Prime Minister Liz Truss (Stefan Rousseau/PA)
(Picture: PA Wire)In light of what happened to interest rates and gilt yields over the past week, Liz Truss’ decision to walk out to ‘Moving On Up’ by the M People as she gave her first Conservative Party Conference speech as Prime Minister was a bold choice. Given the economic turmoil and the recent polling showing an unassailable lead for Labour, it was crucially important that Truss’ speech reassured the markets while also reaching out beyond the Tory faithful to the wider public.
The speech had much to commend it. Truss seemed much more enthusiastic and at ease than in her previous speeches and media and she handled the Greenpeace protest well. It was also encouraging to see the focus on economic growth. Truss is absolutely right to point to the importance of economic growth - it creates jobs, increases wages, and allows us all to live happier, healthier, and richer lives. She is also right to reject declinism and to challenge those who are anti-growth and whose actions hamper productivity.
Unfortunately, her speech will do little to reassure markets or unite the country behind her. The reason being, although there was nothing necessarily wrong with the speech, it didn’t really set out that Truss fully understands the causes of stagnant economic growth or has a credible plan to solve them.
The first issue is that the speech was too short. Having sat through numerous political speeches, brevity is usually a virtue. However, what we needed to see was a detailed plan of how exactly the government was going to bring about growth. There had been hints of excellent policy proposals such as planning reform and increased immigration. These supply side reforms are what are needed to increase productivity and boost growth. The speech was a missed opportunity to set out concrete plans setting out exactly what these reforms would look like.
The speech also majored on tax cuts. Again this was a mistake. It was the announcements on tax cuts which overshadowed the supply side reforms and spooked markets. Although lip service was paid to fiscal conservatism and sound money the emphasis on tax cuts will do little to assuage the fears of markets.
Although Truss is right to point out the distorting impact of high taxes this ignores the fact that taxation isn’t the major barrier to growth. She referenced her idol Margaret Thatcher in her speech and rightly pointed out that Thatcher took on the barriers to growth when she was Prime Minister. This is where Truss is not like Thatcher, who correctly diagnosed the problems facing Britain and set out a plan to fix it, including how she would take on those who opposed them. It was only when these reforms had been made and the economy grew did she make the majority of her tax cuts. The UK faces deep seated structural issues and so fundamental supply side reforms need to be implemented to unleash growth before we consider major tax cuts. The approach of Truss and her Chancellor Kwasi Kwarteng has got this the wrong way around.
Finally, her ‘Anti-Growth Coalition’, comprising every other political party, taxi riding North London dwellers, think tanks, the BBC, and ‘Brexit Deniers’, was deeply revealing. The fact that many of the people hindering economic growth are in the Conservative Party. The Tory Party, not unlike other parties, is riddled with MPs, councillors, and activists who protest about homes, wind turbines, solar panels, nuclear power plants, and transport infrastructure being built in their local area. It is these NIMBYs (Not In My Back Yard) who are preventing the supply side reforms we need. Moreover, the UK is in dire need of much more immigration and a closer relationship with the EU. Given the Conservative Party’s hostility to both these things, economic growth will be difficult to achieve.
In the preface to The Road to Serfdom the Austrian economist F.A. Hayek dedicated the book to ‘the socialists of all parties’. The speech Truss should have delivered could have been dedicated to the NIMBYs of all parties, especially her own. The only way the country will see economic growth is to build, increase immigration, and have a closer relationship with the EU. Truss should have set out these hard truths and told her party to get on board.
Despite the positive aspects of Truss’ speech it was light on detail and heavy on soundbites. What we needed was a detailed plan on how she intended to go for growth and how she would tackle those who oppose it, including in the Conservative Party. Unfortunately we got neither.
Ben Ramanauskas is a research economist at Oxford University and was an adviser to Liz Truss at the Department for International Trade.
