- Free marketers say the dream of a low-tax Britain is dead.
- The free market lobby revere markets, but markets did not like their policies when implemented by Liz Truss.
- Truss’ policies followed the libertarian philosophy set forth by PM Margaret Thatcher in the 1980s.
- The reversal of Truss’ tax-cut plan leaves government in crisis.
- Ratings agency lowered the United Kingdom’s outlook to “negative” from “stable”.
London: Daniel Pryor, who lobbies for governments to shrink the state and cut taxes, feels Liz Truss’s brief, disastrous spell as prime minister has killed off his dream of a low-tax, deregulated British economy for at least a generation.
Pryor, who works at the Adam Smith Institute in London, laughs bitterly at the irony that Truss, who said on Thursday she would resign, was forced to abandon her libertarian economic policies by the same free markets she cherishes.
Liz Truss announces her resignation as British prime minister outside 10 Downing Street in London.Credit:Getty
The Adam Smith Institute, and other think tanks which provided much of Truss’s inspiration, had welcomed the plans she and Kwasi Kwarteng, her once finance minister and political soulmate, laid out on September 23.
Just weeks later, they say mistakes were made with the strategy – not just poor communication but also the scale of the proposed tax cuts – and fear the policies they have spent years advocating might now be buried for some time.
On Friday, ratings agency Moody’s on Friday lowered the United Kingdom’s outlook to “negative” from “stable” over ongoing political turmoil, weaker growth prospects and high inflation.
Truss resigned as PM on Thursday triggering a leadership contest that, coming so soon after the bitter one that put her into power, could deepen divisions in the governing Conservative party.
Margaret Thatcher in 1986 and Liz Truss earlier this year.Credit:10 Downing Street/Getty
There was “heightened unpredictability in policymaking amid weaker growth prospects and high inflation,” Moody’s said. The report said there was also “risks to the UK’s debt affordability from likely higher borrowing and risk of a sustained weakening in policy credibility”.
Truss had the “right policies at the wrong time”, Pryor said, referring to an economic backdrop marked by fast-rising inflation and weak growth, which make markets more sensitive to deficits and the scale of government borrowing.
“I now expect the language of free markets and libertarianism to be consigned to scrap for quite some time. I am sober and realistic about that,” he said.
“I can briefly chuckle at the irony of what happened, but it is also incredibly frustrating because then I remember that the UK’s growth prospects for the coming decade are pitifully low.”
In a brief resignation statement, Truss said she had been elected to bring in “low tax, high growth” but conceded she could not deliver that mandate.
A poll this week showed her Conservative Party – which has dominated British politics since World War II – would not even be the official opposition if a general election was held now.
Truss had spent her summer campaign for the party leadership complaining about Britain’s weak economic growth, productivity and low pay since the 2008 global financial crisis. Recently, it lost its place as the world’s fifth-largest economy to India.
Her solution was to challenge economic “orthodoxy” and demand faster, radical action to shake the economy out of its torpor.
Truss and Kwarteng’s pitch – big tax cuts with the promise of deregulation to grasp what they called the benefits of Brexit – echoed policies of 1980s British and US leaders Margaret Thatcher and Ronald Reagan.
Their thinking can be traced to their connections to Britain’s free-market think tanks, which have advocated similar policies and also urged businesses and government to seize opportunities presented by leaving the European Union.
A remainer-turned-Brexit supporter, Truss founded a group of libertarian Conservative lawmakers called the Free Enterprise Group a year after she was elected to parliament in 2010. Kwarteng was chairman of the right-wing, free-market Bow Group in 2005-6.
Margaret Thatcher and Ronald Reagan were very close – and both believed deeply in deregulation.Credit:AP
Truss’s Downing Street team included former staff from the Institute of Economic Affairs, another free-market think tank which has said its role is to “think the unthinkable”, and the Adam Smith Institute.
The Institute of Economic Affairs said of the economic plan: “This isn’t a trickle-down budget – it’s a boost-up budget.”
The think tanks have since said the government mishandled the policy announcement, including by ignoring the Office for Budget Responsibility, which raised fears that the tax cuts would blow a hole in public finances.
The independent watchdog normally gives a verdict alongside budget statements on how public finances are being managed.
Andy Mayer, chief operating officer of the Institute of Economic Affairs, said the government tried to push through too many policies too quickly without explaining the strategy.
Mayer also said it made a mistake by pledging to abolish the income tax rate of 45 per cent applied to the highest earners, which was unpopular and ended up being a distraction.
“I think they got caught up in the moment of the historic victory over the establishment candidate,” he said, “and decided that they could gamble on some unpopular measures upfront”.
Mayer said Truss and Kwarteng should have concentrated on supply side reforms such as changing the rules that govern how residential and commercial spaces are built.
John Longworth, a pro-Brexit businessman who was on Thatcher’s “deregulation taskforce” and is now chairman of the Independent Business Network, said Truss might have been able to pass her plans if she had broken the policies into “bitesize” chunks and introduced them over time.
But after the September 23 “mini-Budget” shattered investor confidence, Longworth thinks it will be another decade before these policies can be tried again. He also fears that Brexit might be in jeopardy.
“I don’t think she’s killed off the philosophy, I think what she’s done is kill off any opportunity to deploy it for a very long time,” he said.
“It’s still possible to reap benefits of Brexit even given that situation. But of course what will happen and what is happening is that the rejoiners are using the situation as an excuse to blame it on Brexit, when it actually has nothing to do with Brexit at all.”
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