Britain’s new Prime Minister Liz Truss faces some big challenges: Brexit, Ukraine, and a rising cost of living

Nikhil Kumar

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It’s (finally) official: Liz Truss, Britain’s foreign secretary, will take over Tuesday as the country’s leader, replacing her boss, the scandal-prone Prime Minister Boris Johnson.

The switch is the result of Johnson’s downfall earlier in the summer, after a series of scandals that triggered an avalanche of resignations of senior government figures — too many, as Grid reported, for Johnson to hold onto his job. What followed was a two-month contest within Johnson’s Conservative party to pick a new leader. Truss emerged as the clear winner Monday — putting her in line to become Britain’s third female prime minister.

She inherits a country that seems “lurching from one disaster to another,” as the right-leaning Daily Telegraph, long seen as the Conservative party’s in-house newspaper, recently put it.

How Truss deals with these disasters will matter not just to Britons, who are facing a historic cost of living crisis, but reverberate far beyond. Under Johnson, Britain left the European Union, but the economic realities of Brexit are only beginning to set in as the country reworks its relationship with what remains its biggest trading partner. Truss’ elevation also comes amid a war on Europe’s doorstep; the conflict in Ukraine shows no signs of ending. That has implications for both European security and for the economy in Britain.

All this as the U.K., like so many other countries, tries to recover from the ravages of the covid-19 pandemic. At the moment that recovery — in economic terms at least — is disaster number one, in a decidedly challenging inbox for the new prime minister.

Historic inflation — and a huge headache for Britain’s next leader

As Truss takes office, her constituents suffer from historically high inflation hitting nearly everything they buy.

July figures showed consumer prices were up 10.1 percent in the U.K. — the sharpest hike in 40 years. Some of the causes are global — continued post-covid disruptions in the global supply chain, and the impact of the Ukraine war on the international energy and food markets — but Britons’ pain is made worse by the fact that nearly half of what they eat is imported. Those global troubles are not easily mitigated at home.

A recent survey by the British national newspaper i showed that the cost of a loaf of bread was up 21 percent over the past year. The price of milk? Up 56 percent in some cases. Instant coffee? Up 50 percent. Virtually all basic goods have seen double-digit price spikes over the past year.

The picture is likely to worsen over the next 12 months, particularly if energy prices in the U.K. — which touched record levels in August — remain sky high. The investment bank Goldman Sachs predicts that unless energy prices fall, Britain’s annual inflation rate for 2022 will spiral to more than 22 percent. That would be close to the post-World War II record for Britain, set in the mid-1970s, when the country was battered by both a global oil shock and domestic industrial unrest.

Today’s price hikes, particularly in energy, could drive an additional 3 million Britons into poverty in coming years, according to a recent study by the independent Resolution Foundation think tank.

“There is only one issue at the moment — the cost of living,” Anand Menon, professor of European politics and foreign affairs at King’s College London, told Grid. “One prediction is that 40 million people will be in fuel poverty in January, which is over half the population spending over a tenth of their income on energy. The projections are terrifying, so I don’t think that there is any other issue that comes close [in terms of the challenges facing the new leader].”

The impact is being felt across the British economy. A recent survey by the Federation of Small Business showed that most small firms in the country were expecting to see no growth or were worried about the possibility of downsizing over the coming year. At one London pub, the Reuters news agency reported its annual energy bill was set to quadruple this year, from 16,000 pounds to 65,000.

No easy fixes

As a candidate, Truss has been unclear on what exactly she plans to do to tackle the economic crisis, insisting at a recent public event that she wasn’t going to rule things “in and out” before taking office. She has pledged to deliver an emergency budget, and promised that there would be no new taxes on Britons. Leaks from within her campaign to the British press suggest the possibility of a 5 percentage-point cut to the national value added tax (VAT) that is applied to sales of goods and services in the U.K. The current VAT is 20 percent; supporters of the cut say it would reduce the inflationary burden on British households and boost spending. Those opposed argue that such a move would only help better-off households with more spending power when the need is to focus more narrowly on the hardest hit.

Among other ideas floated in recent weeks: proposals from the opposition Labour Party to impose a windfall tax on energy companies as a way to fund caps on the energy bills faced by British households. Meanwhile, a coalition of British charities has called for an increase in Social Security benefits for the poorest, to ensure that the weakest households can get through winter. It’s not clear that Truss or her party would support such measures.

All agree that current measures — notably, a package to discount energy bills by 400 pounds (or around $460) per household during the winter months, announced earlier this year by the Johnson government — don’t go far enough. As it stands, after the rise in energy prices over the summer months, U.K. households are on track to see their annual energy bills rise by around 80 percent to an eye-watering 3,459 pounds (or around $4,000) come October.

For the next British leader, this means the pressures to deal with the cost of living crisis will only mount. As one anonymous senior Conservative parliamentarian told the Financial Times last week: “I’m hearing from constituents who are reaching out for the first time worried about how they will get through this winter. Some of the existing help packages don’t even touch the sides.”

The war in Ukraine

A big factor behind the inflationary spiral in the U.K. — and beyond — is the war in Ukraine, which has driven up both food and energy prices globally.

Under Johnson, Britain was an early and strong supporter of Ukraine’s efforts to resist Russia’s invasion. Truss, as foreign secretary, stood squarely behind Johnson’s Ukraine policy, supporting the transfer of heavy weaponry to Kyiv among other measures. She reaffirmed her backing over the summer, vowing early on in the Conservative party leadership race that her first phone call to a foreign leader would be to Ukraine’s Volodymyr Zelenskyy.

But the war and the British economic woes intersect in another way that may pose troubles for the new prime minister: Truss’ hawkish stance could be challenged by an energy crisis this winter. As Grid has reported, countries across Europe are heavily dependent on Russian energy, and those supplies have been declining steadily since the war began. Although a variety of mitigation measures have been put in place to ensure other countries don’t face blackouts over the coming months, a harsher than expected winter could complicate the picture, as would a full Russian cutoff of natural gas supplies to the continent. And in any scenario, households in many European countries, the U.K. included, will face higher energy bills.

These challenges have raised a basic question about Europeans, and the war: Could these pressures weaken the EU’s resolve to stand with Ukraine? And if European support were to fray, where would that leave the U.K., under Prime Minister Truss?

“I think she will do what the British government has done so well to date,” Menon told Grid. “Which is to posture, lecture other Europeans, and come across as Ukraine’s best friend. It’s quite a good place to be and popular at home.”

In this, Britain’s outgoing leader has left Truss a ready-made template to follow. On a trip to Kyiv in August, Johnson warned against any deal with Moscow to end the war that might leave Ukraine weaker. “If we’re paying in our energy bills for the evils of Vladimir Putin,” Johnson said, “the people of Ukraine are paying in their blood. And that’s why we know we must stay the course. Because if Putin were to succeed, then no country on Russia’s perimeter would be safe, and … [that] would be a green light for every autocrat in the world that borders could be changed by force.”

Menon and others note that that has been a popular message in Britain. Among the many questions for Truss will be whether inflation and a rough winter will change that.

The Brexit puzzle

Britain’s broader relationship with the European Union will also loom large as the new leader takes office. One hot-button issue has already divided Truss’ party and the EU leadership.

Under Britain’s divorce deal with the European bloc, London agreed to effectively leave Northern Ireland within the European single market. That effectively creates a customs border in the Irish Sea, between Northern Ireland and the rest of the U.K. Truss has proposed a law that would unilaterally get rid of some of those customs checks — allowing goods to move more freely — between Britain and Northern Ireland.

The idea has angered the EU — and could further sour already poor relations between Britain and its biggest trading partner. It is, however, one that is widely popular within her own party.

“The one thing that holds the Conservative coalition together is Brexit,” Menon explained. “So don’t expect any softening of tone. For me, the sweet spot of politics is to be able to talk a hostile game without exacerbating relations to the point of a trade war. Whether she can do that or not I don’t know, and it depends partly on her parliamentary colleagues [in terms of the pressure they are willing to exert on Truss].”

The uncertainty here goes to a larger point about Truss, much discussed in recent weeks as she emerged as the clear leader in the Conservative party leadership contest: Although she has been foreign secretary under Johnson, and held other ministerial posts in the past, she has often been described as a political chameleon, as the Guardian put it last month, too willing to bend with the prevailing political winds.

Before Truss joined the Conservative party, she was a member of the Liberal Democrats, sitting at the other end of the political spectrum. In 2016, she opposed the campaign to take the U.K. out of the European Union, a stance she now explains by saying she was “concerned about some of the disruption.” (Her view now is that “that disruption didn’t happen.”)

She has managed these transitions well enough to end up as prime minister. The question now is whether a winning strategy for Liz Truss can translate into a better future for Britain.