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Truss was right

The British economy can’t afford low growth

Artillery Row

How many people in the Tory party have realised that Liz Truss was right? No one’s going to come out and admit it — but the political effects of low growth and expensive public services are becoming obvious. Young Conservative MPs are leaving politics. Rishi Sunak is still behind in the polls. Taxes are at a seventy year high. Spending cuts are delayed until after the election. You have to wonder what the point of voting Conservative will be. The problem is that without growth, we are paying for the same public services from a smaller economy. 

Look at the NHS. It has significantly more staff than before covid. According to the IFS, “there were 10.2 per cent more consultants in July 2022 than in July 2019, and 10.7 per cent more nurses and health visitors.” Even though sickness absence has increased, the NHS is much better staffed than it was three years ago. In the decade before that, nursing levels increased by only 3 per cent, so this is a significant improvement.

Yet, the NHS is treating fewer people. A big part of the problem is covid. Many beds are reserved for covid patients, and so there is less space for other treatment. The IFS suggests worsening population health and longer hospital stays are contributing factors. Besides this, the NHS suffers from poor management. Its report reads: “before the pandemic, the UK spent less on the governance and financial administration of its healthcare system than many OECD countries.” 

Growth isn’t about getting rich in a pointless, greedy way

Politically this all comes back to the same problem: how to pay for more. More beds, more staff, more management — whatever we want, it costs more.

We cannot afford it. The economy took a hit over covid. We are worse off. More than a decade of slow GDP growth and flat productivity since the 2008 crisis means we cannot afford the state voters want. Unless something changes, maintaining the status quo will become more expensive. As economist Ben Zaranko says, “A weaker outlook for the economy, combined with higher levels of debt interest spending, means that providing a given level of public service funding will likely require higher taxes.”

Where will the next lot of NHS funding come from? We will hear the same calls to tax the rich, tax corporations and put windfall taxes on oil — but we are at the limit of what we can tax. According to the IFS, two million people will be paying income tax at 60 per cent or 45 per cent by 2027–28. That’s 4 per cent of the population — higher than the number who were paying only 40 per cent in 1990. Taxes have consequences. The latest windfall tax on energy caused Total to withdraw investment from the North Sea. This is to say nothing of becoming an uncompetitive nation. The more we raise taxes, the fewer wealthy people we attract. There is no shortage of countries with more attractive tax rates. As Tyler Cowen said at the recent Policy Exchange conference, the top rate of tax in London shouldn’t be higher than New York. Yet here we are, and with plans to go higher still.

If we want more money for public services, we will have to earn it. Liz Truss was right: we need economic growth. Growth isn’t about getting rich in a pointless, greedy way so we can all drive big SUVs and have a double fridge. Growth isn’t about consumerism. There’s nothing wrong with double fridges and consumerism, by the way, but growth is more than that. Growth is the engine of progress. If you want more of anything — more freedom, more public services, more solutions to climate change, more medicines, more technology that lets you work from home, more choices about where to travel, what to eat, the sort of career you can have or where to live — you need growth. 

They know she was right. They just can’t admit it yet

We see this problem most strongly in housing. Rents are astronomical and prices are at absurd ratios to wages, because we need more houses. This has a knock on effect on the wider economy. As Sam Bowman, John Myers and Ben Southwood have written, “housing shortages drive inequality, climate change, low productivity growth, obesity, and even falling fertility rates.” When you can’t afford to live in London, you can’t take the most productive job available to you. As cities fail to grow, opportunities for innovation decline. When people are stuck in flats, unable to buy houses, they delay having families and have fewer children. 

The reason we don’t build houses is simple: homeowners were given a crooked deal by succeeding governments since the 1980s. Housing supply is restricted so prices will go up. As the Tory vote to abolish housing targets shows, this interest has a firm hold on the Tory party. 

Conservatives know Liz Truss was right. They don’t want to keep raising taxes to pay for fewer NHS services. Osborne’s austerity is no longer a vote winner. They just don’t know how to tell their voters it’s time to stop the housing merry-go-round. So they either vote to restrict growth or they begin to resign from Parliament. Liz Truss’s supply-side reforms that never materialised included energy, education and, you guessed it, housing. They know she was right. They just can’t admit it yet.

One day, someone with the ability to sell growth to the voters will emerge, someone with the charm and pragmatism that Truss lacked. She was too confusing, talking libertarian rhetoric whilst proposing massive borrowing for a price cap. We need someone with a coherent political vision of growth. When we find that person, our view of Truss will begin to change. The time will come when we look back and realise that Liz Truss, like Barry Goldwater before Reagan, was the wrong person with the right message. 

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