Truss may be right, but there’s a war on and it eclipses everything
Let’s start with what Liz Truss got right. This is not a prelude to a glib joke. What did Liz Truss get right? Wait, I’ll tell you. It won’t take long.
No, what I mean is that the new Prime Minister, in office for only 26 days, is being subjected to such a torrent of criticism and dehumanising abuse that it is in danger of being overlooked that her central analysis is correct.
Britain has a serious problem with growth. There hasn’t been enough of it and national policy has been designed for too long to protect those interest groups, those with existing assets, older taxpayers largely, rather than to stimulate economic activity, innovation, and improved productivity, to generate the funds for improved private investment, to pay for public services and enable the young to start families and buy a home.
The consensus view, from economists and think tanks on the centre-left, is that this troubling lack of growth since the financial crisis of 2008 can’t be because Britain’s economy is over-regulated. All the deregulation has already been done, in the 1980s, so it’s not that, it is said. Perhaps, runs the argument, it’s because the government isn’t spending enough. Really? Or, more specifically, there isn’t enough spending on health, which means we the workforce are out of shape, or the wrong, enormous shape in some cases. But the ONS numbers for 2019, before Covid skewed it and the UK spending surged up, show Britain is mid-table, roughly the median for OECD countries. We were second bottom in the G7 in 2019, on £2913 per person. The highest is the US, on £7,736, hardly a country to emulate in terms of health care systems.
Britain does have one of the highest, by far, proportions of health spending organised by the state. In 2019 a whopping 79% of health spending was by the government. The British want ever more of this, and God help any politician suggesting the command and control British health care model is not allocating resources efficiently enough in a way that might get more care from scarce resources. After the events of the last week, during which the Tories collapsed in the polls to a 33pt deficit against a surging Labour party, no-one is going to be attempting an honest conversation with the British about reforming the NHS or public spending, not for many years.
Oh, hold on. The Levelling Up Secretary and Truss ally Simon Clarke gave an interview to The Times on Saturday in which he said there must be spending restraint. The West, he said, has been living in a fool’s paradise, spending more and not generating the growth to pay for it. He’s right, in terms of Europe and Britain, but that won’t save him from furious attacks in this febrile climate. How dare he call us fools, it will be said, even if policy is foolish?
The Truss analysis is that the conventional wisdom is all the wrong way round. The British are fighting over scraps, the crumbs of a shrinking national cake. Borrowing from Thatcher, she says the answer is to bake a bigger cake, to go for growth.
But how?
Earlier this year the UK construction director of Ferrovial gave a fascinating insight into what it’s like trying to get any major infrastructure built in Britain. Speaking at the Future of Rail conference and reported in New Civil Engineer in July (hat-tip to a Reaction subscriber) he described the process involved in getting permits and permissions when building rail, and the effect on costs.
“It’s true the cost per kilometre is way higher in the UK than it is in Europe, for example in France or Spain,” Ricardo Ferreras said.
“It is about the number of resources that we use here in the UK that are linked with planning; the environmental matters, the stakeholder engagement, all the consents that are needed. As an example in Spain the government will get all consents, and all environmental permits, and then when they award the contract to a contractor, the contractor can just focus on delivering the project. So, here we do it differently. I am not saying it is worse but it is different and it takes much more manpower and obviously that increases the cost of the project.”
It’s good to care about the environment, and for there to be a proper process. If it makes development that improves growth so difficult, don’t be surprised when there is low growth.
HS2, the new British high speed line, is coming in at £200m per kilometre. A study by the UK government of twenty other European high speed railway links suggested in the best circumstances an average of £32m per km. The European Court of Auditors report in 2018, according to New Civil Engineer, put the average cost even lower on the continent, at just £25m per kilometre.
It’s just one example of the way the UK economy is gummed up by its planning and tax system. And yes, Brexit in its current form is an additional barrier to trade. All the more reason to go for it on planning reform, on decluttering regulation and on improving incentives to invest in Britain.
After the events of the last week or so, and the market panic, that becomes much harder, impossible even, for the government. Perhaps even to the point that the Prime Minister may be removed. Remainersville is, understandably, demanding her departure immediately, I think because the logic of changing PM again is that it will be impossible to resist calls for an immediate general election, and that will bring a Labour government that will, inevitably, move back much closer to the European Union. In this way the Tories can be punished and Brexit partially reversed. Hence the clamour and excitement from those most furious about the UK not being in the EU.
Unfortunately for the Tories, that sentiment – fling the Conservatives out – is now widespread and shared even by many of those who are glad to be out of the EU.
It is as though, a friend said this week of the Labour surge, the body politic is an organism getting ready to expel a toxin. This happens sometimes in a democracy. There is a great welling up. You can feel the shift in national sentiment when it happens. It happened to New Labour in the end. It happened to John Major in 1992 and to Labour in the late 1970s. It felt last week as though it is happening again.
How could the new Prime Minister misjudge the mood so badly, after the unified period of national mourning for the late Queen? The ineptitude of the 45p tax cut, cutting taxes for the most affluent going into a tough winter in an energy crisis, when the poorest and many others will struggle, was asking for electoral evisceration. The policy, it is said, was the Prime Minister’s idea. The Chancellor went along with it. He can hardly be fired for her policy on a “you should have stopped me” basis.
Ultimately, the entire mistake, tainting all the other positive supply side measures in the uncosted mini-budget, was rooted in Truss and Kwarteng’s astonishing failure to realise what this year means, what it is really about. It is about the war. A full-blown fascist in the Kremlin now annexes territory and makes nuclear threats against Europe, while mobilising a million Russians to send to the slaughter.
The invasion of Ukraine is not a short-term 2022 deviation, before we divert back to normal conditions. We have entered a war era, defined by a fight for freedom, and for energy and resources. This is an historic ten year shift, at least. What flows from it will involve China and Iran too, and India, and Israel. While the hope is that diplomacy and statecraft, and deterrence and intelligence, prevent these tensions turning into even worse military conflicts, there is a risk of global escalation.
This is the new reality. Mortgage rates are rising everywhere in part because the peacetime era of dirt cheap money is over. That’s the war, after a pandemic. Supply chains disrupted by Covid will be disrupted again, in the fights to come over silicon chips, rare earths, and always energy. The UK, Germany and others are scrambling to protect Norwegian energy assets at sea, over fears of Russian drone attacks. The same applies to undersea cables that make the internet and modern communication possible. The phone you’re reading this on needs those cables to stay intact to function. In the Baltic, the Nord Stream gas pipeline sabotage by Russia obviously feels close to home for the Swedes, the Finns, the Poles and the Balts because it is close to home. The war, again.
Truss has been Foreign Secretary and she was admirably robust on Russia. Kwarteng is a historian, so he too should have realised that this was the era-defining context and not the time for SW1 think tank-style experimentation.
This war eclipses everything. It will entail communal sacrifice and national realism, whichever party is in power. Britain is part of a great effort by NATO and the West. Losing is not an option. Every policy decision must be taken and explained in the context of the war and what it means, and that includes the need to tell Britons to conserve energy this winter, as is happening in every other country.
One of the most notable features of Trussland, by which I mean the think tanks and external commentators who favour the 45p tax cut and the like regardless of conditions, is that they are not, generally, all that interested in geopolitics, fights for energy or the role of warfare and diplomacy. That disinterest is a feature of the optimistic pure libertarian creed: concentrate on maximum freedom, micro-dosing consumerist freedom is all, free your mind and the rest will follow. Well, Trussland, meet history.
A truly great idea from Macron
I am among those who have been critical of the French President. On Brexit he was determined to punish Britain. Some of his earlier initiatives and Napoleonic gambits on the world stage had about them elements of a situationist farce. They could not have been more caricature French if he had made his interventions through the medium of mime, Marcel Marceau-style. Macron loves making speeches and remapping the world in his image.
Now, as an admirer of France, someone who loves the place, I have a novel feeling. It is a feeling of admiration and respect for an Emmanuel Macron idea.
The President of France has proposed the establishment of a European Political Community. This is a great idea, precisely the kind of thinking that was necessary before and during the Brexit wars. A new forum is needed for multilateral cooperation. Not every European state is in the EU. Britain will not, as the continent’s major security and intelligence power, sign up to be under EU rules on security.
Truss has, sensibly, accepted an invitation to join the first meeting of the EPC, although the British prefer the word forum rather than Community for obvious reasons. There is some misplaced concern from Brexit fundamentalists. Some caution is required, of course. This is President Macron. But finally, here is a constructive post-Brexit initiative. Grab the opportunity.
Labour’s rise is disastrous for the SNP
The rise of the Labour party in the polls is very bad news for Nicola Sturgeon and the SNP. Since the Iraq war and then the election of the coalition UK government in 2010, the SNP has prospered on the basis of claiming that it sticks up for poor old Scotland, a nation it says kept having governments “imposed” on it by others. Scots voted anti-Tory and yet the rest of the UK delivered the Conservatives in power, and Boris and Brexit. Now, the line is null and void if England doesn’t want a Tory government. If it elects a non-Tory government, what’s the point of the SNP? The party’s record on education, transport, health, the economy, poverty, and local government is dire, so it can’t be that.
The downside of course is that in office UK Labour may try yet more constitutional reform, unleashing former PM Gordon Brown for another of his interminable attempts at “improving the British constitution,” after his first few tries put the SNP in power in Edinburgh. Perhaps an increasingly confident Starmer is sensible enough to spot the danger. He can say thank you, Gordon, that is most interesting but there are other priorities. Your exciting plans for devo-max or whatever further fiddling you envisage will have to wait, Gordon, for a Labour third term.