The distribution graphs seem so offensive to social justice, and Britain’s position in the currency and gilts markets so fragile, that it is easy to assume that Liz Truss has already lost the next election. Here is a future in which she wins it.
Gas prices are down by a third on their summer peak, and continue to fall, as the world economy adapts to the consequences of Vladimir Putin. Inflation fell last month and continues to drop. The cost of Kwasi Kwarteng’s total package of energy support plus the fiscal event comes in considerably lower than £150 billion. Which eases the upward pressure on interest rates.
The Trussonomics combination of subsidy, via the energy support, and tax cuts puts more money in people’s pockets. The recession is shortened and growth comes in at about two per cent next year – as the National Institute of Economic and Social Research forecasts.
The Prime Minister is thus able to claim, as the election approaches, that her bracing medicine is working: the animal spirits of the economy are reviving, and she is well on the way to meeting her growth targets. The Conservative poll rating rises and Labour’s falls – as voters focus on the choice before them, and their residual doubts about Keir Starmer.
The Opposition mock the Tory ten year progress from David Cameron’s austerity through Theresa May’s belief in “the good that government can do” through Boris Johnson’s Red Wall conservatism to Truss’s free market economics – with its repudiation of her three predecessors. And most voters couldn’t care less. It turns out not to matter much outside SW1.
The growth may be a sugar boom built on borrowing and spending, but the British people are willing to give Truss a fair hearing – of which there is evidence already. Nor are many of them bothered about those distribution graphs (which in any event have tended to plot only the effects of the mini-Budget, not the Prime Minister’s whole programme of support so far).
For as our columnist James Frayne keeps pointing out, lots of voters are fairly relaxed about the rich getting richer – as long as they are also doing so themselves. Come election day, sterling has strengthened, gilt yields are back down, and the stock market is booming. It may even be that Truss gets most of her package of supply side reforms through Parliament.
So much for the potential upside for the Prime Minister, and others, during the run-up to the next election. Mention of Parliamentary votes brings into view the possible downside. I’ve been asking around among One Nation and Sunak supporter types on the Conservative backbenches.
They agree that few Tory MPs if any will oppose the cut in the 45p rate. Some, rather nobly, say that she has won the leadership election and has the right to try everything her way. Others, more cynically, say that she must be given enough rope to hang herself. Some say both. In any event, very few of them oppose the reduction in principle.
The supply side proposals are different. The last Conservative manifesto was silent on some of those we are all reading about, such as a reduction of childcare staff ratios. Other measures that may be pushed, such as the scrapping of the environment-focused “Brexit deal for farming“, would be in breach of the manifesto.
Others in line with the manifesto, such as the anti-obesity strategy, may be pulled. Ministers will doubtless say that some of the reports are inaccurate, and point out that some of the proposals won’t require votes. But some core ones will do – such as new planning zones in which environmental restrictions are relaxed.
The Lords will hold up measures wide of the 2019 manifesto. And this Parliament has already demonstrated the resistance of the Commons in general, and Conservative MPs in particular, to liberalisation of the planning laws. Newt-lovers, nimbys, anti-frackers claiming earthquakes, bird-fanciers and baby-minders are en route now to a Tory MP’s surgery near you.
Different coalitions of resistance will form on the backbenches, based on geography and self-preservation as much as ideology. Less than a third of Tory MPs voted for Truss. Her response has been to exclude most of the other two thirds from office. That spells trouble. The Chief Whip is new and the Number Ten team unproven.
The tax cuts and supply plans are the Prime Minister’s dual key to higher growth. If both are applied, there’s a chance that, come the next election, the Office of Budget Responsibility reports that Britain may be on its way to sustainable growth. But if only the first is delivered, we will have not recovery, but a bubble.
You may counter that governments can win elections in such circumstances. But that takes me back to where I began. I wrote that gas prices may continue to fall – but they may not. And that inflation may have peaked – but, again, it may not, especially if the Bank is undershooting on interest rates, events abroad remain volatile and price rises become baked into the system.
So Truss may not win her way through even to a sugar boom. Admittedly, Governments can be re-elected despite downturns, as John Major’s was in 1992, and our exchange rate is no longer fixed. Even an emergency hiking of interest rates, and rushed-out spending cuts to appease the markets, might not turn out to have the resonance of Black Wednesday.
But the danger is that today’s volatility is evidence not of a temporary spasm, but an emerging consensus: that Truss’s dash for growth, built on higher borrowing, is less likely to succeed than Sunak’s plod for growth, built on deficit reduction – because public and Parliamentary support for supply side reform just isn’t there.
Whether it is or isn’t, in the run-up to the next election, the Government faces a final problem. Kwasi Kwarteng told the Commons on Friday “in due course, we will publish a medium-term fiscal plan setting out our responsible fiscal approach more fully, including how we plan to reduce debt as a percentage of GDP over the medium term.”
That implies further cuts in the growth of public spending before or perhaps after the next election – in other words, at the most testing moment of the political cycle, since the Prime Minister and Chancellor would be unable to duck confronting voters with painful choices for which Boris Johnson’s boosterism has left them unprepared.
Truss is right to insist that her supply side plan isn’t trickle-down economics (whatever that means). The route is the right one. The timing is hazardous: that’s a statement of the obvious, and she risks crashing the car. To which her response might well be: but at the moment, it’s not going anywhere. She has a point, and then some.
Mind you, she could have released her plan as part of a pitch for national unity. She didn’t. And she could have sought maximum buy-in from the Parliamentary Party. She hasn’t. That will matter – even if the economic winds turn balmy. Winning an election is one thing (and will be difficult). Delivering trend growth of 2.5 per cent a year is another.
It will require handling Conservative MPs with more tact and skill than she has shown so far. Especially if they have to fight on a new front – with Richard Tice, and perhaps Nigel Farage, zeroing in on plans to ease immigration controls.