Liz Truss’ economic plan is ruinous nonsense with no connection to reality | Will Hutton

Liz Truss has observed the dynamism of today’s Tory party – and the media and think tank ecosystem that supports it – as a minister under three prime ministers. It is the Brexit right’s Taliban-like belief in the integrity of their cause that drives the party. In order to win, she has set out to be his uncompromising representative, but her decision didn’t stop there. The only way for a Tory leader to maintain leadership of an increasingly obviously dysfunctional and factional political movement is to rule from the hard right. It will end in failure.

The epicenter will be the economy. Their undisputed declared goal is growth of 2.5%. That’s where the consensus stops. All mechanisms to achieve growth stem from the evidence-free but biased right-wing script – stubbornly anti-European, obsessed with tax cuts, believing nameless regulation to shackle the economy and, most importantly, a weak political class, deep state and obedience to technocrats Great Britain made quasi-socialist – despite 12 years of Tory rule. Truss is the insurgent who carries the Thatcher flame who will set the world right.

Consider their six-point plan for growth. Inevitably, it begins with a commitment to lower taxes “now.” It will “free companies from burdensome regulation”, backed by “supply-side reforms”. She will “abolish all EU-derived legislation by 2023” and “work with industry leaders to regulate UK businesses and consumers.” You will “create investment zones with low taxes and little regulation”. And it will reconsider the Bank of England‘s mandate so that it can better manage inflation. It’s ruinous nonsense.

No insight is granted to reality. It fails to recognize that in a decade beset by a pandemic, climate meltdown, fragile energy markets and threats to food supplies, what matters is how resilient a country’s energy, health, water and agriculture systems are, to support business and civil society as a whole, in which the state must play a leading role. There is no understanding that today’s economy is built on the “intangibles” of knowledge, intellectual property and digitization that are based on smart regulation, not no regulation.

The role of city-regions as engines of growth, as outlined in last December’s government white paper on “leveling”, and the vital institutions and processes that support large cities, which in turn are inevitably state-run, are not accepted. With UK exports flat, no mention is made of trade’s role as a growth driver. As the world’s second-largest exporter of services – built on intangibles that underpin sectors as diverse as finance and the creative industries – Britain is locked out of the country’s largest markets in Europe. It’s a growth plan built on sand.

So the remaining increase in Social Security contributions (to fund public health and social care capacity, callback) will be canceled and the proposed corporate tax hike halted to spur growth while maintaining the four-year freeze on personal allowances Truss silent?

Here, too, the taking of evidence is not permitted. Successive Tory chancellors – quasi-socialists in the absurd Truss story – have cut Britain’s corporate tax rate from 26% in 2010 to 19% today. Private business investment persists at the bottom of the G7. The key driver of investment is not the corporate tax rate but confidence that any investment will pay off, and in a strategy-deprived Britain, dominated by right-wing ideology and cut off from its main market, there is little or no long-term confidence. Truss will forgo much-needed tax revenue—and achieve nothing.

Few directors of UK public companies privately have a good word about Brexit and the likelihood of a trade war over the Northern Ireland Protocol. The view is shared by the tens of thousands launching startups in an extraordinary entrepreneurial revolution centered around our top 100 universities, from an Oxford vastly different from the one Brexiteers attended in the 1980s to to innovation hubs like Northumbria University.

The Tory building is ignorant of this corporate revolution. In their terms, they can’t be real entrepreneurs: they vote Labour, Lib Dem and Green, loathe Brexit, fear the UK will be kicked out of the EU Horizon programme, praise universities, want action on climate change and for the bulk, can’t stand the Tory party, its press and its mad senior commentators.

Because what captivates them is the lack of a UK ecosystem that fosters thriving businesses – another shortcoming that the state must address – compounded by an attempt to rein in regulations and deviate from regulatory standards in our largest market. A classic example is the government insisting the chemical industry should abandon its £500m membership of the EU chemicals regulatory regime, which allows it to export to 27 EU countries and adhere to a £2bn Binding a program that only allows the UK to operate in one country and not to the highest safety standards. In the 2020s, regulation is a way to guarantee product standards and gain market access. British badge regulation is an expensive tool to stifle businesses.

Supply-side reforms? For Truss, they appear to consist in removing what remains of job protections in the OECD’s least regulated labor market, allowing fracking (a false start because Britain’s geology makes the risk of damage and subsidence extraordinarily high) and removing incentives for it turn green. Low tax zones, low regulation zones? As a wealth of evidence shows, these tend to crowd out economic activities rather than create new ones.

Does the Tees Valley or the West Midlands want to become international showcases for accidents at work, tax avoidance and dangerous or just plain shoddy goods? As for the Bank of England’s debt for 13% inflation, you get a life. If it had acted six to nine months earlier – which almost nobody was pushing at the time – inflation could have peaked at 12.5%.

That’s populist bullshit, unless Truss has the chutzpah to raise the inflation target to 4% for a period, an intriguing idea floated by the bank’s former deputy governor Howard Davies. This is real lateral thinking, instead of rehearsing tired Thatcherian panaceas.

Meanwhile, UK households face energy bills of up to £5,000 next year unaffordable by tens of millions – another reality ignored by Truss camp. Truss has become very adept at saying what her audience likes to hear. It is not a compass for governing.

Will Hutton is an Observer columnist

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