As Johnson resigns from office, it’s hard to deny that our country has been left in a quite damning economic situation.
Many will be hoping that the new Prime Minister represents a change in direction. But with inflation soaring, energy bills rising, and growth stagnating, will ‘Trussonomics’ be enough to turn things around?
Truss’ liberal free market outlook could well be the answer. Listening to her throughout the leadership campaign, it is clear she is committed to encouraging investment and improving productivity. Indeed, this ‘trading one’s way out’ of a dire economic state will hopefully lead to a boost in wages and growth of the economy.
Certainly, Truss has had a surprisingly upfront ideological worldview. Keen to liberalise regulations, knock down trade barriers and cut taxes, she is already distancing herself from previous Conservative governments. However, reform of the pro-growth nature will take time to make an impact. With the current cost of living crisis, and a general election in two years, this is time that she does not have.
Yet, the trajectory has been clearly marked out over the past twelve weeks of campaigning. Even in July she promised cutting £30bn in taxes. Sentiment around reducing the tax burden may be welcomed, but one must be cautious of biting off more than one can chew. For example, the recent proposal of the £100bn plan to freeze energy bills. Although there is a need to ease the cost of living crisis, this plan has much in common with the Furlough Scheme, whilst costing £30bn more; a policy that is more of a blanket handout rather than a targeted one. The extraordinarily large cost will be added to government debt which is already more than double gross domestic product. This is a bad habit to get into, and once the appeal of ‘ready money’ is there, it is hard to succour the temptation to use it.
However, the Truss government does have an opportunity to use cuts in regulations to create innovation and grow the economy. Proposed regulation cuts would indeed illustrate many of the silver linings of Brexit. The main target in sight, the EU’s Solvency II regime, is set to be scrapped to enable insurance companies and pension providers to invest far more in the UK capital markets. Changing the rules could unlock billions of investment in all sectors of the UK, resulting in an increase in UK competitiveness and growth for our economy.
When tackling housing, which has been deemed in crisis for more than 30 years, perhaps simple deregulation and planning reform could be used to solve the situation. Truss does appear to be anti-regulation and pro-reform, this being something necessary to save the housing crisis. However, although she indicated toward making it quicker and easier for developers to build on “opportunity areas” on brownfield land, this may not be enough. For example, low-tax zones across northern England will have lower business rates and little to no planning restrictions to encourage investment. Why not do the same in the south, where demand for housing is far greater?
Nonetheless, there is still a lot to be optimistic about with Liz Truss becoming the new Prime Minister. The new government will be unashamedly pro-growth and anti-regulation, this being a welcome change to the country’s economy. There are still immediate problems to be dealt with in both the short and long term, and Truss must enact policy change rapidly and effectively. If she does, the Truss government could succeed in repairing our economy and our country, and she will be revered as overcoming some of the most difficult challenges facing a new prime minister.