When Trussonomics arrives, the big winner could very well be Labor

When Trussonomics arrives, the big winner could very well be Labor

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Since launching her candidacy for prime minister in July, Liz Truss has been talking nonstop about the need to challenge Treasury orthodoxy and manage the economy differently. Friday marks the day the speech ends and Britain gets a taste of what Trussonomics actually means.

Let’s be clear: Kwasi Kwarteng’s statement to MPs on Friday is much more than just a fiscal event. Even the mini budget doesn’t do it justice. Most full-blown budgets count for little and are quickly forgotten. This is really a big deal.

For decades, economic policy in Britain has been dominated by the idea that government accounts have to do the accounts. Margaret Thatcher compared her approach to public finances to that of a housewife trying to manage the family budget. George Osborne accused the Gordon Brown government of “hitting the cap” on the nation’s credit card. During the 2019 election campaign, Labor faced incessant questions about how, in the absence of a magic money tree, they would fund their spending plans.

Trussonomics turns all of this upside down. The government will borrow large loans, not only to finance energy support schemes for households and businesses, but also for tax cuts. Far from mitigating expectations since he became prime minister, Truss has doubled down. In addition to the cuts in social security contributions and the abolition of the corporation tax hike next April, there was talk of lowering the stamp duty and anticipating plans to reduce income tax.

Related: Kwasi Kwarteng refuses to let OBR publish forecasts on a mini-budget

Truss and Kwarteng’s message to those wondering where the money to pay for the extra expenses and tax cuts comes from is that everything will eventually work out well because the boost Trussonomics provides to the economy will lead to faster growth and more revenue. for the treasury.

All of which is rather reminiscent of the moment – 91 years ago this week – when the new national ruling coalition abandoned attempts to keep Britain on the gold standard: a massive turnaround after years of high unemployment and austerity deemed necessary to defend the pound. at all costs. A minister from the previous Labor government said: “Nobody told us we could do it.” The same could be said of Friday’s budget.

Some of the arguments explained by Truss and Kwarteng echo those advanced by mostly left-wing economists during Osborne’s attempts to balance the budget after the global financial crisis of the late 2000s. Even then it was said that the Treasury was too much. deficit obsessed and had to pay more attention to growth. Osborne was warned by his Keynesian critics that spending cuts and tax hikes would slow the deficit reduction, as indeed turned out to be the case. There is no doubt: the attacks on orthodoxy are fully justified because sticking to orthodoxy has not worked.

In reality, only a right-wing government could contemplate what Truss is doing. No Labor administration would dare to say that its business plan was to stimulate growth by borrowing hundreds of billions of pounds, lest the financial markets unleash a hissing attack. Just as only a right-wing Republican president, Richard Nixon, could risk making openings in Beijing in the early 1970s, so the attack on the Treasury’s orthodoxy is easier for a self-styled Thatcherian.

However, the intellectual and political climate has changed since Thatcher came to power during a previous energy crisis in the late 1970s. At the time, a strong pound and high inflation were making life terribly difficult for British producers, but Thatcher showed little interest in saving them. Companies were left to sink or swim, with the strong surviving and the weak failing. Thatcher’s intention was to wean the country from the idea that the state should solve every problem.

That philosophy hasn’t survived the double crisis of the past two and a half years: first a pandemic and now skyrocketing energy bills. The government has responded to the former with leave and a series of business aid, and has now come up with the largest state support package for the peacetime economy to address the latter. Letting families and businesses fare the best they can was never an option for Truss. The argument in Westminster is not about whether there should be government intervention in the economy, but how big the intervention should be and how it should be financed.

All good news for Labor and more generally for the progressive left. To begin with, Trussonomics protects Keir Starmer from claims that his spending plans are reckless or inaccessible. Contrary to what Kwarteng will announce on Friday, Labor’s fiscal and spending plans are modest and conservative.

Furthermore, by challenging orthodoxy, Truss has carved out the space for other hitherto taboo ideas. If it is possible to borrow to finance tax cuts, then why not borrow to increase welfare payments or for a new green deal?

There is one last – and obvious – way in which Trussonomics could be useful to Labor. Growth has stalled, inflation is close to 10%, the pound is at a 37-year low, the chancellor has sacked the Treasury’s highest mandarin and has decided not to submit its “fiscal event” to scrutiny. Independent office for budgetary responsibility. Conservatives are lagging behind in the polls, the time is shortly before the next election and there is plenty of room for things to go terribly wrong.

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