Liz Truss Says “There’s Too Much Talk About Recession" And Insists Economic Slump Is Not Inevitable
Liz Truss has called for a change in the "orthodoxy" and for more ambition to prevent the UK economy from entering recession (Alamy)
5 min read
Foreign Secretary Liz Truss has insisted a recession is not inevitable despite stark economic warnings as inflation continues to rise.
She suggested a "level of ambition" was needed to "change the orthodoxy" in the UK economy.
Following the invasion of Ukraine early this year sending gas prices soaring, along with the lasting inflationary impact of the pandemic causing a cost of living crisis, the Bank of England has warned Britain is facing the longest recession since the 2008 financial crisis.
The economy shrank by 0.6% in June, and is forecast to keep contracting for the rest of 2022 and throughout 2023.
But Truss, who is the overwhelming favourite to become the next prime minister when the result of the Conservative leadership contest is announced on 5 september, told the Sun on Sunday she believed a recession could be averted as she reiterated her plans for immediate tax cuts which she said would spur growth in the economy.
She promised a "small business and self-employed revolution" to help turn things around.
"Those are the future big companies we need to develop - and why shouldn't Britain have the next Google or the next Facebook?," Truss said.
“Why shouldn't it be a British company? It's about that level of ambition. There is too much talk that there's going to be a recession.
“I don't believe that's inevitable. We can unleash opportunity here in Britain."
She is being spurred on by veteran Tory MP John Redwood, who said she should rip up Britain’s fiscal rules if she defeats Rishi Sunak in the Conservative leadership contest and succeeds Boris Johnson as PM next month.
Redwood, who served as the head of Margaret Thatcher’s Downing Street policy unit, is tipped to return to government if Truss wins.
Speaking to the Telegraph he said she should abandon the practice of targeting a set percentage of GDP for national debt and the deficit, and called for a review of both the Bank of England and Office for Budget Responsibility.
But the former Chancellor Ken Clarke has ridiculed Truss’ plans to turn the UK economy around simply by cutting. taxes
“The simplistic idea that tax cuts will automatically produce growth is nonsense,” he told The Observer.
"Everybody would do it if that worked. There’s a slight touch of the Argentinian or Venezuelan government about it.
“This is not a time for tax cuts because we have incurred enormous public expenditure, which I supported, to stave off the worst effects of Covid-19, leading to enormous public debts.”
Clarke said because there are still “difficulties in supply”, so tax cuts will end up pushing inflation further up.
It comes after Michael Gove said Truss’s campaign has been a “holiday from reality” and that her tax cuts would put “the stock options of FTSE 100 executives” before the poorest.
Writing in the Times yesterday, he gave a surprise endorsement for Sunak, and criticised Truss for rejecting further cost of living as “handouts” and her plans to reverse the increase in National Insurance.
“The answer to the cost of living crisis cannot be simply to reject further ‘handouts’ and cut tax,” he said.
“Proposed reductions to national insurance would favour the wealthy, and changes to corporation tax apply to big businesses not small entrepreneurs.”
Senior Tories have warned their party will suffer dire electoral consequences unless a Truss premiership addresses the cost of living crisis after two polls gave Labour healthy leads.
Several former cabinet ministers told the Observer the party would suffer devastating losses in blue and red wall seats unless the Foreign Secretary changes tack when she enters Number 10.
A survey by Opinium today puts Labour eight points ahead, their biggest lead with that pollster in months, while a poll on Saturday for the Times by YouGov, whose current methodology tends to give Labour a higher figure, showed Keir Starmer’s party 15 points ahead.
In response to calls for further help, Truss’ potential Chancellor Kwasi Kwarteng signalled more help is to come after new analysis from the energy consultancy Auxilione said the energy price cap will hit £6,000 in April.
"I understand the deep anxiety this is causing. As winter approaches, millions of families will be concerned about how they are going make ends meet," he wrote in the Mail.
"But I want to reassure the British people that help is coming."
Kwarteng is believed to be planning to intervene in the energy market in an attempt to stabilise the “crazy” profits of renewable energy firms, The Telegraph reported.
He is also understood to be planning to offer companies a favourable fixed-term rate at which to sell energy to suppliers for 15 years if they agree to stop selling cheap renewables at high wholesale prices.
Meanwhile The Sun reported that plans are being drawn up by the Treasury for doctors to be able to write prescriptions to give people money off their energy bills.
Those struggling to afford to heat their homes this winter would be told to go to their GP, who would be enabled to offer money off bills via the local council, or in the form of a voucher.
The proposals are likely to anger the health industry, which is already struggling with the biggest backlog in NHS history and a huge staffing shortage, with patients already reporting huge difficulties in getting a GP appointment.
A senior Tory MP told The Sun: “This is an idea from another world. It won’t work.
“You can’t even get a GP appointment now. Add that to their workload and the system would topple over.
“And should GPs be there to dole out money?”
The shadow health secretary Wes Streeting accused the Conservatives of having "lost the plot" with the proposal.
PoliticsHome provides the most comprehensive coverage of UK politics anywhere on the web, offering high quality original reporting and analysis: Subscribe