In light of what happened to interest rates and gilt yields over the past week, Liz Truss’s decision to pull out of ‘Moving On Up’ by M People as she delivered her first Conservative Party convention speech as prime minister, a Adventure was the choice. With economic turmoil and recent polling showing an unassailable lead for Labor, it was critically important that Truss’s speech reassured markets, while also reaching out to the wider public beyond the Tories.
It was widely praised in the speech. Truss seemed more spirited and spontaneous than in her previous speeches and the media, and she handled the Greenpeace protests well. The focus on economic growth was also encouraging. The truce is exactly right to point out the importance of economic growth – it creates jobs, raises wages, and allows us all to live happy, healthy, and prosperous lives. He is also right to reject decadence and challenge those who are anti-development and whose actions hinder productivity.
Unfortunately, his speech will do nothing to reassure the markets or unify the country behind them. The reason for this, although there was nothing wrong with the speech, did not really determine whether the truce fully understood the causes of stagnant economic growth or had a credible plan to address them.
The first issue is that the speech was too short. After sitting through several political speeches, brevity is usually a virtue. What we needed to see, however, was a detailed plan of how the government was actually going to develop. There were indications of excellent policy proposals such as reforming the plan and increasing immigration. These supply side improvements are necessary to increase productivity and promote growth. This speech was a missed opportunity to lay out concrete plans, to determine what these reforms would look like.
The speech was also prominent on tax cuts. Again it was a mistake. It was the announcements of tax cuts that shook the supply side reforms and the markets. Though lip service was paid for by fiscal conservatism and good money, the emphasis on tax cuts would do little to assuage market fears.
Although the truce is correct to point out the distorting effect of higher taxes, it ignores the fact that taxation is not a major impediment to growth. He mentioned his ideal Margaret Thatcher in his speech and rightly said that Thatcher removed the obstacles of development while being the Prime Minister. This is where Truss is not like Thatcher, who correctly diagnosed the problems facing Britain and devised a plan to fix it, including how she would deal with those who opposed her. It was only when these reforms were made and the economy grew, that it took most of its tax cuts. The UK is facing deep-seated structural issues and therefore fundamental supply side reforms to boost growth need to be implemented before major tax cuts can be considered. Truss and his chancellor Quasi Quarteng’s approach has turned it the wrong way.
Finally, his ‘Anti-Growth Coalition’, which included every other political party, North London-based taxis, think tanks, the BBC and ‘Brexit deniers’, was deeply revealing. The fact is that many people who hinder economic growth are in the Conservative Party. The Tory party, not unlike other parties, is full of MPs, councilors and activists who oppose the houses, wind turbines, solar panels, nuclear power plants and transportation infrastructure being built in their local area. It is NIMBY (Not In My Back Yard) that is stopping the supply side reforms we need. In addition, the UK desperately needs more immigration and a closer relationship with the EU. Given the Conservative Party’s hostility to these two points, economic growth will be difficult to achieve.
In the preface to The Road to Serfdom, Austrian economist FA Hayek dedicated the book to ‘socialists of all parties’. The speech that Truss should have given could have been dedicated to NIMBY of all parties, especially his own. The only way to see the country’s economic development is to build, build, grow closer ties with the European Union. Truss should have brought out these harsh truths and asked his party to join the board.
Despite the positive aspects of Truss’s speech, it was light on detail and heavy on sound. What we needed was a detailed plan on how it wanted to go for development and deal with those who opposed it, including the Conservative Party. Unfortunately we got neither.
Ben Ramanuskas is a research economist at the University of Oxford and was an advisor to Liz Truss in the Department of International Trade.
Credit: www.standard.co.uk /