The Office for Budget Responsibility and the Bank of England were against her. The quangos were intent on sabotaging her plans. And civil service set itself against her plans, as did the IMF and even US President Joe Biden.
Liz Truss did not mince her words in her speech to the CPAC in the United States this week, blaming the “deep state” for blocking her attempt to drag the British economy out of stagnation.
Sure, Truss bears part of the blame for her own failure. The timing and presentation of the mini-Budget, and more pertinently the huge energy bills support package, gave financial markets fright. But she is also on to something.
The “wokenomics” she called out in her speech is fatally undermining the economy. Until we find a way to fix that, we will never get back to the 2pc-plus growth rates we surely need if we are to have any hope of maintaining our standard of living.
It was a more sympathetic audience than one she is likely to find in the UK anymore. In her speech in Maryland, Truss took apart the forces that, in her view, blew up her short Premiership.
“There’s a whole bunch of people – and I describe them as the economic establishment – who fundamentally don’t want the status quo to change because they’re doing quite fine out of it. They don’t really care about the prospects of the average person in Britain and they didn’t want things to change and they didn’t want that power taken away.”
In short, the lesson she has learnt from her short time in office is that the “deep state”, as the Americans call it, was so horrified by the assault on its privileges that it was actively working to undermine her.
True, it might be self-serving, and the reality may be more nuanced, but in fact Truss is making a valid point.
In the 18 months since spineless Tory backbenchers evicted her from office, her fundamental point about Britain’s miserable growth rate has become more and more glaringly obvious to everyone.
The idea that simply stabilising the economy with tax rises to balance the books would restore growth has been exposed as a complete sham. Instead we have destroyed incentives with huge increases in tax rates, but we have still collapsed into a recession, with a shrinking labour force, and miserable levels of investment.
With an economy that is now incapable of any meaningful expansion, we are trapped in a doom loop of rising taxes, huge deficits, rising welfare bills, and stagnant real wages.
When Labour takes power, as it inevitably will, that will become even more entrenched. It is hard to see that we would have been much worse off if we had stuck to the Truss growth plan from the Autumn of 2022, even if sterling was a lot lower against the dollar. At least by now, there might have been some glimmers of a revival.
The core point is this. There is an economic establishment committed to “wokenomics” that runs from the civil service, to the major corporations, to quangos and think tanks, and takes in central banks and, perhaps surprisingly, the financial markets as well. Collectivism dominates all of those institutions.
We can see it in the central banks, not least the Bank of England, that printed vast quantities of money and slashed interest rates, inflating asset bubbles while ignoring their basic duty to regulate the markets effectively.
We can see it in the fiscal watchdogs that are now largely in charge of policy despite their abysmal record on forecasting any further than lunchtime, and which refuse to acknowledge that tax cuts can stimulate growth.
We can see it as well in the think tanks that constantly argue for higher and more complex taxes without ever acknowledging that it might be the money that the state already takes out of people’s pockets that is destroying incentives and growth.
It has infected the private sector just as seriously as the public. The major corporations that dominate the FTSE 100, driven by activists and “environmental, social and governance” (ESG) rule books and targets, seem now to be more focused on political activism than on building new factories, launching new products, or delivering better returns for their shareholders.
In return, the state increasingly shelters them from competition, labelling it as “unfair” and protecting the quasi-monopoly profits that allow executives to award themselves huge pay packets without any of the entrepreneurship or innovation that might justify those rewards.
And the financial markets, dominated by banks and brokers that are dependent on central bank decisions for cheap financing, and make most of their money financing vast state deficits, impose ESG standards on any companies that risk defying them. Meanwhile they dismiss tax cuts as “unfunded” and “unsustainable” and sell the currency of any government that tries to break away from the suffocating big state, high regulation consensus.
It is a toxic mix, and one that now makes any form of genuine expansion more or less impossible, especially for an ageing developed country with a huge welfare state to support such as Britain.
At a certain point the UK will have to take on this anti-growth coalition. For now, it remains in the ascendancy, and over the coming five years the Starmer government will make it ever more powerful.
It shouldn’t be impossible to challenge that, but it will mean replacing much of the upper ranks of the civil service, stripping quangos such as the OBR of their power, reforming a moribund central bank, and stopping activist lawyers and judges from blocking developments, while backing entrepreneurs and disrupting markets through deregulation.
Until that happens, however, we will be stuck with pitiful growth and rising taxes – and nothing is going to change that simple fact.
By Matthew Lynn | The Telegraph |
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