Sunday, August 21, 2022
I'm sorry, but both of these have failed the audition
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission

Never one to pass up the opportunity of a popular culture reference, albeit one that is several decades old, the late John Lennon’s words at the end of the Beatles last live concert – on the rooftop of the Apple (no, not that one) headquarters in London’s Savile Row, were: “I hope we passed the audition.”

I have been thinking quite a lot about that as we have watched the two candidates to be Britain’s next prime minister auditioning for the role. I don’t want to leave you in suspense, particularly since you will have seen the headline, so I can tell you now. No, neither has passed the audition.

Don’t stop reading now because there is plenty more to say. And, I have to tell you, this is not the smartest of career moves. The sensible thing would be to laud Liz Truss, as many Tory MPs and would-be ministers have done since she established herself as favourite, with perhaps just a side-bet of applause for Rishi Sunak. But I have to tell it as it is, so here goes.

Let me start with the frontrunner. Some people have begun to describe her approach as Trussonomics. I think that is going much too far, for I have struggled to detect much, if any, economics in her approach. It pains me to hear people I like and respect, who happen to support her, describing her as having a credible plan for growth.

There is no such plan, save from returning one part of the tax burden to where it was in 2019, when the UK was a weakly growing economy. Income tax is still scheduled to rise, thanks to the four-year freezing of allowances and thresholds, as will the national insurance (NI) burden for similar reasons from April next year even if the NI rate rise in reversed.

Using the expression “supply-side” is not a strategy for growth, and neither are unfunded tax cuts. I hate to say it, given that there was so much wrong with everything else he proposed, but Jeremy Corbyn’s “green new deal” was a more coherent growth plan than anything she has yet come up with.

Vague noises about revisiting the Bank of England’s mandate or establishing a new economic unit in 10 Downing Street, do not cut much ice. Changing the Treasury’s mission to one of growth is also very familiar territory.

Truss is fond of criticising her opponent for “Gordon Brown economics”. Brown made the Bank independent 25 years ago not just to improve the trade-off between inflation and growth/unemployment, which for most of the past quarter of a century it has done, but also so the Treasury could become more of an economics ministry, focused on improving the UK’s long-term performance.

He, the last chancellor to preside over a growth rate for which his successors would give their eye teeth, concentrated on productivity even when it was not obvious that we faced a crisis. On his watch, the productivity gap between the UK and competitor countries narrowed.

Truss, I have to say, comes over a novice on these matters. We can only hope that it is deliberate, and that she is not as economically challenged as she sounds.

Sunak, her rival, has however also been a disappointment during this contest. The economy should have been his strongest card, but he started on the back foot. Before his spring statement in March, I and others urged him to delay the NI rise because of the cost-of-living crisis but, having secured agreement from Boris Johnson to do it, he was determined not to lose the moment.

His claim that the furlough scheme helped limit the pandemic rise in unemployment is certainly true. But many older voters, including some Tory members, did not like the idea of people being paid by the government to sit at home doing nothing, as I know from my email inbox. Hence, I presume, Truss’s clumsy “no handouts” comments in respect of the intensifying cost of living crisis.

Sunak has managed to snooker himself during the campaign, and not just by thinking it was sensible for his wife to maintain her non-dom tax status while he was chancellor..

When inflation is already here, warning that Truss’s tax policies will mean yet higher inflation, which it only marginally might, was not clever. Citing Professor Patrick Minford, a Truss-supporting economist, saying that her tax policies would lead to a 7 per cent Bank rate, was not very clever either. Many older voters would love higher rates on their savings. As it is, Minford has strongly denied to me, and in a letter published in The Times, that he said any such thing.

His attack on the Truss tax policies should always have been on affordability and the magic money tree aspects of it, not inflation. Truss’s Johnson-like “cakeism”, simultaneously promising to cut taxes and increase public spending, and debt, something that normally would resonate to Tory members and the wider electorate, should have been his focus. Public spending will have to be increased furthers, as the Institute for Fiscal Studies points out, to avoid unintended austerity arising from the effects of inflation on departmental cash plans.

As it is, if she were to win, we could find ourselves in a worse position than under Johnson. Though he had to go for repeatedly demanding the office of prime minister, his cakeism was at least balanced by Sunak’s steadying hand at the Treasury. The loyalist that Truss appoints as chancellor, assuming she wins, is unlikely to show such resistance.

It has not just been Tweedledum and Tweedledee in this leadership contest. Both are guilty of one of the oldest deceptions in the book, that that there is a bonfire of red tape, most of it emanating from the EU, to set alight. The Daily Express wrote that “Brexit wonder woman” Truss was going to do so.

You may think that this sounds rather familiar, because it is. Boris Johnson, holding a kipper aloft, as in a fish, promised a bonfire of red tape three years ago and such a pledge was embodied in Queen’s speeches under his government. He was following a tried and trusted route, favoured by many politicians, but such conflagrations never happen.

The EU is a rule-maker, often setting global standards, so businesses wishing to trade often have to abide by those rules. The chemicals industry is currently having to grapple with the much higher cost and inconvenience of adopting home-grown red tape, the UK’s version of the so-called Reach system, knowing that it will also have to meet EU standards to trade. The reality for most businesses, and certainly those that export or import, is that Brexit has resulted in a significant increase in red tape. Both candidates have failed the honesty test over the costs of Brexit.

Both are also guilty of supporting something which fails every test on effectiveness and cost, but which is popular with voters, including Tory members. The policy of sending asylum seekers to Rwanda, if any are ever sent, was the desperate act of a beleaguered home secretary, not a policy for a new prime minister.

Both have also been remarkably insouciant about the economic meteorite heading our way this autumn in the form of a further huge increase in energy prices and the prospect of inflation running at between 13 and 15 per cent over the winter. Consumer confidence has fallen again to a new low, according to GfK, and Truss’s tax cuts are about as useful as a flimsy umbrella in a hurricane in this context.

Sunak has reversed his opposition to a temporary, but untargeted, cut in VAT on fuel, plus another £5 billion in help for low-income household, making £10 billion enough. But he has been constrained by his own edicts on responsible public finances.

Perhaps the one crumb of comfort for him, if the contest goes the way the polls suggest, is that this may not be a great election to win, given the scale of the problems the new prime minister will inherit.