The end of the Truss regime has led to publication of any number of newspaper columns serving as obituaries for right-of-centre economics and heralding the return of orthodox centrist social democracy on the basis that the experiment didn’t just fail, it failed spectacularly.
I disagree profoundly. The experiment, far from failing, never even commenced. It would indeed have proved useful to see what impact tax cuts and radical supply-side reforms would have made in several months time. Alas, we will never know because the endeavour was aborted before the measures were implemented.
I have always been an advocate for precisely those economic policies, nevertheless I am not convinced that that the outcome would have been a rosy one. I fear that the implementation would have been purchased at the cost of very high interest rates (in this column on 25th of July I predicted they might rise to as much as 7%) because the increased purchasing power arising from tax cuts would have an impact before many of the supply-side reforms would improve productivity. Consequently, inflation would rise even further, and the Bank would have to respond with higher interest rates. Equally, markets -sceptical of the policy (notwithstanding our relatively low debt to GDP ratio brought about by George Osborne’s years as Chancellor) would require a ‘premium’ to persuade them to cover our deficit.
It was for these reasons that I backed Rishi in the head-to-head contest with Liz Truss. As I said in my blog Backing Winners (desmondswaynemp.com) of 27 July, I saw no ideological difference between the two candidates (indeed and between most of the earlier leadership contenders). They shared the same objective of a low tax, free market, entrepreneurial productive UK. The difference came down the speed at which the changes could be made and getting the government finances into better shape before commencing. The Conservative Party made the wrong ‘call’ and the result was the disaster Rishi had predicted.
We must not however, allow this catastrophe to undermine the possibility of pursing prosperity through these radical remedies, albeit at a sensible pace and having prepared the right conditions.
The narrative currently being pedalled by some right-wing critics is that the abandonment of ‘trussenomics’ means that the Tories have snuck back into a ‘remainerdom’ comfort zone of big government, high taxes and burdensome regulation: Sacrificing all the potential liberations of Brexit.
This is nonsense. The dream remains thoroughly alive, even though we had to act decisively to stop it becoming a nightmare.