Emily Carver is Head of Media at the Institute of Economic Affairs.
The heavens may have finally opened but there is a foreboding sense that disaster is on the horizon.
Bad news keeps coming, yet we only have a vague idea of how the next Prime Minister will attempt to deal with the omini-crisis we face. Soaring energy bills, NHS waiting lists, repeated strike action, illegal immigration; the country feels in a state of limbo as the to-do list grows by the day.
Despite the deluge of apocalyptic headlines, many are unaware of just how tough it’s going to get (a recent survey showed 12 per cent of us think bills will decrease this winter, while most underestimate the scale of the rises heading our way). But many of us are already pinching pennies as the cost of basics keep rising.
One exception to the doom and gloom has been the resilience of our labour market, though the issue of shortages in key sectors remains. The latest data show a mixed bag, but no sign of recession (yet). The headline problem – that median pay increases have failed to keep pace with accelerating inflation – is of little surprise, although an increase in low-paid workers, for example in food and hospitality, is likely to have had a downward effect on the median pay data.
But with unemployment only very marginally up, and payroll employment at a record high, there is still hope that the economic downturn could at least be a “job-rich recession”.
However, the cost of lockdown is becoming more apparent by the day. Businesses are going to the wall in record numbers. During the pandemic, insolvencies were kept artificially low. But as government support tapered off, businesses that were clinging on for dear life have found rising costs the final nail in the coffin; in the second quarter of this year, insolvencies were 81 per cent higher than in the same period the previous year.
The question of how businesses are going to cope with rising outgoings remains unanswered. Despite the growing consensus that government must always have a solution, it may well be that there is very little ministers can do to alleviate the pain, and it’s likely that many of those who have not prepared, for example through energy efficiency measures or cost savings, will go bust.
The number of restaurants, for example, falling into insolvency has increased by more than 60 per cent in the past year – and more up-to-date figures are likely to show the situation worsen. For hospitality, Sunak’s endless schemes and handouts were for thousands of businesses simply putting off the inevitable.
Perhaps if the trade-offs had been articulated earlier, fewer people would have accepted the Government’s authoritarian measures for so long. In any case, it was a dereliction of duty that both government and opposition failed to communicate what impact the pandemic – and public health measures – might have on the economy and our standard of living further down the line.
It was as if the Government could simply turn on the spending taps, throw us a life jacket, and everything would be near plain sailing. The only thing that mattered was keeping the virus at bay.
Many of us enjoyed near or full pay, while the state borrowed and printed money to keep our heads above water and keep businesses that otherwise would have gone to the wall alive. This gave a false sense of security. Many in salaried jobs even accrued savings as living expenses plummeted.
Much of that money will now have been well and truly spent. A large proportion of households have no savings at all.
Against this backdrop, the left is gaining support for its big-state solutions. Sir Keir Starmer’s economically illiterate policy to punish the oil and gas sector with further windfall taxes in order to “freeze” the energy cap will do nothing to deal with the fundamental issue: a lack of gas supply.
Nor will it be cost-free, as the Labour front bench seem to think it will be. Of course, no word is given to the impact of windfall taxes on investment, the very evident failure of the energy price cap as a policy, nor the way the Net Zero dogma of successive governments has left us woefully exposed to supply shocks.
But at least Starmer has a proposal (“Labour would stop the energy price cap going up. This would save families £1,000 this winter”), however overly simplistic it may be. And it’s a popular one. When the public is asked whether they’d like to maintain the current price cap, of course the vast majority say yes. Who would opt for higher energy bills?
But this is akin to asking people if they want any freebie. The difficulties lie in the terms and conditions.
With the current vacuum in government, it’s prime time for the Left to make gains, and they may well be doing so. Worryingly, public debate appears to be on their side, at least in the battle of ideas, and polling continues to show Labour in front on “managing the economy”.
After the Government succumbed to a windfall tax, the Conservatives lost their free market credentials. The Left has capitalised on this. Now, greedy corporations are to blame for inflation. Nationalisation of industry is the answer to rising prices.
And further redistribution of wealth is demanded, with little to no recognition of the considerable cost-of-living support already announced by the Government – amounting to £1,200 for a working-age family on means-tested benefits, which will apparently be paid for by the windfall tax, but more so extra government borrowing.
Liz Truss, focusing on economic growth, has promised to reverse the rise in National Insurance and suspend the green levy on energy bills. Rishi Sunak, on top of his already announced support packages, has committed to removing the five per cent VAT on household energy bills. The accusation that this is mere tinkering at the edges is fair, and further immediate support in the form of higher benefits may well be needed.
But it’s on the next leader of our country to be honest about the challenges we face and the limits of government. It’s on them to look beyond sticking plasters, to communicate a longer-term strategy that will lower the cost of living through supply-side reforms rather than increasing dependence on the state, and to have the courage to rethink our energy strategy that has for so long neglected security of supply while prioritising arbitrary climate targets.
It will only be by providing a strong and confident alternative to the left-wing narrative – and restoring the party to its reputation of managing the economy well – that the Conservatives stay the party of government.