The Mini-Budget: A Disaster-Class in Stakeholder Communications 

If quality of communications is a broad and ranging spectrum then, in the past two weeks, Liz Truss and Kwasi Kwarteng – seemingly finding new ways to aggravate both their party and the British public on a near daily basis – have helped themselves to a veritable smorgasbord of mishaps. Or, as Penny Mordaunt put it, Conservative communications have been a ‘shit’ sandwich.

Regardless of whether you agree with the policies, it is uncontroversial to say that government communications surrounding the Chancellor’s ‘mini’-budget have been poor. With adequate preparation, some degree of caution, and more active situation management, the ongoing fallout might have been avoided – let the consequences of the government’s anti-optics approach be a lesson for us all.

‘Loose lips sink ships’

Kwasi Kwarteng’s delivery of the ‘mini’-budget on September 23 already feels a lifetime ago, such have been the consequences of his promise to introduce the biggest tax cuts since 1972. Despite an immediately unfavourable market response, he wasted no time in hinting at further tax cuts to come: driving the pound to historic lows, causing extreme volatility in the gilt market, and forcing a £65bn emergency intervention by the Bank of England.

Reputational damage extended well beyond financial institutions, however, with a public outcry over the perception that the country’s most affluent would receive a handout in the midst of a cost-of-living crisis. With MPs not keen to lose their seats over the malleable whims of their new Prime Minister, the threat of a parliamentary revolt ultimately pushed the government into a policy U-turn this week.

It’s hard to imagine a worse response to this new government’s first policy foray. The media frenzy has quickly led to talk of a ‘financial crisis,’ and the papers have been keen to emphasise just how humiliating a defeat this is for Liz Truss and Kwasi Kwarteng.

It’s the little things

But it didn’t have to be this way. In fact, the mini-budget didn’t include too much that was a surprise. The reversal of Rishi Sunak’s National Insurance and corporate tax rises were key pledges for Truss on her campaign trail, as was the promise of action over consumers’ energy bills. Meanwhile, the cut in the basic income tax rate has only been brought forward by a year.

Therefore, despite being expensive – with tax cuts totalling £45bn and the energy relief plan projected to cost £65bn over the next six months – there was not much in there that should have caught the market unawares. In fact, new announcements consisted only in the scrapping of the 45% top tax rate and the lifting of the bankers’ bonus cap.

With the cost of this additional tax cut coming in at a measly £2bn (relatively speaking), it is surprising that it was the announcement that triggered such widespread chaos in recent weeks. As we shall see, the problem was one of approach rather than substance.

Carts and horses

The approach itself was hardly a surprise. Since her appointment at the start of September, Truss has repeatedly promised to pay little heed to the ‘optics of government’. Unfortunately, as she has now discovered, an anti-optics path is one that often also fails to achieve its goals.

In his U-turn announcement, Kwasi Kwarteng told us ‘We get it, and we have listened.’ It was a statement indicative of the approach that got him into this mess: putting the conclusion before the rationale. Whereas the groundwork for the energy relief package was well laid out and its purpose clear, for those more surprising budget additions this was certainly not the case.

Combined with a loose approach to language – unnecessarily spooking markets with the suggestion of further cuts – and it can reasonably be said that the damage done to the government in the last two weeks has been wholly self-inflicted.

The impact of optics

The outcome of this government’s approach makes it clear that being anti-optics is not a political position, it is a political failure. However, the lessons we can learn from it extend well into the corporate realm:

1. Be prepared – lay the groundwork of any decision well in advance and engage your influential stakeholders on the intended purpose and outcomes of that decision. As Iain Duncan Smith put it, borrowing from sport: ‘roll the pitch’.

2. Be cautious – choose your words carefully; avoid language that will cause alarm or drive stakeholders to draw their own conclusions.

3. Be active – reactions will always carry an element of the unknown – the best responses are those that engage in real time.

The dangers of poor communications are clear to see. Without adequate preparation, it is easy for a story to quickly take on a life of its own, well beyond the bounds of control of those involved. For those eager to get things done, this issue can be particularly stark. Effective communication drives more than just reputation: it drives outcomes.

 

LUKE ROBERTS