You probably have heard of the Tragedy of Truss the Reckless as we all lived with it. Although it may seem like a fever dream, she was very briefly the Prime Minister and even though her tenure was short lived, we will all be living with the consequences for years to come, exacerbated by her recent intervention. It is a tragedy in several parts.
First, it is a tragedy as Truss really was determined to tackle stagnant economic growth in the UK. Truss was right to not accept the status quo and push for growth and, given what I had learnt from working from her, I felt that perhaps she would be the one to bring it about. In many ways she also correctly diagnosed what was holding back the UK economy (deep seated structural issues). She correctly pointed out that we need to build more homes and take a more liberal approach to immigration if we want to see the economy grow. She certainly wasn’t perfect on all this and seemed to have an irrational hatred of solar panels, but she was correct that the UK needed radical supply side reform.
Unfortunately, she was incredibly reckless fiscally. Her support package was huge and poorly targeted and would have been funded by an eye watering level of borrowing due to her tax cuts. As such, she spooked the markets and was rightly booted out of office. As such, what could have been a sensible and effective plan for growth (the supply side reforms without most of the fiscal element) was never realised.
Second, it is a tragedy because anything associated with this plan is now politically toxic and looks set to remain so for at least a decade. It has been almost impossible to push through supply side reforms in the UK for quite some time and they have not really been on the agenda for most administrations. Truss had a once in a generation opportunity to make the case for supply side reforms and implement the changes that the economy is crying out for, instead her recklessness has discredited them. To paraphrase Obi-Wan Kenobi, ‘You were supposed to make the case for economic growth, not destroy it!’
Third, her recent intervention was (possibly) well intentioned in order to push the government to go for growth. However, the road to hell is paved with good intentions and I fear that while the UK is not quite on the road to Hades (or even Serfdom), Truss becoming more vocal is still unwelcome. While the case for growth needs to be made, there is a danger it will simply be something tokenistic in the form of tax cuts which are unlikely to actually bring about economic growth. As I’ve written before on this blog and elsewhere it is not the tax burden which is holding the UK back and it would likely be irresponsible for the government to entertain most tax cuts at this time.
Fourth, it risks further instability in the government and the country which will actually further hamper growth. Whatever your thoughts on Sunak and Hunt they did seem to bring at least some form of stability after the turmoil of Johnson and then Truss. We need a stable government to not only help tackle the issues that the country is facing but also to encourage investment in the country which will help to boost productivity and economic growth. More Tory infighting might be entertaining and give journalists something to talk about, but it’s bad news for ordinary people who just want to live the best life they can.
Finally, it means that meaningful tax reform is probably off the agenda for some time. As I mentioned above, we’ll probably get some form of tax cuts either in the upcoming Budget or further down the line. This will amount to nothing more than tinkering with the system and will add even more complexity to the system. The country is in dire need of tax reform so that the system is far less complicated and incentivises hard work and investment. Corporation tax would be an obvious place to start and rather than getting into fights over the headline rate, it should be reformed to incentivise investment. We should also look at VAT and scrap all the different rates and exemptions and instead levy a single rate on all goods and services. This should be set at a lower rate and so could even be sold as a tax cut while also becoming a more effective revenue raiser and reduces costs for businesses. We could even be more radical and look at shifting away from the focus on taxing income and focus on wealth instead. A Land Value Tax would be an obvious place to start, it’s something I’ve been banging on about for a while and the case was persuasively made in the Financial Times yesterday.
The country is in a mess and we have already experienced one lost decade and we look set for another. It’s the reason I started this blog and it is a tragedy for our country and especially for our young people. Something needs to be done and not only did Truss squander her opportunity, she has likely made it even harder to achieve growth both now and in the future.