Why Liz Truss’ ‘jam today’ economic policy will ruin the Conservatives’ reputation as the party of growth
Much of the Conservative party leadership campaign has seen the candidates vying for who was the most Thatcherite.
This was understandable on some levels. With Britain facing high inflation, low productivity, rising interest rates, uncertain fuel supply and the spread of workers’ strikes, invoking the image of an election-winning leader who faced similar economic conditions fifty years earlier, and had the courage of her convictions (even if you disagreed with them) to put the country on firmer footings has been seen as the way forward.
Some might call it preaching to the converted.
Facing the biggest economic crisis for half a century will take serious minds and firm action. But the Thatcher playbook is not applicable now, despite the economic similarities being faced.
Liz Truss’s policies have already been dubbed ‘Trussonomics’. Unusual in itself, as people don’t tend to get an ’ism’ or a ‘nomics’ after their name unless they’ve been an impactful leader of longstanding (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 counteracting the various economic crises the country faces has been compared more to Ted Heath’s “dash for growth”.
Her plan to cut taxes, funded by increased borrowing, have caused concern at The Institute for Fiscal Studies (IFS) given 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” because of inflation and other concerns.
Rishi Sunak was one of the most popular chancellors of recent times, with his proclivity to provide tens of billions of pounds in state aid through the furlough scheme. In some cases furlough simply delayed massive layoffs. Airports and airlines clearly demonstrate that now; staff were made redundant when furlough was being tapered, but it has left massive staff shortages resulting in flight cancellations and a ‘capping’ of passenger numbers at Heathrow.
What some people didn’t always realise was that Treasury money was public money. The Bank of England printing huge sums of sterling with the UK Government increasing its borrowings was conveniently overlooked. They were mechanisms which allowed hundreds of thousands of workers to be paid to stay at home doing nothing.
But what worked for Sunak then (subsidies through higher borrowing) will not be right for now, as he himself has argued by instead running on a ticket of gradual tax cuts years in the future. Although borrowing money was ‘cheap’ only a year or two ago, the cost of servicing that debt is only getting bigger.
And whilst Truss wants to avoid the image of ‘handouts’ by instead referring to ‘targeted intervention’ this big state approach runs contrary to normal Conservative values.
I have written that I previously couldn’t see the difference between New Labour and the Conservatives. Now I am struggling to distinguish the Conservatives (Big Government) from Labour (Keir Starmer’s ban on MPs supporting strikers).
The worrying part of the Truss ‘jam today’ policy is that it tries to detract from the long term. To offer a Thatcher quote, “The problem with socialism is that you eventually run out of other people’s money”.
Stimulating the economy with tens of billions of pounds funded through borrowing while interest rates are rising means that servicing that debt will get increasingly unaffordable, and (ironically?) add fuel to the inflationary fire. The result will be the need to raise taxes (as Thatcher initially had to do to manage the debt and inflation) or large spending cuts for all sorts of services at a time when the greater investment already promised won’t even allow services to stand still.
The IFS stated that “these tax cut promises are unrealistic unless they’re going to set out detailed, deliverable spending cuts on a comparable scale.”
While short-term borrowing might be appropriate, the IFS think “large permanent tax cuts” will increase inflationary pressure. This in itself would disprove Conservatives’ claim of being the party of economic growth.
Westminster is beginning to emulate Italy (poor economy) and Australia (a new premier every three years or so).
Each week brings worse economic forecasts, with £6,000 fuel bills predicted in the New Year and inflation now expected to peak at around 18% next January.
“We shall have a harder Christmas than we have known since the war”, said Ted Heath in 1973.
In the words of Ronald Reagan, “You ain’t seen nothing yet.”
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