This Foreign Secretary appreciates the need to be unapologetically pro-business

Liz Truss’s approach is the right one for the economy and business. Under the last government, there was no coherent economic vision. Taxes rose as fiscal policy became obsessed with the budget deficit. Ms Truss, by contrast, recognises the role that fiscal policy can play in stimulating growth. She also appreciates the need to be unapologetically pro-business.

Her focus on incentives, with lower and simpler taxes as well as smart regulation, is welcome and necessary.

In the immediate term, the UK faces an inflation shock and weaker domestic demand, which threatens to become a recession. Normally, higher inflation leads economists to want to tighten monetary and fiscal policy simultaneously.

But the nature of our inflation shock means that is the wrong approach. Inflation is triggered by supply-side factors, exacerbated by poor monetary policy, and is not caused by an overheating domestic economy. The right response is a tighter monetary policy and a looser fiscal stance to address weaker domestic demand.

The latest forecasts from the Bank of England further vindicate a looser fiscal stance. The jobs market is healthy, but unemployment is expected to rise. Thus, reversing the increase in national insurance is key. As is cancelling the planned increase in corporation tax.

As things stand, next spring, according to the Centre for Policy Studies, the UK will go from having one of the more competitive corporate tax regimes in the OECD to being ranked 31st out of 38 countries. All this can be done in an emergency Budget – including help with energy bills.

At the heart of Ms Truss’s agenda is a fundamental reset of orthodox economic thinking in the UK. The Treasury believes that trend growth is low. Thus, it thinks more of the budget deficit is structural, not cyclical, and argue it must be addressed by austerity or higher taxes. But the Treasury was wrong on austerity a decade ago and is wrong on taxes now.

It has also been disingenuous about borrowing. It is a policy option that can be used when necessary. Crucially, the Government can borrow currently at incredibly negative real interest rates.

In future, controlling public spending and economic reform will be critical, too.

One area ripe for change is the City. We need to move on from the period of benign neglect to recognising the importance of financial services, so Ms Truss’s plans to ensure regulators fully embrace post-Brexit freedoms are welcome. Reform of MiFID 2 and Solvency II could help the City and unlock billions of capital for long-term investment in UK infrastructure. Irrespective of one’s stance on leaving the EU, financial services regulation is a Brexit dividend; whether that is reforming on shored EU regulations, so they are better tailored to the UK’s needs, or moving quickly in new innovative areas of finance.

Wanting the regulators to seize this opportunity, when they are often overly cautious, is hardly radical. They have gained huge power, which needs to be counterweighted. There has also been confusion about Ms Truss’s stance towards the Bank of England.

It will remain independent and set interest rates. Reassessing its remit to ensure it is best suited to the economy’s needs is not an attack on its independence. Also, the Bank has made mistakes and increased accountability should be welcomed.

In short, we need a pro-growth economic policy. Fiscal policy should focus on stabilising growth and monetary policy on keeping inflation in check.