There are times in a nation’s history when it becomes more than just an imaginary community. The mourning period following the death of Queen Elizabeth II was one such moment. As hundreds of thousands of people queued for up to 24 hours to see the Queen in representation at Westminster Hall in London, they experienced a rare sense of togetherness and solidarity. The qualities for which the queen was admired by monarchists and republicans alike – politeness, patience, general decency – were showcased to the full in the queue.
But this moment of unity cannot hide the fact that the UK is facing one of the most tense times in its post-war history. The economy is on the brink of recession, living standards are falling and public services are increasingly overwhelmed.
Liz Truss’ radical right-wing government has prescribed a clear remedy for these diseases: rapid economic growth. Her government has announced that it will freeze household energy bills for two years, reverse the Social Security hike introduced in April and scrap planned corporate tax hikes, and has indicated it will remove the cap on bankers’ bonuses. The goal of these measures is to help meet the new target of 2.5 percent annual GDP growth set by Chancellor Kwasi Kwarteng. Since the 2008 financial crisis, the UK economy has grown at an average annual rate of just 1.5 percent (up from 2.7 percent before the crash). Of the G7 countries, only Italy performs worse.
Britain’s anemic performance has exacerbated the crisis in living standards. According to the Resolution Foundation, a think tank, median disposable income in the UK was just 9 per cent higher in 2018 than in 2005, compared to 40 per cent higher in Germany and 39.8 per cent in France. Slovenia and Poland are among the European countries projected to enjoy higher standards of living than Britain this decade. To avoid this fate, Britain needs a bigger economy.
We welcome the Truss administration’s decision to prioritize growth over a narrow fixation on deficit reduction. As Gerard Lyons, an economist close to the Prime Minister, writes, “This thinking led us in the wrong direction [Cameron] government that opted for austerity a decade ago.” The UK, which enjoys a lender of last resort (the Bank of England) and can borrow in its own currency, has far greater fiscal freedom than eurozone members.
But while higher growth is the right goal, the Truss government’s means are more questionable. The UK’s biggest economic problem has been its dismal productivity growth (output per hour worked increased by just 0.7 per cent between 2009 and 2019). This reflects miserable levels of public and private investment, poor skills and education, and outdated infrastructure. But instead of tackling this crisis, Ms. Truss has prioritized costly tax cuts.
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We opposed the 1.25-point increase in Social Security on the grounds that it penalized low-income workers—a wealth tax would have been more progressive. But its reversal is an odd priority during a crisis in living standards. As the Institute for Fiscal Studies has found, the poorest households will gain just £7.66 a year from the measure, while the richest will gain £1,800 a year. Increasing universal credit would be both fairer and better for growth: unlike the richest, the poorest are forced to spend their disposable income rather than save it. If living standards are to rise sustainably, Britain must not only become a richer economy; it must also become more equal.
After a decade of austerity that has frayed public opinion and an unprecedented period of wage stagnation, voters are longing for security and an active government. Mrs. Truss’ small-state individualism of the free market is not appropriate to the temperament of this time. It has little or nothing to say about improving public services, regional disparities in the UK and the common good. She is not a bridge builder; it does not seek to transcend differences in order to build a new cross-class coalition. Even the union between England and Scotland – which the Queen treasured so much – seems of little concern.
The Prime Minister may have a vision of a bigger economy, but she doesn’t have a vision of a better society. This creates an opportunity for Labor and the opposition parties, ideally to work together to forge a new deal.
[See also: What to expect from Kwasi Kwarteng’s mini-Budget on Friday]
