Sun, 16 October 2022 at 7:00 am
First the dynamic duo, Liz Truss and Kwasi Kwarteng, were going to “hit the ground running”; then they claimed they hadn’t prepared the ground they were going to hit. What their marriage of culpable ignorance and arrogance in fact achieved was something greeted with astonishment not only by them, but worldwide: they hit the pound running.
The Conservative party took a long time to recover from Black Wednesday, 16 September 1992, when the pound was ejected humiliatingly from the European Exchange Rate Mechanism – the ERM – membership of which had become the fulcrum of their economic policy.
Well, it is going to take a long time for what is left of the old Conservative party to recover from this self-imposed financial crisis. The financial markets voted with their feet on Labour’s economic policies of the 1970s – forcing the Callaghan government to borrow from the International Monetary Fund in 1976; and they have voted with their feet on Truss’s and Kwarteng’s policies now. It took Labour ages to recover from that.
It was no good the duo and their ilk trying to dismiss the U-turn in their plan for reducing the top rate of tax as a “distraction”. Bringing it down from 45% to 40% was the centrepiece of their “growth plan”.
It goes right back to the 2012 tract, Britannia Unchained, of which they were joint authors. In a wonderful Freudian slip, Kwarteng gave the game away by beginning to say the policy was 10 years old – then corrected himself to say 10 days old.
The gulf between Truss’s support among Conservative party members who voted her in and Conservative MPs has become all too apparent. But when people say to me “Don’t you regret your opposition to Johnson?” I know they must be speaking tongue-in-cheek. However appalling Truss is, Johnson’s proroguing of parliament and shameless disregard for national and international law did much damage to this country’s reputation. He had to go.
The bring-back-Boris brigade need their heads – and values – examined. Anyway, we now learn that my old acquaintance Boris has already embarked on the US lecture circuit, where he is boasting about Brexit, while on this side of the Atlantic his obsession with getting Brexit done is recognised as a first-class disaster. A recent YouGov poll shows that 87% of respondents agree the economy has suffered since Brexit, with 38% of leave voters and 37% of Conservative voters blaming Brexit. As the Nous thinktank (formerly Global Future) points out, respondents want politicians “to stop avoiding the subject” – Keir Starmer please note!
Which brings us to that “growth plan”. To my knowledge, and to the knowledge of most economists I respect, there is no evidence that cutting higher rates of tax does anything to stimulate economic growth. Moreover, the benefits do not “trickle down”: they remain stuck at the top. On which subject, the economist Amos Witztum points out there should be far more attention paid to the distribution of gross domestic product than to its growth.
Kwarteng has every chance of going down in history as having been responsible for one of the worst British economic policy decisions since Churchill took us back on the gold standard
However, against a political background where Truss has decided that the jury is no longer “out” on our relations with France, and President Macron is “a friend”, I have a suggestion for Truss, or whoever succeeds her if her parliamentary colleagues decide her political career is to be, as it were, trussed up.
Two ways of improving this country’s growth rate would be to rejoin the single market and welcome EU citizens who want to work here, and, my goodness, plenty of British employers would welcome them. The obverse of the boost to the UK’s economic growth from membership of what was the European Economic Community from 1973 is typified by our Brexit-induced probable exclusion from the €95bn Horizon Europe science programme. To make the most of its eminence in scientific innovation, the UK needs to coordinate with the EU.
In which context it is interesting to note, as my fellow journalist Fintan O’Toole pointed out in the Irish Times, that in their strange work Britannia Unchained, Truss, Kwarteng and co did not see our then EU membership as a problem!
By quite unnecessarily disrupting the financial markets, Kwarteng has every chance of going down in history as having been responsible for one of the worst British economic policy decisions since Winston Churchill took us back on the gold standard in 1925. The essence of that decision was that, for reasons of national pride, the British exchange rate was revalued upwards to the point where our exports became seriously uncompetitive.
The Brexit about which Johnson boasts has eroded our access to our principal market, with devastating effects on our trade. Kwarteng’s desire to aggravate the impact of austerity, Brexit and the cost of living crisis in order to cut taxes for the rich, with no evidence it would stimulate growth, was deranged.