The unintended legacy of Trussonomics
Late-morning yesterday, Monday, I had a spring in my step. Jeremy Hunt, the new Chancellor of the Exchequer, had taken Trussonomics – my spellchecker has just asked me whether I want to “Add to Dictionary” or “Ignore All” and I’ve opted for the latter – to the woodshed and chopped it up to be used for kindling. The grownups, it appeared, had invaded the playroom and were beginning to tidy up the new toys, many of them already damaged or broken, which had been left strewn all over the floor. Penny Mordaunt, my own personal erstwhile leadership favourite, had in the absence of Liz Truss stood up in the House and all that was missing was Truss herself stepping out of Number 10 to announce that, for the good of unity across the country and the party, she was standing down and would with immediate effect be resigning her seat in parliament. Wrong.
Her idol, Margaret Thatcher, famously declared at the Conservative party conference in October 1980, and punning on the title of the 1948 Christopher Fry play “The Lady’s Not For Burning”, that “The lady’s not for turning”. But this lady, if indeed she is a lady, had just been turned and her principal policy platform had just been burned. The country was expecting her to more or less graciously accept total defeat and shuffle off. But, as we are finding out, Truss doesn’t do either sensitive or gracious. Her insensitivity evidently knows no bounds and, this morning, I am back down in the dumps as the vibes emanating from Number 10 are that she thinks she can tough it out. Does the party want a protracted dogfight if a swift defenestration or even better self-defenestration cannot be achieved? Possibly not and Truss must be betting that if she refuses to go, she might just be left with a second bite at the cherry and the chance to try again.
In the immortal words of the original tennis “Superbrat” John McEnroe, “You cannot be serious!”
Of the many things I have read and listened to on the subject of Ms Truss, the most poignant one was penned by Sam Leith for The Spectator. This extraordinary piece of journalism, titled “Can You Feel Sorry For Liz Truss?”, is well worth a read.
The entire Truss episode is hugely unedifying and a social and fiscal conservative of my ilk cannot but be left wondering what has happened to what in Shakespeare’s Richard II, John of Gaunt famously declaimed as “This royal throne of kings, this sceptered isle, This earth of majesty, this seat of Mars, This other Eden, demi-paradise, This fortress built by Nature for herself Against infection and the hand of war, This happy breed of men, this little world, This precious stone set in the silver sea, Which serves it in the office of a wall Or as a moat defensive to a house, Against the envy of less happier lands,–This blessed plot, this earth, this realm, this England.”
Literary flights of fancy aside, the equation is simple, and it is one which most countries, especially those in the West which purport to be parliamentary democracies, have to face up to and that is that elections are and always have been bought by promises of a better life for all at a cost to nobody in particular. Whether Reagan’s and Thatcher’s “trickle down” or the late Labour Chancellor Dennis Healy’s assertion that he would tax the rich “until their pips squeaked”, the dream being sold was that common wealth – in two words – could be created without effort by all. If there is to be a legacy from Trussonomics – I still won’t “Add to Dictionary – it will be that by its having shone a light into the darkest corners of fiscal indiscipline, no British government of either hue will be able to go there again for, one can but hope, a very long time.
As Chancellor of the Exchequer the Rt Hon Gordon Brown, the one who purported to have abolished the boom-and-bust cycle while racing eyes wide shut into the Global Financial Crash, tried to revamp the fiscal vocabulary by renaming pretty much all government expenditure as an investment. That didn’t stick. Bit by bit, so it appears, government’s borrowing to spend is being unmasked as nothing but that.
In a most excellent piece, which appeared a few days ago in Reaction, my old mate and mucker Charlie Haswell, formerly Global Head of Public Policy at HSBC, once again tried to make clear that growth is not driven by governments borrowing to spend but by banks creating money. On this subject he and I are on the same page although I must confess that he is the master, and I am merely the humble disciple. He has for at least 10 years been distributing extraordinarily lucidly argued papers on the subject which make it quite evident that the obsessive post-GFC regulatory framework of the likes of MiFID II have done more to constrain growth and foster mindless government borrowing than anybody in position of power might want to hear, let alone acknowledge. In his view, and he is in no way a right-winger, the solution lies not in more borrowing, but in releasing the banks from their ill-conceived regulatory straitjacket. I commend his piece.
For all the merry mayhem of the past month, the UK finds itself in a position where borrow to spend is being investigated and where, “mene, mene tekel upharsin”, it has been weighed and found wanting. Much to the chagrin of the Left, it is the Right which has gone there, and which has exhausted the soil and poisoned the wells. Fiscal discipline remains an incomplete exercise, a work in progress, the outcome of which is uncertain. But at least it is being discussed in Britain, even if it does look like dirty washing being done in public. The rest of Europe, or at least the larger parts of it, still has to embark on this fundamental debate.
The cry here in the UK is that nobody wants to go back to austerity, and I can still hear the echoes of the cries that “Austerity doesn’t work!” Austerity isn’t supposed to work. It is supposed to limit spending money one hasn’t got on projects which have by default transmuted into entitlements. Truss’ deeply flawed and appallingly badly timed scrapping of the 45% higher tax rate would have cost the Treasury £4bn. I’d like to say that that was fiscal chickenfeed in the overall plan which made greater waves than it need to have done and if one is looking for the straw that broke the camel’s back, look no further. At the same time, however, it puts into context just how little the higher rates on the earnings of the top few percent contribute to the overall tax take. The heavy lifting will, no matter how it is ideologically presented, have to be done by the collective. Leith makes a good point on this.
When governments here and elsewhere stepped up at the beginning of the pandemic and promised broad-based financial support, they did warn that one day it would have to be paid back and in an equally broad-based manner, the only means of which are by way of higher taxation or lower government spending. All parties in all countries are faced with the immortal Jean-Claude Juncker paradox which is “We know what we have to do, but we don’t know how to get re-elected once we have done it”. Unwittingly, Truss has opened Pandora’s Box and what has escaped will be taxing politicians across Europe who will have to reassure their voters that they are not about to replicate the British mistake. That they might find harder than they yet know.
The author is a retired City trader specialising in fixed income who now works as a freelance strategy consultant.
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