The experiment is over. Truss’s ‘plan for growth’ is dead

Editorial: No one outside the Tufton Street set and the hard right of the Tory party believed in it anyway, and it has not survived its first exposure to political and economic reality

There is not going to be a ‘new economic era’ of the kind alluded to by Kwasi Kwarteng (EPA)

The very least the public requires from any government is competence. People don’t actually need inspiring rhetoric, visions, ambitions or aspirations from their leaders, although these are nice to have. Rather, they just need a sense that an administration knows what it’s doing.

Like businesses, people prefer to have some stability so that they can make plans. It isn’t much to ask. Instead, Britain is facing power cuts in the months ahead.

The British people have been denied competent, stable government for some considerable time. More or less since the 2016 Brexit referendum, in fact, there has been nothing but political turmoil – and the timing is no coincidence. Four prime ministers in just over six years, along with six chancellors, two general elections, and countless fresh starts and new initiatives, have yielded little in the way of progress on living standards. Of course, the Covid pandemic and the war in Ukraine have caused disruption, but no other advanced economy, not even Trumpite America, has suffered such turbulent times.

The U-turn on the 45 per cent “additional rate” of income tax is welcome, as a gesture of social solidarity during the cost of living crisis, but it is also further confirmation that the “governing party”, even with a large majority in parliament, is finding it difficult to govern. It is hopelessly divided and factional. Allies of Ms Truss and Mr Kwarteng can be forgiven for wondering precisely what it is that drives sacked ministers such as Michael Gove and Grant Shapps to such extremes of disloyalty during their new leader’s first conference.

It remains the case that the best part of £50bn in unfunded tax cuts has still to be accounted for, and no one is quite sure how. Answers are needed more quickly than can be provided by the leisurely pace at which the government is proceeding. Wednesday 23 November, the scheduled date for the next “fiscal event”, may prove too far away.

Markets seem calmer now, but the Bank of England’s standby facility to stabilise pension funds is up for review in a fortnight, and the economics news flow is unlikely to bring any evidence of an imminent boom. These are febrile times, and in almost everything Ms Truss and Mr Kwarteng say, they are at odds either with their past promises or with each other.

It bears repeating that the mayhem of the last 10 days or so was solely due to the arrogance of Mr Kwarteng, even allowing for a global flight to safety to the US dollar. The mini-Budget was inflationary and still is, even with the abandonment of tax cuts intended for the rich. What the government should have unveiled was an anti-inflationary package that would support what the Bank of England has been trying to do, rather than working against it. Eventually it will happen, under either this prime minister and chancellor or their replacements.

The chancellor no doubt wished to bring some confidence to the scene with a renewed commitment to the existing comprehensive spending review, but that leaves the possibility of some real-terms cuts in spending programmes, as well as the much-discussed real-terms cuts to working-age social security payments. Given the pensions triple lock is inviolable, and so apparently is defence spending, then schools, hospitals, infrastructure programmes and local councils will be asked to make further cuts in services. This is what the levelling up secretary refers to as the “fat” in the public sector, accumulated during the “fool’s paradise” of the last few years (a claim made with no obvious sensitivity towards those affected).

The “plan for growth” is dead. No one outside the Tufton Street set and the hard right of the Tory party believed in it anyway, and it has not survived its first exposure to political and economic reality. Supply-side reforms can boost the long-term rate of growth, but it can take many years for them to work their magic.

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After the Thatcher-Major era and the last 12 years of Conservative rule, there seems little room for radical change relating to labour laws or privatisation. Deregulation post-Brexit is once again supposed to be the key to unlocking potential, but the scope for such useful relaxations is limited by common sense and by the EU-UK trade and cooperation agreement, which mandates a “level playing field” and forbids “regression” in areas such as workers’ rights and environmental protections. If deregulation was as easy as some ministers suggest, it would have revolutionised the UK economy long before now.

There is not going to be a “new economic era” of the kind alluded to by Mr Kwarteng. The “dash for growth” has failed. What passed for a post-Brexit economic strategy has been tried, and has failed. The experiment is over. More traditional measures are at hand. Cuts in public spending and higher mortgages will blunt the boost intended by the remaining tax cuts. Stagnation at best, recession at worst is the path for the next few years.

Britain is back to austerity. It’s stability, of sorts, but it’s not going to be mistaken for competence or, indeed, the “aspiration nation” Ms Truss promised not so long ago. It’s difficult to see how she or her government comes back from this foundational misjudgement.