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7 September 2022

Leader: The cold reality of Trussonomics

Our new prime minister ignores the question of why there are numerous economies that are not only more equal than the UK but richer.

By New Statesman

For the third time in six years, the United Kingdom has a new Conservative prime minister. Liz Truss takes office in unenviable circumstances and at a time of national emergency. Inflation is at its highest level for 40 years (10.1 per cent), a new wave of strikes is looming, Vladimir Putin’s war grinds on in Ukraine, and a global economic recession appears increasingly likely. Confronted by such troubles, voters exhibit little faith in Ms Truss. Only 14 per cent of Britons believe she will be a better prime minister than Boris Johnson, according to a YouGov poll. Not even a majority of Conservative MPs supported her candidacy.

Yet Ms Truss, an ideologically confident free-marketeer, believes she has the correct policies to effect transformation. For a start, she has vowed to cut taxes by £30bn, including the reversal of the recent National Insurance increase. She also opposes the planned rise in corporation tax, from 19 per cent to 25 per cent, scheduled for 2023.

Ms Truss’s strident rejection of what she calls “Treasury orthodoxy” is, in some respects, refreshing. She is right not to fixate on deficit reduction, as her former patron George Osborne did during the austerity years, and to assert that the UK can afford to borrow more. But her proposed tax cuts represent a solution in search of a problem. The UK’s parlous fiscal performance – the economy has grown by an annual average of just 1.7 per cent since the 2008 financial crisis – is not due to an excess of taxation but to a dearth of investment (only Italy and Canada spend less on research and development among the G7 countries) and poor productivity.

There is no reason to believe that Ms Truss’s tax cuts will ignite the growth that has been so lacking (though they might stimulate demand in the short term). Between 2011 and 2018, when UK corporation tax was reduced from 28 per cent to 19 per cent, there was only one year when the cost of the tax cut was matched by the increase in business investment.

When warned that the richest tenth of households would gain £1,800 a year from her planned National Insurance cut, while the poorest gain just £7.66, Ms Truss insisted that there had been too much focus on “redistribution” at the expense of growth. This ignores the question of why there are numerous economies – Germany, France, the Nordic countries, Australia, New Zealand – that are not only more equal than the UK but richer.

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Faced with the energy crisis, however, Ms Truss has already collided with reality. Having previously said she preferred tax cuts to giving “handouts” to households, she now intends to freeze energy bills. This is welcome and an early sign that Ms Truss may prove more pragmatic than her rhetoric suggests. In times of economic calamity, supposed free-marketeers have long used the state to help preserve the existing order.

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But however flexible Ms Truss intends to be, she remains a politician temperamentally ill-suited to these times. After 12 years of Conservative government, the multinational British state is increasingly fragmented. In Scotland the SNP is determined to force a second independence referendum. In Wales a popular Labour administration has also distanced itself from Westminster.

Yet Ms Truss has treated the UK’s elected devolved leaders with contempt, branding Nicola Sturgeon an “attention seeker” who is “best ignored” and Mark Drake-ford a “low-energy version of Jeremy Corbyn”. Scottish and Welsh voters who have long rejected the Conservatives will rightly feel vindicated in doing so. A decade of austerity has degraded the public realm and widened regional inequalities. Britain needs a prime minister who will mount a concerted assault on social ills while also nurturing a politics of the common good. But Ms Truss has no vision of the good society or of collective flourishing. She unashamedly subscribes to an arid view of individuals as utility maximisers rather than fellow citizens.

If this is a danger for the country then it is also an opportunity for the opposition parties. It would be foolish, however, to underestimate Ms Truss; she is a resilient politician who held seven ministerial jobs under three successive prime ministers. But there is no reason for them to fear her either. Far from delivering the economic and social renewal that the United Kingdom desperately needs, Trussonomics may herald a new period of discord and conflict.

[See also: Liz Truss’s new cabinet is the most right-wing for a generation]

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This article appears in the 07 Sep 2022 issue of the New Statesman, Liz Truss Unchained