Odd Lots - Liz Truss on the 'Doom Loop' Engulfing the UK Economy

Episode Date: August 28, 2025

These days, everyone is talking about high interest rates across the rich, developed world, while warning of eventual fiscal disaster. But we may have gotten an early glimpse of this anxiety in October 2022, when then-UK Prime Minister Liz Truss unveiled her mini-budget that spooked the gilt market. Well today, rates at the long end of the British yield curve are even higher. So what's going on? Why all this angst now about UK fiscal sustainability and the economy itself? In this episode, we speak with Liz Truss about what she learned during her brief time as the PM. She talks about the political reality of fiscal consolidation, and how difficult it is on both the tax and spending side. And we also discuss what her economic vision was really all about, had she not been forced from the position so quickly. In addition, we talk about the general state of politics, the media, and free speech in the UK. Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

Bloomberg Audio Studios. Podcasts Radio News. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthall. And I'm Tracy Allaway. Tracy, we're recording this August 26, 2025. There is a lot going on right now, particularly in, I guess, many big questions about macro and governance and all kinds of things in some of the richest countries in the world. That is certainly one way to put it.

So just overnight, we had headlines saying that. Trump was going to fire Lisa Cook from the Fed. And this obviously fits into the whole debate around central bank independence and how much influence governments should actually have on central banks. And it turns out this is a debate that we've had before in other countries. Totally. And part of the reason I think Trump is focused on the Fed is the high level of interest payments and he'd like to see them come down. Speaking of interest payments this morning, I saw the headline that the UK 30-year guilt is like at the highest since 1989, it continues to elevate. So for all the stress that we have here, all the fiscal pressure, inflationary pressure,

it actually seems potentially worse elsewhere. Although, I will say the pound is up against the dollar, right? So from a currency perspective, we're kind of doing worse. From a currency perspective. But there's a lot. These things are global, is I think the point. And all of these anxieties and stresses, it's not just a U.S. story. No.

And obviously it's feeding into. to bond markets. And I cannot tell you how many notes we get on a daily basis about how governments can reduce the debt, how they deal with deficits and things like that. Right. Now, everyone's talking about this these days here in 2025. It got a lot of interest, of course, in 2022 after there was a famous spike in yields in UK guilt and maybe this sort of premonition of what a lot of rich countries would be dealing with. So I'm very excited to say we really do have the perfect guest to speak about all of this today to understand some of the pressures facing rich developed economies. We're speaking with the right honorable Liz Trust, former prime minister of the UK, author of the recent book 10

Years to Save the West. Liz Trust, thank you so much for coming on, odd lots. Thrill to have you here. Good to be on. I have a question. You know, when you see like 30-year guilt yields higher substantially than when you were the prime minister and when everyone attacked you over the mini budget, Do you feel some sense of like sort of vindication or happiness or is it all like despair for the state of your country? Well, I do feel despair for the state of my country. And it's in fact why I tried to do what I tried to do in 2022 because I could see the way things were going. I could see our economy was stagnant that the tax revenue being generated wasn't enough to cover the amount of money the state was spending. and we needed to do something different in order to get out of a negative spiral.

And what I see now is we're further down that negative spiral and we are heading for a very, very serious crisis. I said last year I thought we were headed for an IMF bailout as Britain experienced in 1970s. I think that's even truer now than it was a year ago. And we're in an economic doom loop. of higher taxes, lower growth, higher debt, and it's very difficult now to see the political way out of that. So how should governments actually announce or unveil large-scale policy

shifts? Because there does seem to be, A, some institutional constraint. And then B, the market reaction, we saw that this year in the U.S. after Trump's Liberation Day announcement, you know, a lot of people were saying this was Trump's trust moment. How should governments actually go about, I guess, balancing the views of the market with, you know, big scale change in terms of policy? I think the issue that I faced, and it is also the issue that Donald Trump faces in the United States, is a lot of the mainstream economic establishment do not agree with the policies that I was pursuing and they don't agree with the policies

that Donald Trump is pursuing. So you're operating in a hostile environment. In the UK's case, we have institutions that have become very divorced from government policy. In 1998, the Bank of England was made independent

by Gordon Brown. Since then, I believe it has been pretty much unaccountable. So politicians have very little control over monetary policy. And what has happened is monetary policy is driven fiscal policy. It's very hard to coordinate between those two policies as a government because you don't have control of the levers. Even more so, back in 2010, George Osborne established the Office of Budget Responsibility, which handed over huge powers to another unelected authority.

It's a bit like the Congressional Budget Office, but it has more power within the British system. So what I was facing back in 2022 was powerful institutions that didn't share my policy objectives. Now, I believed as the democratically selected leader of the country that I should be able to pursue those policies. It was what I was elected on. In fact, it was what the Conservative Party elected on. But what I faced was resistance. So when you're talking about timing of policy announcements, it's not like you're operating. on a clear sea. You're operating in a stormy sea where there are people out there who want you

to fail, not just your political opponents, but also the institutional opponents. And that is what Donald Trump faced with his tariff policies that he announced on Liberation Day. A lot of economists said they wouldn't work. A lot of people said it would make the budget deficits in the US worse. and those policymakers are very influential with the markets. So in the case of the Bank of England or the case of the people sitting on the Federal Reserve or civil servants within the Treasury, these people are out there creating their own waves.

So I think that's the context you have to see what I was trying to do. First of all, I totally take your point about the sort of limitations of many mainstream economists, the bias of many mainstream economists, and we have many critics of mainstream economics regularly on the show. So that's a point well taken. When you unveiled your mini budget, given the fiscal constraints or the perceived fiscal constraints, why tax cuts specifically and not also spending cuts? You know, there's so many different aspects of the UK spending situation, whether it's the triple lock pension. There's this thing that goes viral on Twitter a lot

about like how easy it is to get a free car, et cetera. Like, why not first, take aim at potentially low-hanging fruit, or at least in combination, you know, spending cuts. Well, that is exactly what I sought to do. The package we were putting forward was a combination. It was actually not tax cuts. It was reversing a tax rise. And I think that's a very important distinction. The biggest measure we wanted to take was keeping corporation tax at 19%, not raising it to 25%. And I believed, and I've since been proven right, that if you raise corporation tax to that level, you get less business activity, you get lower growth combined with the non-dom tax that's been put in place or the removal of the non-dom benefits, we've seen more millionaires leave Britain than any other country in the world per capita. So what we were doing, just on its own account, raising taxes at that juncture back in 2022 was a bad idea. I believe that it would lead to lower economic growth and a higher deficit

in the long term. And some economists agreed with me, but the economists working for the government, the Office of Budget Responsibility of the Bank of England, did not agree with me. and they were keen on that policy, and in fact, they forced me to reverse that policy. So that's one point. Second point on spending is we did try to rein in spending. So a particular thing I sought to do was increase welfare by wages, not prices, because we were in a very high inflation year in 2022. That would have saved seven billion pounds on the government budget,

which is a significant amount. What I found was that Conservative MPs were not prepared to vote for that. So even a relatively minor change, which was simply not raising welfare as much as it was going to be raised, created a massive outcry on the Conservative benches. So the answer on spending

is it was politically not possible. Now, personally, I would have liked to be even tougher on spending. I think we could have done that over time. but I had to think about what was politically realistic. And so what we had is spending constraint, not raising spending as much as was previously planned, keeping taxes low rather raising them

and choking off economic growth, which is what I thought it would do and was what actually happened. And then also supply-side measures, such as legalising fracking in the UK, making it easier to drill in the North Sea, so that you stimulate the economy with supply-side reforms. That was the overall package.

And, you know, what happened? And you can compare my fiscal package with packages that Rishi soon acted during COVID or packages that Rachel Reeves did since. My package was smaller, even according to the estimates of the Office of Budget Responsibility. And yet, it got a very different reaction. and this is because the economic establishment,

the key figures and the treasuring and the Bank of England have a bias towards a more Keynesian approach. So I think it's important to note that this fiscal package was not any bigger than packages before or after. It just got a different reaction. I think the other important point to note about what happened in September and October, 2022 is the night before the mini budget, the Bank of England announced the sale of 40 billion

pounds worth of gilts. So I had a central bank who were making announcements that made our lives a lot more difficult the day before the mini budget. And since the guilt spike in 2022, the Bank of England have actually produced a paper saying that two-thirds of that sort of spiking guilt was down to their failure to regulate the pensions market. So there were lots of other things going on at the same time, but it was very, very convenient for the mini budget to be blamed for what happened. And as you pointed out at the beginning of the show, the guilt spike wasn't as high as it is now.

So what I think is going on now is you can see the different treatment of a tax spending high spending labor government from a conservative politician who's trying to pursue, in my view, Laffer-Cherb-friendly tax freezes, supply-side reforms and spending restraint. If there is an institutional and market bias towards economic orthodoxy or Keynesianism, as you just pointed out, why not try to adapt your budget or your economic policy to that reality? because it did seem like, you know, you were sort of expecting the markets to adapt to your policy rather than vice versa. I guess I'm asking you is just, is there a better way to try to communicate what you were doing at the time? Well, I'm a believer in democracy and I think it's democratically elected politicians that should decide policy, not unelected central banks.

And, you know, there is a network. There's the IMF, the World Bank, the central bank, the central. banks meeting regularly, they are far too powerful, in my view, at deciding what country's economic policy should be. And they have not been effective. You know, if you look at the Bank of England's record over the past 10 years on things like inflation, on economic growth, it's been extremely poor. And I fundamentally, you know, why should democratically elected politicians, to what unelected officials want when we're the people who are held to account for the success of failures of the policy. And what is happening now is Rachel Reeves is very orthodox. She's a former Bank of England employee. She's essentially taking dictation from the

Bank of England and the Treasury about what she should do. And we can see the results of that. And what is happening is we are going to reach an end point where the country runs out of money. and then we will have a major crisis and we will have to think differently. I just think it's very sad it's got to that point. This was obvious from where we were in 2022, but as I've said, the economic orthodoxy proved very powerful. And frankly, what is the point of wanting to become prime minister

if you're simply going to go along with the failing orthodoxy that has put your country in the problems it is already, which is where we were? You know, you mentioned that the Bank of England wasn't really independent from HM Treasury until Gordon Brown's chancellorship in the 1990s. Do you think that arrangement still works or would you perhaps call for reform where maybe the Treasury regains some of its influence over the central bank? I think the Bank of England needs to be accountable to politicians. I think the current system doesn't work. This is why I'm very sympathetic to what Donald Trump is saying about the Fed. monetary policy is incredibly important. It determines the allocation of assets within society. What we've seen in Britain is we've seen people who have property, who have capital, have done very well out of the low interest rates that the Bank of England and the easy money

the Bank of England has created over the past 15 years. And we're seeing young people struggle to get on the housing market. We are seeing it real effects in the economy of the Bank of England's policies. And as a Democrat, somebody that believes in democracy, I just think it's wrong that people should be making those decisions and not accountable to the electorate. And it's also very difficult, as I found as prime minister, to combine fiscal and monetary policy if you don't hold one of the levers. So yes, I think it's got to change. And I think there is a reckoning coming for the central banks, not just in Britain, but also in the United States, also the ECB, the current system does not work. And I think one of the reasons that the Bank of England, I would say

sabotaged what I was trying to do is I was a critic of central banks before I became Prime Minister. I'd been very clear that I thought the Bank of England's record was not good, that the Treasury should have much more of a role in setting the mandate for the Bank of England. And they didn't like their power being challenged. First of all, I want to say, I think your point about the sort of the political impossibility of, or the political, at least, difficulty of spending cuts is really important. And the fact that you had the Tory majority, obviously, and even what you describe is sort of modest cuts to the rate of growth, the spending couldn't get the votes.

Like, I think there's a very telling issue and raises a stress about the ability of any democracies to do difficult things. setting aside maybe what's politically capable in the next parliament, should the next parliament revisit questions such as either the triple lock pensions or free point of use at the NHS? So just on your point about political possibility, I think the only thing that is politically possible at present or certainly was in 2022 was to try and restrain the growth of spending and to grow the economy faster than that. And I think that is what, that is what, That is what the Trumpite strategy is in the U.S. You've got to outpace the growth of public spending with economic growth.

I think that is only possible what you've just said about actually spending cuts. Yeah. Is when there is some kind of crisis. Well, so this is what I'm saying. So you mentioned, you said last year that you were worried that the UK could need another IMF bailout. There were headlines, I think, of the news just in the last week of some economists talking about that again. Okay. this is what we're talking about. I mean, if this is real and we're talking about the UK essentially

being at the point of needing an I of MF bailout, is it time to look at these sort of core pillars of existing spending levels? Well, you can see what's been going on in Parliament, which is the Labour Party tried to put through some modest welfare cuts. And there was a massive rebellion by Labour MPs. Even though they have a huge majority in Parliament, they could not get through some pretty minor changes. Smaller, by the way, than the amount I was proposing in 2022, I think it was only worth about four billion pounds. They could not get that through their current parliamentary party. And all of the evidence, what happened in Greece, what happened in Ireland, where spending

cut programs have been achieved, or Argentina's another good example, have come after a crisis. I think that's deeply regrettable, but I can't see, certainly with the current parliament, serious spending cuts happening until Britain runs out of money. I'm going to ask Joe's question just in a slightly different way. But if you were back in government today and guilt yields are where they are, what specific tradeoffs between spending and taxes, tax cuts, would you be willing to make? And what tradeoffs do you think are actually politically realistic?

Well, the issue now is that taxes have got so high. that they're choking off economic growth. And we're seeing millionaires leaving the country, we're seeing businesses closing down. I think the easiest thing and the most sensible thing to do straight away is all the supply side stuff, abolishing planning regulations, taking on the environmental NGOs,

getting on with fracking, using North Sea oil, maybe using our coal reserves. I think those are the types of things that can be done relatively quickly and would have an impact. In terms of spending, of course our welfare state needs to be reformed. I think something like over 60% of Britain's budget is a combination of the National Health Service and welfare.

And those are the two areas that need to be fixed. But I don't think there's any room for manoeuvre now on taxes. I think that raising taxes has proved already to be counterproductive. Doing it even more will simply make the UK even more unattractive. active for investors. So you've got to focus on supply side, make it much easier to build things, make it much easier to frack, make it much easier to hire people, all of those kind of things, and you have to have spending cuts where you can. But as I've said, I've tried myself to get spending cuts through Parliament. It's not easy. I'm going to ask the really ignorant American

question that sometimes, so forgive me if this comes off as blunt. I just, So I'm just getting it out there. But is there a cult of the NHS in the UK? There has been. I think the cult is wearing thin. But, you know, there has been a cult. I think people are recognizing, though, that the outcomes are not good. You know, if you compare British health outcomes with other countries,

I don't think the American system is anything to aspire to. But if you look at countries like Germany, no one disagrees with you there. If you look at countries like Germany, France, Japan, they manage to achieve better outcomes with similar levels of funding. So I think everybody in Britain recognizes that it's not working as it's currently constituted. But it is such a big and deep issue to resolve. It really is. Joe, remind me to tell you my NHS horror story later on. Everyone has one.

Everyone has one. On the plus side, it's free. Right, right. All right. You know, I want to go back to something. It costs you, it costs you in other ways. True, true, true. I want to go back to something you said about the economic orthodoxy leaning towards Keynesianism. Why do you think that is? Like, why is that the dominant economic policy framework at the moment? Given that, as you keep pointing out, you know, a lot of people would argue that it hasn't actually yielded good outcomes for the developed world. In the 80s, we had some very successful supply-side policies, both Thatcher and Reagan, increased economic growth, increased the strength of our respective economies. And when the Soviet Union collapsed, I think we all thought free market capitalism had won, low taxes, restrained spending, supply-side economics. And I think people in favour of those policies took their foot off the policy.

pedal, and that allowed more left-wing economics to gain traction. And since then, I think we've seen it in universities, in the Treasury, in the Bank of England, but the Keynesian economics has become much more prevalent. And whether it's the Office of Budget Responsibility or the CBO, they're looking at economics through a Keynesian lens. And I think it is a big question about how on earth, after seeing the success of those policies and now seeing the failure of Keynesian policies, anyone could possibly think these policies are right, but they've proved very hard to shift. And I think the left of politics have been very successful at capturing institutions. I think they've captured large parts of the bureaucracy, the universities, large parts of the media,

In Britain, just talking about the events of 2022, there's not been real analysis of what happened and what the Bank of England did and how the institutions behaved. It's something that is not talked about. And I think the level of economic literacy in the media has also got lower. And certainly British politics just gets reported as a pantomime, rather than. than an analysis of the issues. There's much you say about the media and the way reporting is done that I probably am quite sympathetic with, actually. Would you ever join reform?

If the conservatives can't pass modest slowdowns in the pace of welfare increases, if, you know, labor obviously has its issues, would you join reform? I'm not really thinking about party politics at the moment because my whole experience of being in government. And I was a government minister. for 10 years before I became prime minister was that the power was not in the hands of the politicians, the power was in the hands of the bureaucrats.

So even if Nigel Farage gets elected in 2029 and currently he's the book he's favorite to get elected, if the bureaucracy isn't changed, if there isn't fundamental change to the way Britain is run, nothing will alter. I mean, a lot of the policies, but presumably, presumably a breakup of the, I mean, right, like that's the idea, right?

There's no prospect of breaking up the bureaucracy unless there's like genuinely something new that happens politically. Like that would be their argument, right? That a brand new party taking power is the only way that there could be some sort of deep institutional shakeout. Yes, in some ways that's true or could be true. There's no reason why the Conservative Party couldn't do a deep institutional shakeup. But the Conservative Party has to acknowledge what went wrong for 14 years. You know, why didn't we solve the immigration problem? didn't we solve the growth problem? Why didn't we solve things like the free speech problem?

The answer is we didn't reverse the institutional changes Tony Blair made. And I talked about how he made the Bank of England unaccountable. He also made the judiciary unaccountable with things like the Human Rights Act and the Constitution Reform Act. So until the Conservatives acknowledge that that is why we failed to deliver an office, that is true about the Conservative Party. But if you look at the two Trump administrations, Trump 1 and Trump 2, in Trump 1, there was less recognition of the institutional change that was required in the US. We're now seeing more of that from Trump. So my point is, whoever is in office in 2029 needs to understand that the British state needs to be fundamentally shaken up,

otherwise nothing is going to happen. And I make that argument to all parties. Interestingly, there are even people in the Labour Party, backbench MPs, who are saying the Bank of England's independence needs to be removed. They're saying get rid of the Office of Budget Responsibility because they can see the types of policies they want pursued are not possible with the current setup. Since we're talking political parties and on this note, you know, maybe there is some consensus on specific economic policies, as you point out. But we've had this back and forth between conservatives and labor for many, many years now. How do you actually go about building consensus around economic policy, especially at a time when, you know, people would describe

our current environment as relatively turbulent and guilt yields are where they are? I would say there's a bad economic consensus between labor and the conservatives at present, which is nobody is saying, apart from me, and a few others, nobody is saying that the institutions need to change. The Conservative Party are also wrapping themselves in, we need to respect the Independent Bank of England, we need to listen to the Office of Budget Responsibility. They're not prepared to take on the economic establishment,

neither are the Labour Party. And we're in a situation where the policy, these institutions believe in, are failing. And they're manifestly failing. Guilt rates are now much higher than they were back in 2022. Unemployment is up. Our energy prices are the highest in the world and the industry is closing down.

These policies are manifestly failing, yet nobody is challenging the fundamentals of the economic institutions. You know, I'm glad you brought up free speech because I'm interested in that as well. And of course, you know, again, in the West, I think free speech, liberal speech norms are good. And so I worry about when I see them failing in various countries or friends and neighbors. Palestine action seems like a bunch of like crusty old hippies. And I know they defaced a plane. But they're listed as a terrorist group in your country. People can get arrested even just for saying support them. And I think they're like a terrorist group basically like a terrorist group, basically like a. on the same level as like ISIS, which I think most people take, yes, that is a genuine terrorist group. Like, what is going on there? Well, they did attack a military base and they are advocating for terrorism in the UK. They defaced a plane and then also people get arrested or in trouble for saying that they support them. They are clearly a problematic organization.

And there are lots of organizations in Britain that are allowed in the UK that aren't actually allowed in many Arab countries. So I think it's right that we crack down on these organizations. I do think when people, you know, I am a pro-free speech person. I'd love to have the First Amendment here in Britain. I support both people I agree with and people I don't agree with, having a lot more free speech. And it is a travesty that we've just seen Lucy Connolly released from jail, who put out a tweet deleted it four hours later and was sentenced to 31 months in prison. That is absolutely ludicrous. And I think we've become an international laughing stock. And it is an attempt, and Kirstarma is very clear about this, it is an attempt by the authorities to suppress what

people are talking about. And I think that's a very dangerous thing for a society, for a society to go down. All of these things really worry me. In the Lucy Connolly, example. So she tweeted, and I understand that she deleted it, but she tweeted about setting a hotel on fire. I mean, that is arguably a call to violent action. Like, how would that be different? Would you feel the same way if someone said, like, you know, we should set a synagogue on fire? Is that free speech? Well, I think what she said would not have been deemed a violation in the US, because it wasn't, I didn't believe she was talking about a specific, you know, go out and do this now. It was a general statement. It was obviously a terrible thing to.

say and she has said sorry for that. I think there's a question about whether or not in the US that would have even been a crime at all. And even if it is a crime, whether it merits a 31-month prison sentence when we have people caught with child pornography being let off with no jail time at all. I mean, you've probably heard the expression two-tier Britain. But what is happening is people are being let out very early for crimes like child rape and yet put in prison for things that they write on Twitter. And those are two different categories, in my opinion. You mentioned the First Amendment just then. How would you reform, I guess, speech rights in the UK if you were in power again?

We came up with free speech, freedom of the press back in 1695. And it was a historic British Liberty. We had the Bill of Rights, of course, 1689, which then the United States built on that with your Bill of Rights and so on. So these liberties are there in the British Constitution. The problem is all of the laws that have been passed since, most notably the Online Safety Act. So what we need to do is restore Britain's historic liberties with a great restoration bill that sweeps away all of this legislation that is tied to country and knots. And I've talked about, you know, our problematic institutions, the problems with the judiciary, the problems with free speech. This is all down to very poor quality legislation that is essentially handed power that used to sit in the hands of the individual British citizen or the British Parliament.

It's handed those power to unelected bureaucrats. Basically, my entire professional career, your party has been in power, except for, you know, the last 10 minutes. or so when Labor and Kirstormer. It doesn't feel like 10 minutes here. Okay, maybe it just feels like it over here. Because it feels like a lot of the rot you describe. The rod that you perceive in your country, almost so much of it seems to have taken place under conservative government.

Why is that? And why would anyone, you know, and they're thinking about the next election, why would anyone think that if so much rot was allowed to happen under the Tories, that the Tories should be given another chance in power? So I think the rot has sort of built up over time. So I talked about the development of the permiburocracy. You had the Atley government, which socialised land, which created the NHS, which created the welfare state. A lot of our problems go back to that government.

But what was very important about the Blair government is this taking power that was in the hands of parliament and putting it in the hands of unelected bodies, bureaucracies, the Bank of England, the Judicial Appointments Commission, all of this plethora of people off-com who are now making the decisions about free speech. These plethora of people have not been elected now de facto run our country. And the big mistake the Conservative Party made was not reversing that. And this was because at the time David Cameron said he wanted to be the air to blare. who wanted to be fashionable, the conservatives wanted to be modern.

But I think it was a huge error. And the Conservative Party lost its soul. That's what happened. In the pursuit of power, in the pursuit of trying to be modern, the Conservative Party lost its soul. And I think it's an open question about whether or not the Conservative Party can get its soul back or be replaced. But certainly, you know, where we are now,

not enough people are saying what really went wrong over those 14 years. But the Conservative Party failed to take on the bureaucracy. These were not the Conservative Party's policies. They were just policies that we didn't object to. Related to Joe's point, when you think back to certain moments in Britain's economic history. So, for instance, Brexit, the argument, then was that if we get rid of all this EU regulation, the UK economy will be free to flourish and prosper. And I think in the 1970s, you know, Anthony Barber instituted some tax cuts as well,

right before inflation hit, I think, 25 percent or something like that. Why should the UK population have confidence that a growth-focused economic policy, one that features, you know, big tax cuts and deregulation, will actually drive economic. growth. Well, I think the important thing to note about Brexit is we haven't got rid of any of those European laws. They're still on the British statute books. So laws that protect bats and newts still on the statute books, laws that tell you how your can opener should work are still on the statute books. We still have the working time directive. We still got all of those laws. So this goes back to the problem you were talking about the Conservative Party. The

Conservative Party is fundamentally split between people who want Britain to be, you know, Singapore on Thames, a free-trading, you know, go-getting country, and people who want it to be part of Europe and want to be part of the, you know, European, lots of labour laws protecting people, environmental red tape, all of that stuff. And that issue is never resolved within the Conservative Party, which is why, you know, you see. or prime ministers being deposed, why you have the debate within the Conservative Party. And I think if you look at the Brexit vote in Britain, 52% voted for Brexit, 48% didn't. So Brexit was not delivered as the public intended.

I mean, the biggest case in point is, of course, immigration, where the Boris Johnson government failed to, in fact, allowed immigration to increase huge amounts, which has had a very negative effect. You know, since you mentioned party politics in the UK and the split within the Conservative Party, again, ignorant question here. I do get the impression that the conservatives just like all seem to hate each other more than the members of the Labor Party and the 1922 committee, which I still like have to Wikipedia every once in a while to remember what that is and they're always like scheming against each other. Is there like a deeper culture of just internal hate in the Conservative Party than the Labor Party? I would say the problems of the Conservative Party go back to where Margaret Thatcher was defenestrated and the sort of Tory Wets and the, you know, the Thatcherites.

But if you compare it to American politics, you know, if you look at the split between people like Trump and people like Dick Cheney or the sort of Bush Republicans, it's a very similar ideological divide. But what is different in America is that Trump has basically taken over the Republican Party, whereas in Britain, the kind of the left of the Conservative Party is still in control of it. That's the difference. But there is going to be a political realignment. And you can see it in America. Republicans are now getting votes from low-income people, people in rural areas. The Democrats are dominating in the sort of liberal cities.

That's exactly what's going to happen in Britain at the next election. It's just the Conservative Party hasn't really got its head around which of those two things it is. So one of the things that seems to be happening in many developed countries at the moment is everyone wants to boost their own domestic manufacturing sector. And I believe you've spoken about the need for this in the UK before. When I think about the British economy, I usually think there's a pretty big monopoly when it comes to. to, let's call it intellectual jobs. Services, finance, office jobs, journalism. Journalism.

That kind of thing. But when I think about British manufacturing, you know, it's an island with a relatively small population compared to some other places in the world and high taxes, as you've been pointing out. What would make Britain actually competitive when it comes to manufacturing at a time when everyone seems out to compete in the same field? Well, the number one thing is energy prices need to come down. They're the highest in the world.

They're four times the United States. If you are a car manufacturer, a steel manufacturer, it's incredibly hard to compete. So that has to change. We have to make it much easier to build things in Britain. If you want to build a new factory, it takes far too long. So there are all of those sort of supply-side policies that need to change. I think Britain, we de-industrialize pretty much. earlier than any other country.

You can see the same thing now happening in Germany and continental Europe. I think it's important to do all you can to maintain a manufacturing base because a lot of industries like AI, for example, requires high levels of energy. It requires other industries that it can sort of feed off, if you like. So if you just become, I talked about Singapore and Thames earlier, but Singapore's a relatively small country so it can afford to be a train. Hub. Britain is a country of 70 million people. I think you can't rely on services alone. I think you have to produce the full gamut. I'm very worried that we're losing our last steel blast furnace.

What we learned during COVID is you are seriously up against it if you are relying on China for pharmaceuticals. These are the types of industry that Britain can excel in and does excel in. I mean, our biggest manufactured export to the United States is cars. We do. We do. We do. We do. do produce good high-end cars that people order buy. So there are opportunities for British manufacturing. It's just been made very, very hard by high energy prices and our planning rules. I take your point about certainly about energy prices and planning rules. Many people are having the same discussions here. To my mind, and Tracy mentioned the fairly small population. Scale is incredibly important. It's not that small. I was 70 million people. Okay, okay. Well, you know,

China has however. hundreds of millions just in the manufacturing. But yes, I take your point, not that small. But did Brexit harm scale capacity? Because to my mind, if we're thinking about, okay, mass production at efficient level, so that it's a genuinely competitive so that it's not some sort of, you know, government-subsidized albatross that just exists as a make-work industry, it strikes me that sheer scale of market is very important. And it feels to me like Brexit has shrunk the scale of that market for the EU. I mean, there's no evidence that exports to Europe have gone down after Brexit. And in fact, you know, the different trade deal we got from the EU presents the UK with some

opportunities because we have lower tariffs in some areas with the United States than the EU does. But I think the other big factory in manufacturing is so much of it is becoming automated that it makes economic sense for goods to be produced close to market because you're no longer you're getting the advantage of a massive labor cost differential. So I think it's just a natural progression of modern economies that more manufacturing is going to be done closer to home when you've got a much more automated process. Since we're talking trade and exports, the UK was one of the first countries, I think, to sign an agreement with the Trump administration on tariffs. Would you have signed that so quickly or would you have perhaps pushed back a little bit more

given your emphasis on boosting manufacturing domestically within the UK? I did actually praise Kirstama for the deal at the time. I was one of the few people to praise it. And I said, because I've got experience of negotiating with the first Trump administration, Bob Leithizer, so I know how difficult it is. And I thought the UK got a good deal. And so it has proven that the EU has actually got a worse deal than the UK got. So I thought he was right to do that.

And I want to see, well, we are paying lower tariffs than the EU is. So just on a relative basis compared to others. On an absolute basis, you're still paying tariffs. Yes. But what Trump has done with all of his trade deals around the world is essentially reset the world trade organization. I think it was one of the biggest errors of American foreign policy when Clinton allowed China to. to join the World Trade Organization on developing country terms. And that has had, in my view, it's helped boost China's economy. China is an autocratic authoritarian regime.

I think that was a disastrous policy. What Trump is trying to do is reset that. And that has inevitable consequences for all of America's trading partners. But knowing what I do about the Trump administration, I thought the deal Kirstama got was a good deal. Potentially one thing that could... And I don't praise him very often, by the way. I figured that's rare.

One thing that theoretically could be done to lower energy prices for, in many places, would be a resolution of the war on Ukraine. And I'm curious when you look at either Trump's pursuits or what Kirstarmer has said, do you see other paths? Were you the prime minister now? What would you be pushing for in that particular conflict? Well, I want what I want out of that. conflict is I want Putin not to have been rewarded for his appalling invasion of Ukraine.

So what we don't want is him or indeed Xi Jinping to get the signal from the resolution of the Ukraine conflict that this was a, this invasion was somehow justified or worth it. I want Russia to be contained because I still believe that they have expansionist instincts. Just going back to the mini budget for a second, one of the components of that was government support to offset higher energy prices. And that was also one of the things that seemed to spook markets, this idea that the UK government would be fiscally on the hook to compensate for astronomical energy prices at the time that seemed to be expanding at an enormous rate. If you were going to do it all over again, would you have possibly included some sort of mechanism

to maybe limit the cost or, you know, avoid the sense that the UK was basically bailing out its population in some way? It's important to note that the energy package was one thing that wasn't reversed. So that was not the policy. The policy that I was forced to reverse and that was made pretty clear to me, pretty much through threats, was the corporation tax increase. The energy policy remained in place. The energy policy remained in place.

And the point about the energy policy was it was not a subsidy that happened automatically. It was only when energy prices reached a certain level. And I believed it was right for the government to do that because the government had failed to ensure adequately cheap energy was supplied. But what I was doing in tandem with that policy of essentially ensuring people against very high energy prices, was getting on with fracking, licensing new North Sea gas reserves, so the prices would never get that high. So it was an insurance against prices going high to give consumers and businesses confidence to invest whilst we sorted out the supply

that had been so badly failed by previous governments. That was the intention of the policy. And as I've said, the policy wasn't reversed by my successor. The policy that was reversed was getting on with the fracking. So you had the energy insurance policy, but not the fracking policy. Those policies were designed in tandem so that we can make sure that businesses in the country weren't spooked by the threats of having sky high energy prices. And by the way, if the energy prices had got that high, there would have had to be some kind of package to deal with them. anyway. What I was doing is giving people notice, so they had the confidence to invest. The energy package was actually announced, because very sadly, Her Majesty of the Queen

died, it was announced a few weeks beforehand. It wasn't announced at the time of the mini budget. The thing that the economic establishment really objected to in a mini budget was the taxes. It was not raising corporation tax. That's what they didn't like. I just have one last question. You know, Tracy and I were. in public, though not as public as having been the prime minister of the UK. We live in this age where, you know, stories go insane and people love to see someone publicly humiliated. And it just seems to me that the UK press in particular is a bunch of jackals, but that's just

my impression over here, even relative to the press over. It's always funny when Americans come over and they don't realize what they're like. And I'm like, you ain't seen nothing until you've dealt with a UK press. And they always gave Liz, you were right. You're right about these people. No, I just see it in the headlines. I don't know. It seems obvious to me.

What's your takeaway? How do you move past a period of one's life like that? Well, I didn't really see it like that. I just see that the British press needs to change. And I'm a big supporter of independent media. I think the British press's coverage of economics is appalling. I think their coverage of politics is skin deep. I don't think they've done anything to analyze the sort of failings

the British state. And I think there won't be serious. We don't just need to change a bureaucracy in this country. We need to deal and change the press. And people are now turning off the BBC. You know, they're turning off the mainstream media because they can see that the truth isn't being told. And there used to be a golden age, I guess, in journalism where people cared about the truth. I'm afraid they don't now. Friends of mine who are journalists. just say their editorial conferences about how many clicks their article gets. And it's, you know, I just think that's pathetic. Well, these are the tensions of being a journalist in modern times.

But I have one more question. It's just going back to some technical aspects, I guess, of economic policy. So you've criticized the OBR for, you know, its forecasts that end up influencing or, you know, perhaps even dictating government policy. I guess my question is, you know, when you think about a pro-growth economic agenda, that also relies on forecasts about future growth. And when we talk to Stephen Myron from the Trump administration earlier this year, that was one takeaway from our conversation was how much the Trump administration was really betting on economic growth picking up in order to offset some of the stuff it was doing. It's the only strategy. It is the only strategy. But why should people have confidence in the growth forecast but not have confidence in, you know, OBR forecasts? But the point about the OBR, and this has been proven by history, is that they overestimate how much raising taxes will bring in revenue because they don't take the full account of the depression and economic activity.

And they underestimate the impact of supply-side reforms like planning. or fracking or whatever else. And there are two answers to this. One is there are better economists out there. And I think the government, as was the case prior to 2010, the government should have the ability to hire the economists that they believe are right. I don't think my homework should be marked by somebody who doesn't agree with me, which was what was happening.

I think that's just wrong. If people don't like what I'm saying and they don't like the policies, they can vote me out at an election. But I wasn't even allowed to try the policies because the people marking my homework said, no. I mean, that's the bottom line. But the second thing is, I think we're far too reliant on forecasts. You can't predict the future.

And trying to say, which is what the UK system does, that five years out, we know exactly what the debt is going to be, is rubbish. You know, we don't know, what if Donald Trump imposes huge tariffs? What if the UK strikes a trade deal with India? What if there's a discovery of a new technology that totally transformative? You don't know what the future is going to look like. And my economics is based on first principles. I know that if you put up taxes too high, people won't go out to work anymore.

I know that if you make energy prices cheaper, businesses are more likely to invest in Britain. The problem with these forecasts, and this is another criticism of British economic media, the problem with forecasts is that people become focused on whether the number's right in the forecast, rather the fundamental principles of what makes the successful economy. Liz Trice, so great to chat with you, someone we wanted to have on the show for a very long time. Good to be on. Great that we've made it happen, and I appreciate your coming on up. Thank you. Tracy, I'm so glad we finally got to interview Liz Trud.

We finally did it. I think it was a good time to do it, actually, because there's a lot of overlap with the Trump administration at the moment and what trusts experienced in 2022. Yeah, yeah. I mean, there was a lot that I found to be interesting there. You know what I think actually maybe the most interesting thing to me is thinking that, okay, in the U.S. we have these multiple branches of government, right? So the president wants something but Congress is going to veto it or can veto it, especially if it's a different party in power. Obviously, that's not the dynamic of the U.K. with a parliament. elementary system. And yet even in the parliamentary system to hear this trust described the fact that what she described is even modest cuts to the increase in welfare weren't palatable to the members of her party, let alone the opposition, which of course never going to vote it for it. But in her party, I find that to be a very striking comment about the difficulty that, you know, electoral democracies have in reigning back cuts. Absolutely. The other thing that kind of caught my eye or my ear was when we were talking about tariffs and, you know, Liz said that she had praised the deal that the UK struck

with the Trump administration because it was less than what the EU was paying. And it's interesting to me that like countries seem to be competing with each other. You know, the Trump administration in some respects has been kind of successful in that getting its trade partners to compete with each other for the lowest deal rather than to, you know, try to compete on an absolute basis for lower tariffs per se. I thought that was interesting. I also think it's interesting, you know, this sort of, I find myself having a lot of sympathy with this. This sort of like anti-democratic aspects of entities like the OBR or in the U.S., the OMB, and these idea that, okay, they have one set of assumptions about how policy works and the idea that, like, they have a formal role. And, you know, there is a certain undemocratic element, I think, of these sort of institutions that.

that either they, not necessarily with a formal veto, et cetera, that aren't elected. I have sympathy for that opinion. It certainly seems like they can act as an institutional restraint on the government. But some people would argue that maybe that's a good thing. No, right. Like today with an independent body looking at economic policy and monetary policy, right? Yeah. I mean, that's the thing.

And look, it's very striking that she said really she does not accept the premise. Yeah. The Bank of England should be as independent as it currently is. And that, you know, the idea is to your question, folding it back in with the Treasury is very striking. Well, also the line about, you know, not wanting to have her homework marked by someone who doesn't believe in it. I'm sure all of us as students would have liked to choose our own teacher who was grading our homework. But we don't get to for obvious reasons. We don't.

Shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Wisenthall. You can follow me at the stalwart. Follow our guest, Liz Truss.

She's at Trust Liz. Follow our producers, Carmen Rodriguez, at Carmen, Armin, Dashel Bennett at Dashpot, and Kale Brooks at Kail Brooks. For more Oddlots content, go to Bloomberg.com slash Oddlots with the daily newsletter and all of our episodes.

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