The Prime Minister must be clear and confident

For now at least, Britain’s financial markets have stabilised, with the fear spreading to other economies, not least the eurozone. Yet the political consequences of last week’s mini-Budget are about to be felt. The coincidence of the Conservative Party’s annual conference falling in the middle of the current furore and collapsing opinion poll ratings confronts Liz Truss with arguably the most difficult moment for a Tory Prime Minister since Margaret Thatcher in 1980.

Confronted with internal opposition to her economic plans, the latter made a defiant speech to the party faithful in Brighton with the famous declaration: “U-turn if you want to. The lady’s not for turning.” Now, in order to calm the markets, another woman Prime Minister is under pressure to perform a volte face and reverse some of the policies announced last week. Judging by her remarks yesterday, she intends to adopt the same combative posture as her illustrious predecessor.

This is the right strategy. A U-turn would be a disaster for her premiership but she now also needs to focus on communicating her plans better, to the general public as well as to international investors. The most important reason for the plummeting opinion polls is incomprehension and confusion, with many voters unaware of the scale of her energy plans, or about the 1p cut in income tax and reduction in national insurance. They are nervous about interest rates rising, but have not yet been told properly the scale of the support that the Government is preparing.

To ensure that the markets remain calm, she must also flesh out how a combination of stronger growth and spending restraint means that we remain on a path towards fiscal sustainability. Given the circumstances, it is clearly possible for the UK to borrow more, in the same way that other countries are doing: Germany has just unveiled another energy bailout plan – this time worth €200 billion – at a time when its rate of inflation is now higher than ours. Barclays predicts that France’s budget deficit will be over 5.7 per cent of GDP, and that its economy will tip into recession.

Britain has the second lowest national debt of the G7, and a far lower burden than France’s, thanks to our austerity drive of the early 2010s. With the right messaging and correct explanations, it should be possible to convey to the markets that the UK is not being fiscally irresponsible and that in fact we are in a much better place than our European neighbours. Britain’s Government is truly committed to growth and unleashing enterprise, unlike that of, say, Spain, which is planning to impose a crippling new wealth tax on the better off.

The problem last Friday was not the plan for growth, which was welcome and radical, will bolster incentives, make the UK much more attractive and help address years of feeble productivity and investment. The real issue was that trying to send out a welcome message of change did not relieve the Chancellor of the obligation to manage a fiscal event such as this carefully and skilfully.

Even if they are quite often wide of the mark, the markets expect to see figures about debt, borrowing and projected growth yet none were provided. A much more detailed narrative must be put together, detailing exactly how various tax and deregulatory measures will enhance the trend rate of growth. Supportive businesses need to be encouraged to voice their agreement.

In the current circumstances, therefore, next week’s conference is a potential elephant trap where political tensions will only exacerbate the economic turbulence. But it is also an opportunity to demonstrate that the Conservatives not only have a strategy but are able to communicate why it is necessary and explain the rationale behind the policy.

These are perilous times for the Prime Minister but her instinct is to emulate the party’s first woman leader 42 years ago in chiding the faint-hearted. Like Mrs Thatcher she is prepared to be unpopular in pursuit of what she thinks is right. That is a commendable approach, but she must now launch a massive communications effort to sell her plan for growth, and explain to an electorate that is still getting to know her just how much better off they will be as a result of her tax cuts.