Truss and Brexit have sunk Britain’s economy –
and the right is in deep denial about both
Martin
Kettle
The global economy is hardly booming, but the country
is at the bottom of the pile of developed nations for two clear reasons
Liz Truss
with Kwasi Kwarteng as he prepares to deliver his mini-budget in the Commons on
23 September 2022. Photograph: Jessica Taylor/HOUSE OF COMMONS/Reuters
Wed 1 Feb
2023 15.46 GMT
The
International Monetary Fund could hardly have made it clearer this week. The
chronic British disease, the underlying one that marks out the UK from the
developed world crowd, is our low economic growth.
The IMF’s
revised forecasts for 2023 certainly make stark reading for Rishi Sunak. Last
week, at a cabinet awayday at Chequers, Sunak told colleagues they would be
judged on five issues at the next election, of which one would be their success
in expanding the economy. Yet just a few days later, the IMF revised its UK
growth forecast down from the very modest 0.3% increase it posted three months
ago to a 0.6% contraction.
With that
new forecast, Sunak’s already steep route to electoral success got steeper and
more slippery. But this isn’t Sunak’s problem alone. It’s a national challenge,
affecting all of us. Strikingly, the UK was alone in suffering this humiliating
revision. The IMF is forecasting growth for every other developed or large
developing economy this year. That list includes not just all the countries
some Conservative writers spend their careers disparaging, like France, Germany
and Japan, but also even Russia, despite its wartime sanctions.
To be fair,
none of this is to say that global economic growth is either booming or
unproblematic. Neither is true. Global growth is slowing this year, and the
deceleration is particularly marked across the advanced economies, the US
included, not just in Britain. Growth, in developed and developing economies
alike, is also a central cause of the global climate crisis and therefore
cannot be ignored.
But it is
to say that Britain is at the back of the field, and that the gap with the pack
ahead just got bigger. There is a danger that Britain loses touch with its
competitors. That will be an ineradicable inheritance for whatever government
follows Sunak’s. True, not all the reasons lie at the government’s door. Yet
many do – two of them in particular.
One is the
short-term legacy of the Liz Truss/ Kwasi Kwarteng tax-cutting budget, which
led to higher taxes, a spike in borrowing costs, increased interest rates, a
contraction in the housing market and a lurch in market confidence. The other
is Brexit, which continues to damage UK trade and create major shortfalls in
the labour market, not least in the health service. The UK’s high relative
dependency on imported gas at a time of sharply increased energy prices has not
helped either.
‘Brexit continues to damage UK trade and create major
shortfalls in the labour market, not least in the health service.’
However, to
read some of Britain’s rightwing newspapers this week, it is as if the events
of last autumn never happened at all. Papers such as the Daily Telegraph and
the Daily Mail are not merely in denial about the economic harm caused by
Brexit, they also continued to claim this week that the answer to everything is
tax cuts. If the economy is failing, there should be tax cuts. If it is
booming, it’s time for tax cuts too. This is as daft and meaningless as Douglas
Adams’s claim that the answer to everything is 42.
In this,
though, these papers speak to and for a significant strand in the Conservative
party that is extremely difficult for Sunak to manage, including at
Westminster. It’s the strand that sees government as a problem and taxes as
bad, that thinks both should be slashed to let growth loose, that backed Truss
last summer and that would back Boris Johnson – and maybe even Suella Braverman
– if either makes a bid to topple Sunak this year.
All of
which leaves Sunak and the more cautious majority of the Conservative
parliamentary party in a bind from which they cannot extricate either the
government or, more importantly, the country. There is neither time nor
resource for the Conservatives before the election. The tasks Sunak set them at
Chequers look insurmountable at present.
Many will
spare the Conservatives their pity. Yet this still leaves Britain in an
economic policy bind, with less policy flexibility than other countries to
generate the wealth in incomes and taxes that would enable households to cope,
businesses to innovate, and trade and the state to begin the repair of the
public services. It is a national crisis, not just a party political one. It
would constrain Labour’s options, too.
There is
plenty of growth strategy thinking out there for Labour to draw on that does
not necessarily involve tax cuts or rises. Support for the new technological
and green energy economies through public-private partnerships is many Labour
strategists’ long-term favourite. Investment in education and childcare to get
more people back into the labour market is another.
But there
are more politically charged issues too, like increasing immigration or
reforming (not just liberalising) planning laws, both of which would be
unpopular with many. Britain must also grasp the Brexit nettle and improve
access to and from European markets.
Few of
these offer quick fixes, though, and if Britain has fallen further behind the
pack in 2024, the gap will have widened and the inequities will have become
harder still to overcome. A new government is certainly a necessary answer for
Britain’s problems. But no one should pretend it is a sufficient one.
Martin
Kettle is a Guardian columnist
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