The Memo: What was Liz Truss' mini-budget, and why is she now threatening Keir Starmer with a defamation lawsuit?

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What was Liz Truss' mini-budget, and why is she now threatening Keir Starmer with a defamation lawsuit?

Rita McGonigle - 13 January 2025

Lawyers representing former British prime minister Liz Truss have sent a cease and desist letter to Sir Keir Starmer asking him to stop stating she was responsible for crashing the UK economy. Her lawyers have argued that these statements are “false and defamatory” and contributed to the loss of her South West Norfolk seat in the last general election.  

Truss, the UK’s shortest-serving PM, resigned after a mere 49 days in office, following a sharp increase in borrowing costs after her government’s mini-budget in 2022. For those not in the know, Truss announced that her government would abolish the 45% tax rate on the highest earners, reverse planned increases in corporation tax, and cut the basic rate of tax to 19%. Markets did not respond well to potential unfunded tax cuts and the lack of an independent Office for Budget Responsibility forecast, which resulted in a sharp sell-off in UK government bonds (gilts). The yields on gilts spiked as a result, which increased the government cost of borrowing.  

In turn, the pound plummeted to a record low against the US dollar due to concerns about UK fiscal credibility. The spike in the gilt yields pushed up mortgage rates, worsened the cost-of-living crisis, and disrupted liability-driven investment (LDI) strategies used by pension funds. Therefore, the Bank of England had to step in and buy back gilts to stabilise the market.  

Alas, the crisis did highlight the need for tighter oversight of LDIs to prevent stress on pension funds and increased risk management frameworks. Despite this, gilt yields have recently been on the rise and sterling has been decreasing in valueThe borrowing costs for leveraged buyouts (common in private equity deals) may require law firm clients to explore alternative financing structures. Furthermore, the declining sterling leaves the UK vulnerable to increased foreign investment which may lead to an increase in multi-jurisdictional work.  

So, despite Starmer stating that Truss should focus on sending letters to the many Britons whose mortgage rates went up, her lawyers are standing strong that his statements are “false and misleading.”