Sunak’s record is chequered but the ex-chancellor is no Gordon Brown

Truss compared her rival for Tory leadership to the former Labour leader, but what exactly does she fear?

‘An escalating trade war with Europe would be far more damaging than a little tax cutting’

Of all the things you can call a Tory chancellor, to compare him to Gordon Brown is perhaps the most insulting. Brown is still a despised figure on the political Right. So it was perhaps no surprise that in this week’s heated TV debate, Liz Truss should hurl just such a barb at her Tory Party leadership rival Rishi Sunak. Working out precisely what she meant by it is, however, another matter. It was by no means clear.

The context of the comparison was Sunak’s refusal to offer immediate tax cuts to help ease the cost of living crisis because of their supposed inflationary effects. This, she asserted, was similar to the approach taken by Brown, the former Labour prime minister and chancellor.

It is possible that Brown did at some stage offer just such an excuse for not cutting taxes, though I have struggled to find it in the cuttings. But inflation was really not a problem during Brown’s chancellorship.

On average over his 10-year tenure, it conformed almost exactly with the Bank of England’s inflation target. He didn’t need to worry too much about adding to price pressures through fiscal stimulus.

What Truss may have had more in mind was the way Brown transformed the Treasury into an all-powerful institution, dictating domestic policy across the piste, often to the frustration of the prime minister Tony Blair and other departments of state.

The irony here is of course that when he began his chancellorship, Brown was deeply suspicious of the Treasury, which he feared would obstruct his objectives.

Initially, he and his advisers operated within it like a revolutionary cell, but he soon came to dominate its every corridor; his top mandarins became drunk on the power he bestowed on them.

If Sunak becomes prime minister, the Truss camp fears, then stultifying Treasury orthodoxy will be similarly empowered, and all radical thinking will be crushed from the body politic.

If not that, perhaps it was Brown’s allegedly careful husbandry of the public finances that Truss was talking about, a curious criticism to make of a Tory chancellor since responsibility with the public purse is a key demarcation line between Conservative and Labour governments. It is one of the curses of Tory administrations that they are forced to spend their first years in office clearing up Labour’s mess. Truss, by contrast, seems determined to leave her own mess behind.

As we know, Brown didn’t stick by the fiscal orthodoxy of his early years. In the second half of his tenure at the Treasury, he found ways of driving a coach and horses through his own fiscal rules. By the end of the cycle he was running budget deficits more suited to its recession-bound beginnings. The subsequent financial crisis was in no way caused by this fiscal incontinence, but it cruelly exposed a government that had been spending way beyond its means.

Here again, the comparison between Sunak and Brown looks less than appropriate. Brown’s response to the financial crisis was to embark on a major fiscal stimulus, and then to oppose the fiscal consolidation urged on Britain by the International Monetary Fund as premature. In this sense, Truss is in fact rather more like Brown than Sunak, who by contrast, appears to be much more out of the George Osborne mould.

Osborne ordered a big fiscal consolidation right into the teeth of the post-financial crisis recession, and even argued at one stage that by giving international investors greater confidence in the UK economy, such a process might be considered “expansionary”. Sunak’s line of argument is not so dissimilar.

As it is, the proposed £30bn Truss stimulus might be considered rather less appropriate than Brown’s. On the assumption that Truss becomes the next prime minister, she’ll be looking at a similar black hole in the public finances as that faced by Brown. But she will also have an overheated labour market to contend with.

Brown, by contrast, faced a serious recession and steeply rising unemployment. At this stage, Truss doesn’t have to worry about either of these things. The IMF’S latest forecasts for the UK economy, which factor in Sunak’s planned tax raid, make depressing reading, but they do not point to a deep recession.

To be stimulating demand when the labour market is as tight as it is doesn’t obviously look sensible. Sunak is right to argue that it will lead to higher mortgage rates, even if citing 7pc is massively overegging it. In any case, the focus in the leadership debate on tax cuts versus fiscal consolidation is in some respects beside the point.

Either way, the difference is going to be marginal. Sunak overstates his case by insisting that Truss’s reversal of his tax rises would result in a fiscal meltdown.

Unfortunately, there are much more serious threats out there than the damage wrought by unfunded tax cuts. Simon French, chief economist at Panmure Gordon, describes the turf war over whether tax cuts are inflationary as “a little like arguing over the curtains in the Colosseum as Rome burns”.

An escalating trade war with Europe would be much more damaging to business confidence in the UK than a little tax cutting. So would messing around with Bank of England independence, which some of Truss’s supporters have hinted at.

We were little the wiser after this week’s debate on what Truss really wants to do. That in itself might be a cause for concern.

Truss complains that the Government is too risk averse, but then risk taking is for business and finance, not government. The function of the state is instead to provide stability and order, not to gamble with the nation’s future.

Still, there is this to be said for what we know of the Truss approach. The IMF says that risks to the economic outlook are overwhelmingly tilted to the downside, with a sudden stop in Russian gas exports to Europe and a further lockdown-induced slowdown in China listed among any number of threats to the global economy.

Therefore, if any of these things come to pass, then the Truss tax cuts may even look quite smart.