After the right turn, the U-turn. Despite abandoning his top rate tax cut, the chancellor, Kwasi Kwarteng, has left £43bn of his £45bn tax cuts intact. A panicked overnight climbdown does not add up to a change in strategy. He is still doubling the tax-free giveaways to those with share options, cutting £1bn from tax on dividends and sanctioning a free-for-all in bankers’ bonuses. He is also going ahead with his tax avoiders’ charter: £2bn for employees who are able to declare themselves self-employed. Still in place is the £2bn he set aside for tax-free shopping for foreign tourists and the £19bn of corporation tax cuts, which Rishi Sunak claimed did nothing for investment; and by continuing to reject a new windfall tax, the chancellor might as well be handing over billions to the oil and gas tycoons.
Kwarteng’s meeting with the Office for Budget Responsibility on Friday will have killed off his belief that he could pay for his tax cuts by conjuring up 2.5% annual growth. So after the crash comes the bloodbath: an onslaught of public spending cuts bigger than Osborne’s austerity or the IMF cuts of 1976 – so severe that they will impede rather than spur growth, ruin education and undermine our most precious asset, the NHS. Lying ahead, as inflation erodes the value of departmental budgets is, according to the Resolution Foundation, a public spending cut by 2026 of between £37bn and £47bn, the equivalent of closing every English school. While the prime minister has ruled out changes to the triple lock on pensions, the typical family on universal credit – already around £1,500 short as a result of last October’s £20 a week cut and April’s lower-than-inflation uprating – will now see their losses rise to £2,000 a year if benefits are linked to earnings and not prices. No family I know can afford to lose so much.
The previous financial crisis taught me that leaders must be three steps ahead of events and never behind the curve. Today’s national emergency demands proper coordination of monetary and fiscal policy to give us a convincing pathway out of stagflation; a national economic dialogue with business and workforces if there is to be any chance that people will feel “we are all in this together” and there is equality of sacrifice; and, as in 2009, when also dealing with global problems that require global solutions, coordinated international action to avoid the danger of excessive currency volatility and perhaps monetary overkill and to counter the very real threats to stability from a poorly regulated shadow banking sector.
So why, when the country is threatened with a one-dollar pound, a £3tn debt burden and a million more unemployed, do ministers ride roughshod over mechanisms for accountability, sack trusted public officials and pile disorder in politics on top of dysfunction in the markets, lighting fires precisely at the moment when they should be putting them out?
To discover why, you have to go back to 2012 to Britannia Unchained, a book that counted Liz Truss and Kwarteng among its authors. The pound can collapse, borrowing costs can soar, pension funds can teeter on the brink of collapse, the mortgage market can crater, pensioners can freeze, children can go hungry and inequality can further widen and divide. All are, according to them, a price worth paying because the only economy that can succeed is one built around serving the needs of venture capitalists, who have to be induced into staying in Britain, guaranteed freedom from labour, environmental and social standards – and, ideally, exempted from tax.
Yet even successful venture capitalists would have to admit that they don’t get rich on their own. They have to hire workers whose education we, the British people, pay for; travel on roads and railways that the state maintains; invest in innovations that our publicly financed universities incubate; and depend on a public health system that our taxes finance. Venture capital relies on social capital; markets need to be underpinned by morals. Public investment is needed to create the conditions for growth and any sensible growth strategy has to offer more than tax cuts and deregulation. It has to support science, innovation, infrastructure and skills, with the right powers in the right places to create internationally competitive clusters of industry. And it has to acknowledge an old but recently forgotten truth: that when the strong help the weak it makes us all stronger.