November 28, 2022


sSince launching her bid for prime minister in July, Liz Truss has spoken nonstop about the need for it Orthodox Treasury Challenge The economy is run differently. Friday marks the day the talk ends and Britain gets a taste of what Trussonomics really means.

Let’s be clear: Kwasi Karting’s statement to MPs on Friday is much more than an ordinary financial event. The small budget doesn’t really do it justice either. Most full budgets don’t matter much and are quickly forgotten. This is really a very big deal.

For decades, economic policy in Britain was dominated by the idea that the books of government needed to be added. Margaret Thatcher likened her approach to public finance to that of a housewife who seeks to manage the family budget. George Osborne has accused Gordon Brown’s government of “over-maxing” the country’s credit card. Labor faced relentless questions during the 2019 election campaign about how to fund its spending plans — in the absence of a magical money tree.

Aesthetics turns all of this on its head. The government will borrow large sums, not only to fund energy support schemes for households and businesses but also for tax cuts. Far from dampening expectations since becoming prime minister, Truss has doubled. In addition to cuts to National Insurance fees and the scrapping of a corporate tax increase next April, there has been talk of reducing stamp duties and introducing plans to cut income tax.

Truss and Kwarteng’s message to those wondering where the money is coming from to pay for the extra spending and tax cuts is that everything will work out in the end because the boost to the economy provided by Trussonomics will lead to faster growth and higher revenue for the Treasury.

It all reminds us of the moment – 91 years ago this week – when the new coalition national government abandoned its attempts to keep Britain on the gold standard: a major turnaround after years of high unemployment and austerity deemed necessary to defend the pound at all costs. “No one told us we could do that,” said a minister in the previous Labor government. The same can be said about the Friday budget.

Some of the arguments published by Truss and Quarting mirror those made by most left-leaning economists during Osborne’s attempts to balance the budget after the global financial crisis in the late 2000s. Then it was also said that the Treasury was too obsessed with deficits and needed to pay more attention to growth. Osborne was warned by his Keynesian critics that spending cuts and tax increases would make deficit reduction slower, as has already been proven. There is no doubt that the attacks on Orthodoxy are fully justified because upholding orthodoxy did not work.

In fact, only the right-wing government can think of what Truss is doing. No Labor administration would dare say that its economic plan was to boost growth by borrowing hundreds of billions of pounds, fearing that financial markets could throw a fit of chaos. Just as a right-wing Republican president, Richard Nixon, could risk making overtures to Beijing in the early 1970s, so attacking the orthodoxy of the Treasury is easier for a self-styled Thatcher.

However, the intellectual and political climate has changed since Thatcher came to power during an earlier energy crisis in the late 1970s. At the time, a strong sterling and high inflation were making life very difficult for British manufacturers, but Thatcher showed little interest in rescuing them. Businesses are left to sink or swim, with the strong surviving and the weak out of business. Thatcher’s intention was to distance the state from the idea that the state should solve every problem.

That philosophy has not survived a two-pronged crisis over the past two and a half years: first a pandemic and now energy bills soaring. The government responded to the first with furlough and a raft of business support, and has now come up with the largest package of state support for the peacetime economy to handle the second. Leaving homes and businesses to handle the best possible was never an option for Truss. The debate in Westminster is not about whether there should be government intervention in the economy, but how the intervention should be and how it should be financed.

All this is good news for the Labor Party and the progressive left in general. For a start, Trussonomics protects Keir Starmer from claims that his spending plans are reckless or unsustainable. Contrary to what Kwarteng will announce on Friday, Labor’s tax and spending plans are modest and conservative.

What’s more, by defying Truss orthodoxy, he carved space for other hitherto forbidden ideas. If it is possible to borrow to fund the tax cuts, why not borrow to increase welfare payments or for a Green New Deal?

There is one last – and obvious – way in which aesthetics can be beneficial to PT. Growth has stalled, inflation is close to 10%, sterling is at a 37-year low, and the finance minister has fired the Treasury’s top Mandarin and decided not to subject the “financial event” to scrutiny by the Independent Office for Budget Responsibility. The Conservatives are behind in the polls, the time is short before the next election, and there is plenty of room for things to go wrong.



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