Let’s be honest, growth is the only option and Liz Truss’ economic plan is all we have
Liz Truss has had a bruising start to her premiership. The growth plan, announced by the Chancellor a few weeks ago, received an almost apocalyptic response.
The markets saw the package as fiscally irresponsible, and in a tense time for inflation, the pound and gilts responded accordingly. The politics turned toxic, with the Tories’ reputation for good fiscal management undermined, and their plans for cutting taxes for high earners criticised heavily. According to the polls at least, the public want a Labour government.
The mood at Conservative Party Conference was understandably – and palpably – tense this week. The reversal on the 45p rate abolition took a wrecking ball to the prime minister’s authority. The hounds smell blood and are looking for their next opportunity to rebel. The commentators are suggesting it’s all hopeless.
So, what’s next?
“Growth, growth, growth,” Truss declared in her closing speech yesterday at conference in Birmingham. And she’s right. There simply isn’t another option — either for the government or the country.
The United Kingdom has stagnated for the last decade, with productivity growing at the slowest rate since the Industrial Revolution. The country is about one-fifth poorer than Germany and one-third than the United States, on a per capita basis.
This is either driving or exacerbating pretty much every problem. It means less money in people’s pockets and smaller revenues for the government to spend on public services. It means frustrated young people unable to afford to buy their own home. It means poorer healthcare and lower pensions for the elderly. It means more people in poverty and a lesser capacity to pursue climate change goals. It poisons the public discourse and drives political frustrations across the spectrum.
The single biggest political achievement of the Truss government is that everyone is now talking about growth. Many will say that the Conservatives have been in power for over a decade and failed to deliver. That’s absolutely true. But low growth isn’t a coincidence — it’s because the Tories have failed to pursue a meaningful pro-growth agenda.
They have spoken about getting down taxes while putting them up to the highest level in seventy years, discouraging work and investment. They have spoken about cutting red tape while bringing in countless new laws and regulations.
Truss has identified the problem. The state has swelled to an intolerable size, diminishing individuals and undermining our prosperity. This has been widely misunderstood as simply meaning cutting some taxes — in a Keynesian-style stimulus. In reality, what the government is trying to do is far more structural – getting rid of the burdens that undermine the supply-side producing part of the economy. Some of this is about tax, but much of it is about regulatory reform.
The challenge ahead is to match the vision for growth with forthright action — to deliver tax reform, spending restraint and regulatory reform. This will undoubtedly face immense opposition from vested interests. It will be necessary to pick the right battles, focusing on issues like planning reform that can deliver the most benefit.
This may all end up failing, constrained by time and political opposition. But the alternative, doing nothing and staying on the path towards steady decline, is not an option. The only choice is to go for growth.