Tax cuts and deregulation don’t grow economies – investment does
On the eve of Liz Truss’ Conference speech, J.L. Partners published a word cloud of answers to the question “what one word would you use to describe Liz Truss”. The three largest words, in descending order were: incompetent, useless, untrustworthy.
Only two weeks earlier, in so-called red wall constituencies, the same question produced “determined, strong, competent”. So, what went wrong?
In between these two polls, the pound plummeted and the Bank of England had to pump £65 billion into the gilt market to prevent United Kingdom private pension providers collapsing and set aside £5bn a day for the next two weeks to ensure stability. The market turmoil also prompted the Bank to promise it “would not hesitate” to raise interest rates. As a result, mortgage lenders pulled thousands of products and fixed-term two-year rates are now nearly 6 per cent.
As long Liz Truss remains it will mean time and opportunities wasted and that is something this country can ill afford
The cause? The new Chancellor’s fiscal event, which announced a huge increase in public borrowing in order to fund tax cuts benefiting the wealthiest and subsidising the profits of energy companies, without a proper analysis by the Office for Budget Responsibility.
That summary of the fiscal event may sound like political spin, but it is not. It is a statement of fact backed by analysis of every reputable economist and I still find it staggering. No-one was calling for a cut to the top rate of tax. The fossil fuel industry were not asking for protection – the chief executive of Shell has since openly called on the government to tax oil and gas companies in order to support the poorest in society against soaring energy costs.
The justification for these calamitous announcements was growth. In her Party Conference speech, Liz Truss doubled down, elevating growth to the status of sacred cow: growth is an unalloyed good; unquestionable and unopposable. She even invented a new enemy in front of our eyes: the “anti-growth coalition” whose members, it is no exaggeration to say, appear to be everyone and anyone who oppose anything she claims will lead to growth.
But while declaring “growth is good”, her speech contained no detail on what needs to grow, beyond “the pie” and how that will be achieved, beyond ever-lower taxes and less and less regulation.
Notably, there was no acknowledgement of climate change and the green economy. This country is committed to net-zero by 2050 and the changes we – and the rest of the world – will need to make to achieve that represent the biggest and widest ranging opportunities for growing the economy for a generation. Tax cuts and deregulation don’t grow economies – investment does, both private and government.
The OBR confirms that the investment multiplier is around three times greater than the tax multiplier. The best stimulus for growth right now is investment to meet the challenge of climate change. Labour recognises that fact. I represent a constituency in the heart of the Humber industrial cluster, which has the world’s two largest offshore wind farms off its coast and is part of the vanguard of decarbonisation technology development. I see the potential first hand. At the same time, life next to the estuary means we are keenly aware of the threats and the need for urgent action.
Labour Conference this year was the most genuinely uplifting I have attended. Our commitment to substantial and long-term investment in the green economy, in partnership with private investment, will produce the growth and jobs we need, while meeting the climate and environmental challenges of the 21st century.
I don’t know how long Liz Truss will remain Prime Minister. Her parliamentary party appears to be in open revolt at the moment and who can blame them, with Labour averaging 50 per cent and a 26 point lead in the polls? But as long she remains it will mean time and opportunities wasted and that is something this country can ill afford.
Emma Hardy is the Labour MP for Kingston upon Hull West and Hessle.
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