It has been clear for years that our putrefying economy is in desperate need of shock therapy. Yet instead of addressing its many horrific pathologies, our ruling class, well served by the status quo, has stubbornly blocked radical surgery. The result has been catastrophic: Poland and Slovenia are catching up with us in terms of middle-class lifestyles and our desperate young can’t afford to buy a home.
David Cameron, Nick Clegg, George Osborne, Theresa May and, tragically, even Boris Johnson must all share in the blame. None of them had the conviction or courage to dismantle Gordon Brown’s command-and-control system, to undo the creeping bureaucratisation of Britain, to reverse our slow transformation into the worst stereotype of a stagnant, decadent, obese, overtaxed European welfare state, anaesthetised by free money, easy credit, rocketing house prices and triple-locked pensions.
Until a few weeks ago, it seemed as if even Brexit, that ultimate act of popular democratic rebellion, that last mechanism to railroad the nomenklatura into reforming, had been neutered, turned into yet another excuse for tinkering and fiddling and wasting taxpayers’ money on bogus “levelling-up” and pseudo-devolution.
Then, suddenly, at one minute to midnight, just as all hope appeared lost and stagflation looked like the new normal, we have suddenly been rewarded with a new Prime Minister apparently intent on a revolutionary shift in policy. Unlike the last four Tory PMs, she is a true believer in the power of free markets and liberal economics to deliver growth and prosperity. Her plans appear almost too good to be true and are, in many cases, exactly what free-market critics had been calling for, from the far fringes of the wilderness, for so many years.
It certainly feels as if we are in 2016 all over again, and that the past six years have been a bad dream. Truss wants a Thatcherite Brexit, the only kind that will actually work: she will weaponise tax and regulation to suck capital and jobs out of Europe. If she gets her way, and isn’t derailed by useful Tory idiots or an apoplectic Left-wing establishment, Britain finally has a chance of becoming the low-tax, sensibly regulated entrepôt-state, the offshore high-value-added, pro-services, pro-science, pro-technology economic centre that British Eurosceptics have dreamt about ever since Margaret Thatcher’s Bruges speech of 1988. Of course, many Brexit voters had a different vision, but Truss’s gamble, correctly, is that what counts is what works, rather than what is popular in the short-term. She hopes such voters will back her if she can deliver a drastic increase in prosperity across the country.
Ideology is back, and Britain is at a turning point: either Truss has enough time and capital to deliver the massive changes that are required, ushering in a new golden age, or it’s already too late and we end up with the most Left-wing government since Harold Wilson. One thing is clear: the “centre” is finished, and rightly so.
Our intelligentsia has fallen foul to a toxic form of declinism. It understands that there is a problem but, weirdly, blames “Toryism”, failing to understand that Truss rejects the failed social-democratic consensus of her predecessors. Absurdly, most orthodox “thinkers” have convinced themselves that nothing can really boost growth – apart, that is, from rejoining the single market, even though most Western European countries are failing as badly or worse than us. The subtext is clear: we have sinned, and we must now rot in hell. Their only answer is to relentlessly increase taxes on the better off, and to increase handouts. The cake’s size is fixed, and must be redistributed to death.
The Institute for Fiscal Studies, like the rest of the Left-wing establishment, opposes Truss’s tax cuts, just as it opposed Brexit. It calculates that trend growth would need to return to the much stronger rate seen between 1983-2008 (when Thatcher’s reforms had begun to be felt, until they were finally wrecked), rather than the much feebler expansion seen during the 2010s, merely to stabilise the national debt as a fraction of national income.
Yet the IFS doesn’t seem to grasp why Truss will be unfazed. There is a new dividing line in British politics: between those who believe that much faster sustainable growth is possible, and those who don’t. Truss knows that the country will be in trouble if she doesn’t increase GDP substantially, but she also correctly realises that we are equally doomed if she chickens out of slashing taxes. Our present low-growth rut is not sustainable with an ageing population. Truss is betting the house on boosting the annual rate of GDP expansion back to 2.5 per cent or more, by massively incentivising investment, rebooting the City, bolstering house-building and construction, drastically increasing energy output and triggering an entrepreneurial revolution. Thatcher did it, so why can’t she?
The only question now is whether Truss and Kwarteng are willing to go far enough. Only extremely radical change, of the kind meted out in the Budgets of 1979 and 1986, can jolt Britain out of its quasi-stagnation. Reversing Sunak’s national insurance and corporation tax hikes will be hugely helpful, but isn’t enough: it would simply prevent the situation from getting any worse, not make it any better.
Taxes on UK business are structured in a way that penalises corporate investment, depressing growth, productivity and wages. Allowing companies fully to expense all of their investment in plant, machinery, structures and building would boost long-term GDP by 2.5 per cent and wages by 2.1 per cent, in return for a mere £10 billion a year in reduced revenues, according to the Centre for Policy Studies. Cutting stamp duty would be great: until 1997, that levy ranged from zero to 1 per cent; now it goes as high as 17 per cent. But we also need to build a lot more homes, and normalise monetary policy. All taxes must be reviewed, and any that damage growth slashed, even at the price of a bigger deficit. There is also plenty of useless spending to be cut after Johnson’s binge.
The Left is wrong: the danger is not that Truss will be too bold. It is that she will be cowed by defeatist propaganda into doing too little. Go for it, Prime Minister: this is your one chance to engineer a British renaissance.