Playing the Truss card won’t work

Jonathan Edwards

Much of the framing of this week’s Spring Statement can be summed up with two words: Liz Truss.

The position of the Treasury has been to warn that the economic situation faced by the UK means that the purse strings need to be tightened to avert the economic meltdown caused by the Truss government in September 2022.

In a mini-Budget the Chancellor at the time, Kwasi Kwarteng, announced £45bn of unfunded tax cuts which sent the cost of UK Government borrowing soaring and led to wider contagion across financial products such as mortgages.

Anyone who had read Britannia Unchained, a manifesto published by several young Tory MPs led by Truss and Kwarteng in 2013, knew exactly the economic policy likely to be pursued once they assumed the highest offices of the State. It was a rallying cry for radical tax cuts and the rolling back of public investment.

Brexit philosophy

Brexit was the vehicle which enabled the remodelling of the State they had in mind and in many ways was the natural conclusion of Brexit philosophy. Unfortunately, those institutional lenders that provide money to UK plc thought the plans were illiterate leading to the crisis that ultimately ended the Truss premiership.

As we know, Truss blamed Kwarteng, replacing him with Jeremy Hunt who pursued a more orthodox Conservative fiscal plan to calm matters.

At the time I wrote an article saying that perhaps the most significant consequence of the brief Truss premiership was that it would entrench orthodox Treasury fiscal policy over the UK Government.

The fantasies of the right wing Brexiteers of a Singapore-on-Thames had been smashed to smithereens, but it would equally make it more difficult for those of us who advanced a high investment economic model to make our case without being accused of recklessness.

There is, of course, a perfectly plausible economic argument for increased public investment leading to improved economic performance resulting in higher Treasury receipts. Indeed, there is a credible case to be made that the markets will increasingly view UK policy as risky unless such a policy is adopted in a plan including taxing latent wealth.

Returning to the Spring Statement, it seems to me that the major political problem that the current Chancellor, Rachel Reeves, faces is that there are no discernible differences from her approach to the economy to that of her predecessor Jeremy Hunt – and I don’t just mean her decision to mirror Tory fiscal framework rules.

Looking at the Statement, the Tories would be more than comfortable with provision to reduce state protection as £5bn as outlined: £2bn of cuts to the Civil Service; £3.5bn of day-to-day savings on the running of government by 2029-30; extra defence spending and the pledge to make the UK a ‘defence-industrial superpower’. This leaves Labour exposed to the left and the populist right. In other words, sitting duck territory.

Bleak

The major economic issue facing the UK Government is the increasingly bleak economic projections by the OBR and the worsening international economic picture. The Statement is based on revised Office for Budget Responsibility figures that halve projected growth for this year. Matters could easily get worse and quickly.

Research by KPMG this week indicates that consumer confidence is plummeting in the UK, and considering it accounts for 60% of UK economic performance this is very bad news.

Furthermore, matters in the US are looking increasingly shaky because of the policies of the Trump administration, where consumer confidence has fallen to a 12-year low. The US economy is even more reliant on consumer spending than the UK at 70% of economic performance. These figures will only heighten fears of a self-imposed MAGA recession. As the old saying goes, when the US economy sneezes, the global economy catches a cold.

The political consequences of falling consumer confidence are equally as serious for both the UK and US governments. It is an indication that people don’t have confidence in their economic approach, which tends to reflect in the opinion polls and electoral performance.

What Starmer and Reeves are dishing out at present should therefore worry anyone with a red rosette facing election in the short to medium term. If I was a Labour MP, I would be entering panic mode territory, even with four years until a general election.

Brussels

The most obvious rational play for the Prime Minister both economically and politically would be to go to Brussels and plead for a deal to open a new post-Brexit chapter based on resumed trade relations. This would immediately boost exports and hence economic performance and lead to the OBR revising forecasts to a more positive outlook. The developing security crisis in the east of the continent provides the perfect pretext for a 21st century Entente Cordiale with the EU which Brussels might see as to their advantage as well.

It is true the populist right will be energised. However, they will have to be defeated one way or another.

I would put it to the Labour Party that a stagnating economy based on Tory austerity is not the ideal battleground for the remainder of this decade.

Jonathan Edwards was the MP for Carmarthen East and Dinefwr 2010-2024