Reversing managed decline was Liz Truss’s message. Almost exactly a year ago, the shortest-serving prime minister in British history told the story of a nation chained by mediocrity, going nowhere fast and wallowing in a low-growth mire.
This week marks the anniversary of her catastrophically failed attempt to change course in a mini-budget that crashed the pound, punished mortgage holders and destroyed her party’s reputation for economic competence in one fell swoop.
A year on from the mess, Britain is still in a bind. Inflation remains uncomfortably high and the economy skirts the brink of recession, only now with the chancellor who Truss blamed for some of the nation’s decline and drift sitting in her place at No 10.
This week Truss and her supporters are once again attempting to revise history, aiming to shift the blame for the clearest rejection of a prime minister’s economic policy since Black Wednesday. Most people, however, still view the foray into Trussonomics for exactly what it was: an unmitigated disaster. As with the 1992 sterling crisis for John Major, a Rubicon moment on the road to electoral wipeout.
Within the screeds penned against the woke blob, the Bank of England and the establishment elite, nestles a kernel of truth though: Britain’s economy is still going nowhere fast. Thirteen years of Conservative government have had little positive impact. The economy has missed out on billions of pounds in growth, while average wages are still no higher today, after inflation, than in 2007.
Even by the Tories’ own yardsticks for success – sound public finances, low taxes and free enterprise – there is failure: the national debt is at the highest level since the 1960s, taxes as a share of the economy are higher than at any time since Clement Attlee’s postwar Labour government and Brexit has tied businesses in cumbersome red tape.
It won’t always be popular to say, but Truss was right in saying Britain needed economic growth. Where she was badly wrong was in her prescription. Not only were tax cuts for the rich grossly insulting to a nation suffering the worst hit to average living standards in half a century, they never would have met her stated ambition anyway.
Most economists reckoned the plans announced by her chancellor, Kwasi Kwarteng, would have had a minimal impact on growth, while adding to the drivers of economic inequality. Of the many reasons the financial markets rejected the plan, this ought to hurt Trussonomics advocates most. Not even the free markets bought her supposedly free market message.
In the aftermath of Truss’ febrile 49 days in power, Sunak and his chancellor, Jeremy Hunt, smoothed over the chaos by reversing most of her reckless agenda and restoring tighter budget settlements. Since steadying the ship, however, their time in office has been squandered – focused not on doing things, but on blocking them.
With inflation stubbornly high, some government borrowing costs are back above mini-budget levels. Rather than the brief aberration of sky-high mortgage costs for those unlucky enough to refinance during Truss’ tenure, fixed rates of about 6% are again the average.
Revisions to the UK’s economic performance since the Covid pandemic show the country is now in the middle of the pack for growth, rather than an international outlier. Yet inflation remains higher than in many comparable nations.
The Bank of England is expected to raise interest rates this week for the 15th time in succession since December 2021, stomping yet harder on the economic brakes to tame inflation. Underscoring its challenge, inflation figures on Wednesday are likely to show an increase in August driven by higher petrol prices – just as the economy runs into a brick wall of past rate increases.
Faced with this stagflationary environment, Bank policymakers are preparing to hold rates at restrictively high levels until they are convinced inflation will drop back to 2%. This will create a grim backdrop for the next election, stoking the chances of recession and maintaining pressure on businesses and households.
Even if two quarters of negative growth are avoided, the likelihood is the economy will remain stuck in first gear at best. The Bank forecasts an annual growth rate of just 0.5% for 2023, the same again in 2024 and just 0.25% in 2025 – a tenth of the average rate in the decade leading up to the 2008 financial crisis.
Should the Bank stick to the plan of leaving interest rates at elevated levels, attention will instead turn to the government for answers on how to reboot economic growth and raise living standards. After the mess of the Truss mini-budget, however, politicians are unwilling to pull hard on the fiscal levers.
Sunak remains reluctant as ever to take bold action, and is instead scrambling to identify cost savings before November’s autumn statement, witnessed in the prime minister’s consideration of real-terms cuts to pensions and benefits and possible downgrading of HS2. Yet again on his watch, the priority is budget constraints first, living standards second.
Labour, fearing a repeat of the 2019 election when voters rejected Jeremy Corbyn’s spending plans as fantasy, is taking a safety first approach under Keir Starmer, betting that the public want competence far more than radical change.
Something, however, has to give. With the public realm visibly crumbling, NHS waiting lists expanding, households under continued pressure from the soaring cost of living and the economy flatlining, a change in direction is required.
