Economic policy

Why Liz Truss’ ‘scramble today’ economic policy will ruin the Tories’ reputation as the party of growth

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Photo by Liz Truss by Clodagh Kilcoyne/PA Wire.

Andrew Potts

Much of the Conservative leadership campaign has seen candidates vying for the most Thatcherite.

It was understandable on some levels. As Britain faces high inflation, low productivity, rising interest rates, uncertain fuel supplies and spreading labor strikes, invoking the image of a victorious leader who faced similar economic conditions fifty years earlier and who had the courage of his convictions (even if you disagree with them) to put the country on a stronger footing has been considered the way forward.

Some might call it preaching to converts.

Dealing with the greatest economic crisis in half a century will require serious minds and firm action. But the Thatcher playbook is not applicable now, despite the economic similarities encountered.

Liz Truss’ policies have once been dubbed “Trussonomics”. Quirky in itself, because people don’t tend to have an “ism” or “nomics” after their name unless they’ve been a long-time impactful leader (think “Reaganism” or “Abenomics”), but I digress.

While Ms Truss would like to see herself as a Thatcher for the here and now, her approach to tackling the various economic crises facing the country has been more likened to Ted Heath’s ‘race to growth’.

His plan to cut taxes, funded by increased borrowing, has prompted concern from the Institute for Fiscal Studies (IFS) over the ‘deteriorating outlook’ for the UK economy, while the Office for Budget Responsibility (OBR) has warned that UK government debt is on an “unsustainable path” due to inflation and other concerns.

Debt

Rishi Sunak was one of the most popular chancellors of recent times, with his propensity to deliver tens of billions of pounds in state aid through the furlough scheme. In some cases, furlough simply delayed mass layoffs. Airports and airlines are clearly demonstrating this now; staff were made redundant when furlough was reduced, but this left huge staff shortages resulting in flight cancellations and a ‘cap’ on passenger numbers at Heathrow.

What some people didn’t always realize was that Treasury money was public money. The Bank of England printing huge sums of sterling with the British government increasing its borrowing was conveniently overlooked. These were mechanisms that allowed hundreds of thousands of workers to be paid to sit at home doing nothing.

But what worked for Sunak then (subsidies through higher borrowing) won’t be good for now, as he himself backed by operating on a ticket of tax cuts instead. progressive in the years to come. Even though borrowing money was “cheap” just a year or two ago, the cost of servicing that debt is only going up.

And while Truss wants to avoid the image of “handouts” by instead referring to “targeted intervention,” this big-state approach goes against normal conservative values.

Stronger

I wrote that previously I did not see the difference between New Labor and the Conservatives. Now I find it hard to distinguish Tory (Big Government) from Labor (Keir Starmer’s ban on MPs backing strikers).

The worrying part of Truss’ “jam today” policy is that it attempts to harm the long term. To quote a quote from Thatcher, “The trouble with socialism is that you end up running out of other people’s money.”

Stimulating the economy with tens of billions of pounds financed by borrowing as interest rates rise means servicing that debt will become increasingly unaffordable and (ironically?) fuel the inflationary fire. The result will be the need for higher taxes (as Thatcher had to do initially to manage debt and inflation) or deep cuts in spending on all sorts of services at a time when the greater investment already promised will not won’t even allow services to stand still.

The IFS said “these tax cut promises are unrealistic unless they include detailed, deliverable spending cuts of comparable scale.”

While short-term borrowing might be appropriate, the IFS thinks “significant permanent tax cuts” will increase inflationary pressure. That in itself would disprove the Conservatives’ claim to be the party of economic growth.

Westminster begins to imitate Italy (poor economy) and Australia (a new prime minister every three years or so).

Every week brings worse economic forecasts, with £6,000 fuel bills forecast for the New Year and inflation now set to peak at around 18% next January.

“We’ll have a tougher Christmas than we’ve had since the war,” Ted Heath said in 1973.

In the words of Ronald Reagan, “You ain’t seen nothing yet.”


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