Cut public spending to bring back growth
Liz Truss’s account of her turbulent 49 days in Downing Street shines a much-needed spotlight on several critical problems that the Conservatives must address – rather than wish away – if they are to restore their fortunes and those of the country. The Prime Minister would do well to heed at least some of what she says.
Her first important revelation is the extent to which the institutional tail is wagging the government dog. Despite a history of inaccurate forecasts, the Office for Budget Responsibility is now “a driver of fiscal policy” and one, moreover, biased against “low taxes and supply-side reforms” in favour of “a higher-tax and higher-spend outcome”. The “Blob”, as Michael Gove once derided an educational establishment intent on inertia, has reached the core of government.
But on one thing, Ms Truss and the economic modellers are united and correct: Britain is in the grip of a growth crisis eroding livelihoods the length and breadth of the land. This must be reversed; there is a huge public appetite for a more dynamic economy. A champion of enterprise and innovation is not the enemy of British voters.
Yet the Blob alone was not responsible for Ms Truss’s downfall. The markets were spooked because while she delivered on low-tax, she did not deliver on low-spend. Indeed, as she conceded, only measures to bring down costs “over time” and in the “medium term” were considered. This has too often been the story. Cutting spending and reducing the size of the state are always left for tomorrow. But Britain is spending beyond its means now, and the whole world can see it.
The sad consequence of Ms Truss’s failure to cut spending is that the very policies the country needs to get back on track have been disavowed by senior Conservatives. Political currents may tempt Rishi Sunak to define himself against his predecessor, but the economy needs him to define himself in favour of completing what she started – by cutting spending as well as tax. Only with these two in harness can the growth potential of the country be unlocked, not spooking markets but delighting them.
The public sector cannot sustain itself in its current bloated form and, in turn, innovators will not tolerate exorbitantly high tax rates to bail it out. Something has to give.