘17 days to save her job’, but that’s extremely optimistic; she has much less time. MPs are back in parliament, which spells even greater danger for Truss; and, with an inexperienced whips’ operation and a faltering No10 beset by inexperience, the omens are not good for the PM. A whip we spoke to this week said his ‘flock’ (Westminster speak for the group of MPs they supervise and coordinate) told him the mood was ‘bleak’, with large numbers of Conservative MPs demanding big changes and a shift in direction. Letters of no confidence are going in, MPs are trying to manage furious constituents and Associations, and the pressure continues to build.

Moves afoot?

There is no doubt that Truss is in peril. Her performance at today’s press conference, including a faltering and robotic Q&A with journalists, will only add to Tory MPs’ loss in confidence. And there was nothing new in the substance. Other than corporation tax, she stuck to her guns and her lines about delivering a ‘low tax, high growth’ economy and evoked the spectre of Vladimir Putin as someone to blame, as she has since coming into office. But, as we have learnt over the past 4 years, the removal of a PM from No10 is not straight forward and requires almost unanimous parliamentary party approval. There’s a number of reasons for this: firstly, the PM has patronage on her side – she gives out the jobs and the hints of progression. This matters a lot to MPs ambitious to hold onto or gain a portfolio, so those who’ve been made promises will hold out as long as they can. MPs are nervous too, that a change of leader so soon after her selection would be almost inexcusable ahead of the next General Election. The polls are abysmal for the Conservatives, and the focus is on trying to stem the inevitable flow of blood-letting at the next election – but it’s not yet clear whether removing Truss would make that better or worse.

However, the main reason that removing the PM is difficult is process. Under the current rules, Liz Truss is safe from a no confidence vote for another 11 months, even if 15% of the Conservative Parliamentary Party submit letters of no confidence (which is a threshold that some say has already been reached). These rules could be changed by the 1922 Committee of backbench MPs if it suspends the 12-month rule, amends it to a shorter period, or gets rid of it altogether. If this were to happen (and the 15% threshold is met) a vote of no confidence would be held in the Prime Minister’s leadership.

Sunak – Mordaunt?

What happens then isn’t clear. Conservative Home, the bible of the Tory membership, and The Times have both reported talk amongst senior Tories of installing Rishi Sunak and Penny Mordaunt on a joint ticket to run the party, and the country. We would urge caution, though, in thinking this likely. Firstly, the party’s members didn’t vote for either candidate, so a ‘coronation’ would cause enormous issues amongst party members. We’ve also spoken to people within the Mordaunt and Rishi camps who told us that there’s currently no planning and that it’s just chat. Perhaps cards are being held very close to chests, and perhaps Sunak and Mordaunt might be persuaded to step up and serve; but we’re told this solution isn’t imminent.

And Boris?

It’s still possible that the ousted PM, Boris Johnson, could be re-installed by the party as its leader and Prime Minister. He maintains a lot of support within the parliamentary party, and MPs are now looking back fondly at the chaotic last few years. We wouldn’t put our money on it; but, at a time of such unprecedented events, who would rule anything out?

Next week

A LOT hangs on what happens next week. How the markets react, what happens to the pound, the position of the IMF & OBR and how that feeds through to people’s pockets – not just to mortgages - and what more Truss might be forced to announce to demonstrate that the Conservatives are still the ‘party of fiscal responsibility’.

If the existential pressure does subside, as Truss and her team have calculated it will, some focus will then turn to internal Conservative Party shenanigans. In a desperate bid to shore-up support, Truss and her allies will expend a huge amount of effort and goodwill trying to steady the ship, trying to bring MPs and the media back onside. Some MPs will be swayed, but there’s little doubt that we’ll see more chaos, confusion, infighting, freelancing, lack of discipline, briefing and counter-briefing, outlandish claims and ideological-driven commentary. The damage has been done. What we won’t see is very much from Labour, as they eye-up the next election as the Tory party destroys itself.

Our view is that it’s highly unlikely that Truss’ actions this week and next will create the calm that’s needed and that, through market pressure or being ousted by her own MPs, Liz Truss will become the shortest-serving Prime Minister in British political history (by the way, the next closest is George Canning, who became PM on 12 April 1827 and was replaced 119 days later…when he died).