TRUSSONOMICS

Despite resigning as prime minister shortly after being elected as Tory party leader a year ago, when she lost support from her MPs, Liz Truss has bounced back to explain her case for a different economic policy. She has highlighted the problems of low growth and declinism. Truss has not defined what she means by declinism, but I have defined it thus: ‘A belief or policy that the best the UK can expect, or deserves, is the orderly management of decline.’

Truss has condemned what she describes as an ‘anti-growth coalition’ (see here and here). Her most recent foray occurred on Tuesday at the Institute for Government, delivering a speech and answering questions afterwards.

In that speech, Truss alleged that ‘25 years of economic consensus … has led to a period of stagnation and I believe that we need to shatter that economic consensus if we’re to avoid worse problems in the future’. She referred to a poll that ‘revealed 72% of people in Britain agree that Britain is broken, people are getting poorer, nothing seems to work’. Truss blamed this not on a ‘crisis of capitalism’ but upon a move towards a ‘more corporatist social democracy than we were in the 70s in the 80s and the 90s’, with higher state spending, now accounting for 46% of GDP compared to 34.8% in 2000. She complained that the cost of regulations ‘introduced in 2022 alone is £10 billion according to the government’, that the cost of energy in the UK is double that in they USA, that there was ‘a severe shortage of housing’, and that the ‘cost of welfare and pensions has ballooned by 50% in real terms, since the turn of the millennium’. For Truss, taxes were too high as were the marginal rates of taxation. Furthermore, the economy had been dependent upon artificially low interests rates and ‘cheap money … with nearly £900 billion pumped into the system by the Bank of England through quantitative easing in an era of the near zero interest rates’.

Truss regarded the takeover of ‘academic institutions and think tanks’ by the Left to be a problem, with the resurrection of demand management and ‘neo-Keynesian dominated monetary policy’. She continued:

‘This pattern of high spending, high tax and high regulation and low growth isn’t just taking place in the United Kingdom. It is taking place across Western Europe and across the United States, particularly the coastal states. And when we look at the counter examples of high growth in places like Poland, the Baltic states or Florida and Texas, they’re largely places with low regulation and low taxes … That is what Bidenomics is, it’s about injecting more top down subsidies, increasing debt and trying to reduce competition by levelling up taxes across the West … And to fund this federal spending [which] is at 40% more than pre COVID levels. And it’s set to go up even more this year. Soon the United States will be spending more money financing its debt than it spends on its entire defence budget.’

Tellingly, Truss pointed out that (when prime minister):

‘I also wanted, as was widely publicised at the time, to increase welfare benefits by wages, not prices. These two measures would have meant that compared to what we are spending now, we would have saved £35.5 billion over two years. £18.4 billion in 2023 £24 and £17 billion in 2425. But even these modest savings did not command the support of the conservative parliamentary party.’

Furthermore, Truss complained that the OBR had leaked that her proposed budget contained a £70 billion hole – a number which was subsequently proved wrong. The outcome was that she had little option but to resign and consequently there were no supply-side reforms. She said that it was those less well off who were most likely to support her agenda while ‘The anti growth coalition is now a powerful force, comprising the economic and political elite, corporatist parts of the media, and even a section of the conservative parliamentary party. The policies I advocate simply are not fashionable on the London dinner party circuit.’

Truss warned:

‘The UK is in a serious and precarious position and there is a real risk of a downward spiral. The national debt was £525 billion in 2005. By 2022, it had quintupled to £2.5 trillion, and it’s set to top £3 trillion within three to four years … the only way to get out of the debt spiral is to get a grip on public spending while implementing policies to grow the economy. I urge the government to be bold and to set out a clear vision of how the UK can get to sustained 3% annual growth within a decade.’

Truss pointed out this would require ‘big change’ and ‘a new supply side revolution’. Comparing the current problem to that of the 1980s, when Thatcher took on the unions and the nationalised industries, now a supply side revolution needed to take on the bureaucracy, the size of the state, and to lower taxes. It needed to ‘take on the OBR over the impact of tax policy’. Importantly, Truss claimed: ‘It means raising the retirement age further. And as a party we have to deal with a difficult issue of the increasing costs of pensions. The current trajectory is not sustainable.’ Ultimately: ‘In order to grow, we need to change and that starts with acknowledging that we have a problem. It means abandoning the stale economic consensus.’

Despite what some journalists like to say, Truss is not Right Wing. She is a classical liberal, and a former member of the Liberal Democrats. Last year, just after she resigned, a disgruntled Tory MP referred to her aborted administration as ‘libertarian jihadists’.

Truss might appreciate the importance of economic growth and the dire state of the UK economy, but she is nowhere near as radical is she considers herself to be. She does not grasp that the UK’s decline has been ongoing since the late 19^th century, nor does she address the reasons for that decline. She harks back to the Thatcher era without noticing two major problems stemming from that era, nor one major difference.

Firstly, during Thatcher’s premiership, the UK began to run a substantial trade deficit – especially with the EU. Even during the boom years of North Sea oil, the UK was unable to pay its way. Secondly, the UK flipped from being a net emigration country into being a net immigration country. These two issues have continued to worsen and are crucifying the UK today. Also, a major advantage that Thatcher had was the oncoming North Sea oil tax revenues. That is a major difference. The Thatcher government used those tax revenues, and the various proceeds of denationalisation, to fund government activity. We are not so lucky today, and big decisions will have to be taken to retrieve the UK’s economic situation.

Yet Truss even lacks the resolve to abolish the OBR. The UK has managed for centuries without this outfit of Ponzi economists (I give a detailed examination of the ‘case’ put forward by the OBR for mass immigration in The Hegemony of Political Correctness: and the rise of the woke-Right). The OBR should be abolished forthwith.

Shortly before Truss resigned, she had a 90-minute blazing row with her Home Secretary who she dismissed. The row was over the issue of immigration. Truss wanted even more of it, arguing it would boost growth. Suella Braverman, the Home Secretary, was opposed.

Neither the terms ‘immigrant’ nor ‘immigration’ appeared in Truss’s speech. She ignored the issue, and all the costs associated with it and damage done to the economy, in its entirety. For her, the housing shortage is a planning problem. She simply assumes that more immigrants means higher growth – an assumption devoid of any supporting evidence. Immigration into the UK has never been so high and yet economic growth is almost non-existent.

Nor did Truss mention the trade deficit. Not even once.

Despite complaining about the size of the state, Truss did not advocate spending cuts. Instead, she wanted to hold spending down – another bout of austerity. This is despite the huge growth in the numbers of civil servants during the Brexit negotiations and the pandemic. However, like most UK politicians, she made a beeline for pensioners. She wanted the retirement age increasing and wanted the costs of pensions reducing as the expected increases were ‘unsustainable’.

This is shameful. Even a modest growth rate would cover the anticipated increased costs of the state pension. The retirement age should not be increased. If anything, the age should be reduced back down to 65. The UK already has a miserly state pension compared to other countries.

Neither the recent announcement of the government’s decision to pay £billions into the EU’s Horizon programme and to an international fund regarding climate change attracted a mention from Truss. Nor did the scale of the UK’s foreign aid budget, despite its ineffectiveness or the corruption associated with it. Nor did she mention HS2. As these examples show, it is not that government spending cannot be cut without harming the British public, it is that Truss is not prepared to make such cuts

Truss did support the introduction of fracking in the UK to lower the cost of gas.

Truss may have sparked debate, given her intervention and her ideas, but she has proved herself incapable of dealing with the problems she has identified, and proved once again that liberalism is no match for cultural-Marxism.