The Truss economic crusade hasn’t gone entirely to plan. The special fiscal operation launched by the chancellor Kwasi Kwarteng in late September badly spooked markets, which expected the government to at least pretend to care about how it would pay for its vast array of tax cuts, alongside support for energy bills. Hopefully things will have settled by the time this is published but, as I write, the IMF and the Bank of England have intervened to try and stabilise the situation after the pound crashed and the cost of borrowing shot up.
The remaining supporters of Trussonomics complain that markets overreacted because they didn’t take into account all the other supply-side reforms outlined by Kwarteng aimed at ushering in a nirvana of high growth: overhauling planning regulations, relaxing rules on immigration and investing in infrastructure. The chancellor, in an attempt to calm things down, announced that a “medium-term fiscal plan” will be published in November—a heavy hint that spending cuts are on the way.
Supply-side reforms and spending cuts will be far harder to implement than tax cuts. It would have made sense to show some progress on the first two before betting everything on the last. It’s never a good idea to take on concrete costs when your ability to pay rests on hope. Planning reform is particularly important, both to allow more housing to be built and to boost energy infrastructure, like onshore wind turbines and nuclear plants. But governments have repeatedly tried to do this over the past decade only to run into such intense political opposition that they have backed off. Truss may be less bothered about popularity, but she can only push her party so hard.
A wide range of environmental charities—including the National Trust, one of the biggest membership organisations in the country—have come out hard against anything that would reduce protections for animal habitats. The memberships of these organisations lean Conservative and will be making their feelings known to shire MPs. Those MPs will also have noticed the recent trend of rural council seats going straight from the Tories to the Greens. Likewise, while more high-skilled immigration would boost GDP, it goes directly against the interests of the authoritarian culture warriors in the party who worry that this isn’t what Brexit supporters wanted. Kemi Badenoch and Suella Braverman, Truss’s main leadership competitors from the right, are already briefing their concerns to friendly newspapers.
So the markets are correct to wonder about the political plausibility of substantial growth reforms. And, of course, one of the most obvious ways to boost growth—a free-trade deal with the EU—is off the table.
Spending cuts will also be hard to achieve. The government has apparently ruled out reopening the spending review settlement struck in 2021, which sets departmental budgets for three years, but without doing so it’s unclear how it can generate a pre-election plan for reining in spending. Nor is it clear what could be cut. The NHS (and social care) are already in crisis and will likely need further bailouts. Schools are setting deficit budgets, having been hit with a higher-than-expected pay increase for teachers due to inflation. Defence has been promised billions more. The police are yet to recover from the personnel cuts of the austerity years. The Ministry of Justice is trying to manage a barristers’ strike. Local government has already been cut to the bone. The only substantial budget left is welfare, and with child poverty heading back to 1990s levels, cuts there would lead to hardship that even middle England couldn’t ignore.
Spending cuts would also counteract any growth benefits from other policies. For instance, slashing benefits works directly against expansionary fiscal policies like tax cuts. Even if you are not bothered by the morality of reducing support for the poorest in society while handing tax breaks to millionaires, low-income households are far more likely to spend their money straight away than wealthy bankers are.
Leaving the NHS in crisis also exacts a hefty economic price. While the proportion of people in work has started dropping as we enter recession, the labour market remains tight due to economic inactivity caused, in large part, by more older workers suffering from long-term health conditions. Almost a fifth of 50- to 64-year-olds who have left work since the start of the pandemic are on the ever-rising NHS waiting list. The government is now planning to abolish the sugar tax introduced in 2018, even though health problems are a drag on growth.
There is of course some unproductive public spending, but the worst cuts of the past decade have often hit the areas that could contribute most to the economy—such as adult skills, where there have been funding cuts of over a quarter since 2010.
If the government were really serious about a long-term growth plan for Britain, then rather than rushing into tax cuts it would have developed a coherent analysis of all our real problems—from planning to infrastructure investment, to healthcare and skills. It would have acknowledged the associated electoral challenges and spent its political capital carefully. Instead, it’s blown it all at once.
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