Truss’ growth diagnosis was the right one
One of the tragedies, if that’s the right word, of Liz Truss’ demise is that her key economic observation – that Britain isn’t growing quickly enough – may well be lost to history, discredited thanks to the cack-handed way in which she and her Chancellor attempted to address it. The noises-off from the new administration certainly suggest that may be the case.
The argument is worth repeating: Britain has an ageing population, placing greater pressure on the (unreformed, unwieldy and unproductive) health service. In order for the rest of the state to function as well, either the public sector needs widespread reform or the tax take needs to go up. Since putting taxes much further up would be economically self-defeating, that leaves economic growth as the only way to pump up the Treasury’s coffers.
There is, obviously, a desire in Downing Street to assuage market concerns about the UK’s longer-term fiscal plan. That’s smart and sensible. But it’s also true that market views on everything from inflation to interest rates have moved since Kwasi Kwarteng’s not-so-mini-budget, and the wriggle room that allows should give Jeremy Hunt and Rishi Sunak more scope to let the economy breathe a little. In short: it’s vital they don’t throw the baby out with the bathwater.
That said, for all that growth can be aided by fiscal policy, the real prize is supply side reform. The former think-tanker Matt Sinclair, brought into No.10 by Truss, was working on genuinely interesting ideas on everything from childcare to immigration. It would be a great shame if, in an effort to rid the government of anything that even looks like a reminder of those bizarre six weeks, those reforms are shelved.
We will not have to wait long to see what economic remedy Jeremy Hunt deems it necessary for the country to endure. It would be wise for the Chancellor and the Prime Minister to promise the country some sugar to help the medicine go down in the form of a promise to resurrect some of those much-needed reforms.