IT SEEMS people like parables. Even those not familiar with the Bible can probably tell you about the parable of the Prodigal Son, or the parable of the Lost Sheep. 2000 years later it seems we still need simple stories to highlight complex ideas. Thus we now have the parable of how ‘Liz Truss trashed the economy’ and, if the Daily Telegraph is to be believed, we have the parable of ‘Rachel Reeves running to China as the economy burned.’
The parables of the Bible was Jesus’ way of illustrating ideas and truths in a manner we can understand. They are eternal. The problem with these modern equivalents is they often entirely misrepresent the truth for political purpose.
It suits the cognoscenti to believe the wicked Liz Truss, despite the fact she was PM for 50 days, single handily trashed the economy. It serves a number of purposes. It hides the numerous errors prior to her office and neatly transfers the country’s ills onto her. ‘It was fine of course before that woman’, is the subliminal message.
It also acts as a grievous warning that woe betide anyone stupid enough to try and grow the economy through tax cuts. It’s a parable against the alleged follies of free market economics. It acts as a popular beacon to alleged folly.
Similarly, we hear from the Telegraph that Rachel Reeves might be even worse than Truss, as if the two were comparable. Well clearly the policy response of the two was the polar opposite. One wished to cut taxes and regulation, the other rewarded public sector workers handsomely while raising a number of vindictive and short sighted taxes. Can they both be such bogey women?
But what the Telegraph and others, are doing with this analysis is pointing the blame at the last one holding the parcel but absolving themselves of any analysis as to why the parcel may have blown up on their watch.
To be clear, I am no fan of Rachel Reeves. I thought her budget was wrong-headed. It rewarded public sector failure handsomely with no regard to productivity while allegedly increasing the tax take by some £40bn. I say allegedly because it won’t raise anything like that much as the economy slides into recession, albeit causing substantial pain to working people through higher employer NIC charges and vindictive taxes on those opting out of state education, to give but two examples.
It will be a clear lesson in Laffer Curve economics. Reeves is a very poor chancellor but to suggest she is the architect of the country’s economic woes is absurd. Compounding them yes, but the architect? Absolutely not. She is merely holding the parcel as the bomb goes off.
Why so? Britain’s malaise is not new. While a case could be made that John Major started the rot the real watershed moment came with the election of Tony Blair. He, with Gordon Brown, set the UK on a path to delusion.
Brown promised prudence, but their inheritance from the Tories was strong, so blowing money on state interventionist programmes while starting the process of raising taxes went largely unnoticed. Further, and critically, breaking the cultural consensus of the land – which over time would have real economic and social impacts that are only now being fully felt – slowly but surely corrupted the edifice.
Worse, they set up a judicial legal state surrounded by a shell of quangos, sympathetic media, academia and judiciary thus embedding an increasingly far leftist technocratic iron grip. The tragedy was the Conservatives with a sort of craven crush on Blair the political master not only embedded New Labour’s toxic legacy but greatly strengthened it.
The policy choices over the last 25-odd years have been disastrous but it took two major events to show the emperor had no clothes. The first was the 2008 global financial crisis, which arguably came about as a result in the US of Clinton’s early woke ideology, of encouraging banks to lend where they should not have.
The response in Britain was a massive monetary distortion; printing an initial £450bn and running a disastrous monetary policy for a decade and more of near-free money. This was the gateway to public spending delusion.
The narrative of the then Conservative Chancellor George Osborne was of austerity, presumably to appease bond markets, when the reality was that while there was a degree of spending control, at no point did public spending fall in real terms.
The second disaster was lockdown. The response may have been largely global but the British Government’s response was extreme even by deluded global standards. A further printing of another £450bn, furlough and the weakening of the work ethic, a massive expansion of the State (to the tune of £200bn in real terms), the dismantling of any semblance of a border controls which has been hugely expensive in terms of the public purse, and into overdrive on regulation focusing on Net Zero, DEI (Diversity, Equity, Inclusion) and massively increasing the minimum wage – ALL undermined the edifice.
The scale of this delusion, which the authors of this policy still seem not to understand, is unprecedented in peace time. First, gradually and then quickly, Britain abandoned free market economics – from when the private sector was accounted for over two-thirds of the economy to accounting for just half today.
That productive half is also increasingly hamstrung through a network of regulation and direction which would have been impossible to comprehend just a few years ago. From messing up the owned and rented housing market, to the undermining of energy policy (so UK industry is paying four times as much for power as our US competitors despite the UK being blessed with substantial carbon assets), to directing the banks through extraordinary levels of regulation, is inexcusable, the list goes on. Hardly a single rational decision.
Theresa May’s “nasty party” hurt and boy did the Tories decide to appease every interest they should not have in a foolish desire to be liked by those who would never like them. Boris Johnson may have been a showman and a credible communicator but the policy response was catastrophic. Debt on debt, regulation on regulation, DEI on DEI.
Truss’ attempt to gradually unwind this terrible mess, modest as her £40bn tax cut proposal was, was initially lauded by the City but met with horror by the very establishment who have taken the nation to the point of bankruptcy, literally. Unlike the parable of the Good Samaritan, they walked on by.
Reeves budget was bad and mad but in truth, while a bit more vindictive than most, the magnitude of the public spending increase is, as a matter of fact, a fraction of what Johnson was responsible for while the tax rises, according to the OBR, are in fact a magnitude of increase slightly less than Sunak and Hunt burdened us with.
The harsh reality now, however, is there is no way back for Reeves. She may stumble on a while yet, but the UK economy is not going to grow, confidence is shot and with that tax receipts will stagnate – just as Reeves’ spending is out of control. It is going to get rather worse for her – and all of us.
The OBR sees a fiscal deficit of £124bn this year falling to £107bn then £95bn and less. To say this is optimistic is an understatement. Reeves is going to be forced back for yet more, which will further kill the golden goose.
There is no happy ending to this. The delusion is too great. Now however the US has launched a broadside with the intellectual climate changing one hundred and eighty degrees. Reeves will choose the wrong partner, getting into bed with the EU, but unfortunately for her this will simply make matters worse.
But the Conservatives now say we told you so. No they didn’t. They are entirely complicit in this mess. Continuing the biblical theme, a road to Damascus conversion might be welcomed but far too many in that party cannot see the cliff ahead any more than accepting they have been the primary architects of our woes.
The status quo simply cannot hold. Change will be forced.
Reeves might be holding the parcel when the bomb goes off but had she any understanding of economics she would see the writing on the wall and act with substantial spending cuts before it is forced upon her, as they will be.
There is no free money anymore. We are all going to pay a large price without an urgent change of direction.
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Photo of Rt Hon Rachel Reeves MP before delivering her first Budget, by Kirsty O’Connor / Treasury – HM Treasury, OGL 3, https://commons.wikimedia.org/w/index.php?curid=154638953
