A generous interpretation of his mistaken economic philosophy is that he is caught in the vice of Treasury Groupthink. A less generous interpretation is he has not got a clue. I am drawn to the latter.
He talks about his desire to leave sound finances for our children and theirs in turn. Has he forgotten that his policies resulted in national debt accelerating to nearly 100 per cent of GDP with an increase of £500 billion or 33 per cent? In just two years he added a debt burden equivalent to the entire national debt taken on in all of history until 2005.
He talks about the need to maintain high tax rates to avoid stoking inflation. Has he forgotten that he took taxes to a post War high before inflation raised its ugly head? His high tax rates did not head-off inflation so why would they help curb it now?
What he says does not make sense. If tax on goods is reduced, the cost of these goods reduces. Inflation immediately reduces. There are many taxes which fall into this category: VAT, green taxes on domestic fuel, tax on fuel, tax on alcohol and cigarettes and for those of familiar with the property market, stamp duty. Raising this latter property tax was one of his predecessor’s penchants, who hiked it claiming property prices would reduce. It had no such effect. An increase in stamp duty adds to the price of a property and reduces liquidity in the market, in turn further driving up prices.
And with his high borrowing and spending he has delivered no growth in the economy. Indeed, in 12 years of nominally Tory government GDP has increased by only 10 per cent. In dollar terms it has not budged, suggesting all growth has come at the expense of Sterling. The US economy, by contrast, has grown by 50 per cent over the same period.
Sunak is ideologically an interventionist. He thinks he knows better. That is why he wants to borrow, tax and spend. He does not trust us to manage our finances. It is for this reason instead of cutting green taxes on domestic fuel, he chose to implement a complex means tested handout to the electorate. Cutting the tax would have been simple. He did not do it.
After two years of intermittent lockdowns and the private sector being repeatedly kicked in the shins, he wants to raise corporation tax by a whopping 30 per cent. He has also signed up to a global minimum corporation tax rate of 15 per cent. His reasons for these steps taken are far from clear but the end result will be to damage UK plc. Taxes on business should be slashed to attract investment, create new businesses and attract overseas companies to the UK.
Osborne borrowed and spent to save the banks, thereby devaluing the pound and did nothing to head off the massive asset inflation it engendered and which robbed the working and middle classes of getting on the property ladder.
Sunak has borrowed and spent to finance lockdowns, thereby again devaluing the pound, breaking supply chains and fuel reserves and has done nothing to head off the massive consumer price inflation. The working and middle classes are yet again paying the price.
Liz Truss gets it. She knows high taxes will maintain high prices and cause ever larger wage demands; in turn embedding inflation into the system. It may already be too late to undo the damage done by Sunak but she must try.
Suggesting Truss’s proposed tax cuts would be unfunded and inflationary reveals a deep misunderstanding of how we got into this mess and what we must do to get out of it.
The only way out is by growing GDP so that debt becomes a smaller proportion of it. Debt at government level rarely ever reduces in nominal terms. Austerity and high taxes are no solution. That ends up with the death of the goose – and make no mistake, the British economic goose is on its back.
There is another fallacy at the heart of Rishinomics. Very nearly half our national debt is owned by the Bank of England. Servicing that debt may show up in the numbers but it is false accounting. The lefthand is paying the righthand. On a consolidated balance sheet basis, our net national debt is manageable.
So Truss is absolutely right to wish to cut taxes on goods to reduce inflation. She is absolutely right to wish to cut taxes on businesses to boost growth and GDP. The country can afford to do so. Indeed, it cannot afford not to do so.