A reckless gamble doomed to fail

22 Sep 2022 Nick Garbutt    Last updated: 22 Sep 2022

It didn't work for him either. Pic: Library of Congress

This past week it seems as if everything stopped, on hold, waiting for the period of mourning following the death of Queen Elizabeth II.

To those of us who get our news from the BBC that’s how it appeared. All was paused out of solemnity and deep respect for the passing of a monarch.

But it wasn’t.

The UK was in deep crisis before the queen died and doing nothing for 10 days is never recommended when things are that bad.

Boris Johnson announced his resignation on 7 July, triggering a leadership contest whose result was announced on 5 September. In the interim the UK had no leadership. Johnson remained in office, but could form no new policies to address the many, rapidly growing problems.

Two days after Liz Truss was formally appointed the queen died. From that moment nothing happened until she was buried on Monday and in the intervening 10 days things only got worse.

If a period of inaction gave the UK’s new Prime Minister time to think, it also shortened the time she has to act, and that time was short before she took office.

The two most urgent issues are alleviating the fuel and electricity price hikes and for Northern Ireland at least, resolving the protocol dispute and getting the Assembly functioning again.

In the few hours she had before the mourning period took over Truss said she had a solution to fuel and electricity prices, by Wednesday relief had been extended to both charities and businesses with further details on how this will operate and where the billions needed to fund this is coming from due to follow. 

On Tuesday she flew to the USA to meet both Presidents Macron of France and Joe Biden. Before she had even got on the plane she was forced to admit there was no chance of  a new trade deal with the US, admitting: "There aren't currently any negotiations taking place with the US and I don't have an expectation that those are going to start in the short to medium term."

The US is Britain's biggest individual trading partner and accounts for £1 in every £6 of UK trade.

And a new deal to make it easier for the two nations to trade was important if the UK was to gain any economic benefit from Brexit.

Now Truss will be on the back foot over the protocol. Biden makes no secret of his Irish nationalist sympathies and is known to be horrified at the prospect of the UK reneging on an international agreement.

Last week we argued that this would be a good time for Truss to cede some ground to the EU and strike a deal. There’s no indication of that just yet but the present impasse cannot last much longer.

She faces a potential House of Lords rebellion over the legislation that would sanction defiance of the protocol.

Around 50 Conservative, Labour and cross party peers met on Wednesday morning to discuss how they can amend or halt the protocol bill which has already passed through the House of Commons.

They will be getting advice on options including using a process that could collapse it altogether.

It is already predicted to be defeated in the Lords.

On Thursday the latest census figures were published for Northern Ireland.

It may be crude and unpleasant to draw conclusions from sectarian headcounts, but in Northern Ireland such measures do have weight. And now, 100 years since partition, we have entered a period where Catholics outnumber Protestants in Northern Ireland.

This was not anticipated by the architects of the new state and unionist parties, the Orange Order and the other institutions have not done enough to promote reconciliation and mutual understanding and a shared purpose to feel sure of a stable future in the intervening period.

It has obvious implications for the DUP’s continued veto of the Executive and Assembly, not least as the DUP is no longer the largest party.

And until the boycott is ended it will be impossible to enact the many policies we so badly need, to plan for the long term and to create some of the political stability that is required to underpin Northern Ireland’s political future.

In more general terms the key challenge the UK faces is the twin one of poverty and growing inequality, both are de-stabilising and poverty has been shown to increase costs elsewhere, particularly for the health service.

The Resolution Foundation points out that by 2018 UK median disposable incomes were just 9 per cent higher than in 2005, compared with 40 per cent higher in Germany and 39.8 per cent in France. Slovenia and Poland are among the European countries now projected to record higher living standards than Britain this decade. 

Yet in response Truss plans to remove the cap on bankers’ bonuses, slash corporation tax, cut National Insurance, introduce low tax development zones, and reduce stamp duty. 

All of these will disproportionately benefit the better off, exacerbating still further the gap between rich and poor.

This is classic trickle down economics once championed by Ronald Reagan a 19880s dogma which was in its day as fashionable as big hair and Duran Duran.

The theory is simple. Governments should cut taxes for the better off and for corporations because that is the key to securing faster growth. Entrepreneurs are more likely to start and expand businesses, companies are more inclined to invest and banks will tend to increase lending if they are paying less in tax. Everyone ends up better off. We should focus not so much on how the pie is sliced but making it bigger.

The trouble is that this was shown not to work by International Monetary Fund research back in 2015 which showed that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth—that is, when the rich get richer, benefits do not trickle down. Causes and Consequences of Income Inequality: A Global Perspective (imf.org)

Truss and her team blocked the Independent Office of Budgetary Responsibility from publishing its analysis of the budget.

The IFS has therefore stepped in it concludes: “even once the energy price guarantee is assumed to have expired in October 2024 our forecast has borrowing running at about £100bn a year, over £60bn a year higher than forecast in March”, debts which it concludes will eventually become unsustainable.

So whilst Truss’s energy and application is admirable, her adoption of discredited economic theory and its enactment in her first emergency budget does not augur well either for that of the economy or her own political future.

Truss has proved herself to be remarkably flexible in her beliefs to date. She has now set herself on a course which is likely to be incredibly unpopular at a time of economic crisis. Raising the flag for bankers’ bonuses after all they have done for our collective wellbeing seems frankly insane.

Going for growth above everything else is brave and makes a marked change from her dithering predecessor, but it is hard to avoid the conclusion that it is doomed.


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