comeAfter launching her bid to become prime minister in July, Liz Truss has been talking non-stop Challenge Treasury orthodoxy and drive the economy differently. Friday marks the day when the talk ends and Britain gets a taste of what trosonomics really means.
Let’s be clear: Kwasi Kwarteng’s statement to MPs on Friday was much more than a run-of-the-mill financial event. The mini budget doesn’t really do it justice. Most full-blown budgets are of little importance and quickly forgotten. This one is really a very big deal.
For decades economic policy in Britain has been dominated by the idea that the government should add to the books. Margaret Thatcher compared her approach to public finance to that of a housewife trying to manage a household budget. George Osborne has accused Gordon Brown’s government of “maximizing” the nation’s credit cards. Labor faced relentless questions during the 2019 election campaign – how, in the absence of a magic money tree – it would fund its spending plans.
Trusonomics turns all this on its head. The government will borrow heavily, not only to finance energy subsidy schemes for households and businesses, but also to cut taxes. Truss has doubled since becoming Prime Minister rather than lowering expectations. Cuts to National Insurance contributions and plans to scrap next April’s corporation tax rise, as well as stamp duty cuts and income tax cuts, are said to be brought forward.
Truss and Quarteng’s message to those asking where the money for extra spending and tax cuts is coming from is that everything will work out in the end because the boost given to the economy by Trussonomics will lead to faster growth and higher revenues. treasury
This week is rather reminiscent of that moment 91 years ago – when the new coalition government abandoned efforts to keep Britain on the gold standard: deemed necessary to protect the pound after years of high unemployment and austerity. All costs One minister in the previous Labor government said: “Nobody told us we could do it.” The same can be said for Friday’s budget.
Some of the arguments employed by Truss and Kwarteng echo those made by most left-leaning economists during Osborne’s efforts to balance the budget following the global financial crisis of the late 2000s. Then it was also said that the Treasury was too obsessed with the deficit and should focus more on growth. Osborne was warned by his Keynesian critics that spending cuts and tax increases would slow down deficit reduction, as indeed proved to be the case. No question: the attack on bigots is completely justified because sticking to bigots has not worked.
In reality, only a right government can imagine what the Truss is doing. No Labor administration would dare say its economic plan was to boost growth by borrowing hundreds of billions of pounds, for fear that financial markets would throw a hissy fit. Just as only a right-wing Republican president, Richard Nixon, would have risked an overtures to Beijing in the early 1970s, it is easy for a self-styled Thatcherite to attack Treasury orthodoxy.
Nevertheless, the intellectual and political climate has changed since Thatcher came to power during the previous energy crisis of the late 1970s. Back then, a strong pound and high inflation were making life hellishly difficult for Britain’s manufacturers but Thatcher showed little interest in bailing them out. Companies were left to sink or swim, the strong survived and the weak went out of business. Thatcher’s aim was to move the country away from the idea that the state should be expected to solve every problem.
That philosophy has not survived the twin crises of the past two and a half years: first a pandemic and now rocketing energy bills. The government responded to the first with a raft of furloughs and business support, and now to deal with the second has come up with the largest package of state aid for the economy in peacetime. Leaving family and business to deal with Truss was never an option. The Westminster argument is not about whether there should be government intervention in the economy, but about how big the intervention should be and how it should be financed.
All of which is good news for Labor and the progressive left in general. For a start, Trosonomics shields Keir Starmer from claims that his spending plans are reckless or unaffordable. Contrary to what Kwarteng will announce on Friday, Labour’s tax and spending plans are modest and conservative.
What’s more, challenging the orthodox truss has made room for other hitherto taboo ideas. If it is possible to borrow funds for tax cuts, why not borrow for welfare payments or the Green New Deal?
A final – and obvious – way that taxonomics can be helpful for labor. Growth has stalled, inflation is near 10%, the pound is at a 37-year low, the Chancellor has sacked the Treasury’s top mandarin and decided not to subject his “financial affairs” to scrutiny by the Independent Office for Budget Responsibility. The Conservatives are trailing in the polls, time is short before the next election, and there is ample opportunity to go horribly wrong.
