https://www.theguardian.com/commentisfree/2022/aug/11/post-johnson-era-lurch-right-truss-sunak-tax-cutsThe post-Johnson era is taking shape — and it looks like a massive lurch to the rigSangria It is hard to imagine a more devastating and more completely foreseeable slow-motion car crash in economic policy than the one that the Conservative government is heading towards. The scale and the damage caused by steeply rising energy prices, amid surging inflation, has been predictable for many months. And yet, preoccupied by its leadership contest, the Tory party has remained in almost complete denial until the last minute. Some Conservatives, perhaps including Liz Truss, still are.
If nothing else, Truss should consult the calendar to see how close is the moment of impact that may destroy her prime ministership almost before it has begun. The leadership contest goes on until early September. Until then, Britain has a caretaker government unfocused on policy. When a new prime minister is chosen on 5 September, all immediate politics will be taken up with government changes. Ten days later, parliament goes into another recess until the middle of October. Yet on 1 October, the new energy price cap comes into force.
That price cap change means energy bills to all UK domestic customers will nearly double, just at the very time of year when households are starting to spend more on energy because of colder weather. The exact cap will be announced later this month, but the expectation is that it will rise from the current £1,971 (itself a more than 50% rise over the pre-March figure) to around £3,582. It will then rise again in January, when the cold is greater, possibly to over £4,200. The social and economic emergency of all this will be nationwide, sustained, will hit the poorest people hardest, and will have big impacts on middle-income households too. It may be accompanied by power cuts, and will unquestionably feed recession. It also seems unlikely to do the Tory party any electoral favours.
Faced with all that, it might seem reasonable to assume that the government would take emergency actions pre-emptively. That would be the rational response. Alexander Boris de Pfeffel Johnson, now more than ever a hands-off prime minister, said this week that he expected this to happen. Yet that is not what Truss says. Although she denied ruling out handouts to deal with energy bills, she continues to vacillate about whether to intervene. Her core faith-based message, which she repeated on Wednesday in Manchester, remains that tax cuts will solve everything.
Truss’s stance tells us two important things. The first is that, if and when she becomes prime minister, she will be faced within days with an enormous financial and political crisis if she does not do the major U-turn that Johnson, as well as some in the Truss camp, expect. The second is that the election of a Truss who does what she currently promises would mark a distinct turn to the right by the Conservative party, with lasting implications for British politics of the post-Johnson era.
Both of these can be seen in the importance that Truss the candidate attaches to the mix of tax cuts, changes to the Bank of England’s mandate, and supply-side reforms that some have started to call Trussonomics. Economically and politically, it is high-risk, dangerous stuff, designed to win the leadership election by appealing to the party electorate and the Daily Mail, but unsuited to solving the country’s economic problems, or the financial problems faced by voters.
At the heart of this disjunction is the fact that tax cuts will not improve the ability of the poor or those on low to middle incomes to pay their energy bills. Those bills, as the new uSwitch survey confirms, are already causing very widespread hardship and debt. But the poorest people mostly do not pay either income tax or national insurance contributions (NICs). Tax cuts also take some months to come into force, let alone to have an impact in energy use. Yet it is those who are poorest who will be hit hardest, soonest and most disproportionately. Even if Truss was to start planning cash support to consumers – and there is absolutely no guarantee that she will – that support would not be in place by October when the cap is raised.
Truss’s comment that she dislikes financial handouts because they involve taking money from taxpayers through their taxes and then returning it to them is revealing both about her ideologically rigid approach and also about her lack of practical interest in the real options. One-off handouts have an immediate impact, which is precisely what the situation calls for. They can also be much more targeted. They are easier to reverse than tax or benefits changes. And they can play a role in incentivising lower energy use. Cutting taxes, whether in the form of income tax, NICs or VAT, is a much blunter tool.
Until this week, when the energy price crisis has started to muscle its way into even the Conservative debate, much of the argument in the leadership contest has been entirely doctrinal. Tax cuts have been promoted because they are deemed good in themselves, are seen as the natural Tory approach, and because, supposedly, Margaret Thatcher would have approved. The candidates both take this view. So, it seems, do the party members. The only disagreement is about timing.
This tells us that this contest is not just a choice between individuals. It is also a choice between post-Johnson strategies. Neither Sunak nor Truss is a Johnsonite – Sunak because he is a more orthodox Tory, Truss because she is too rightwing. They do not have Johnson’s appeal, his belief in government action, his embrace of a levelling up agenda and his readiness to have it both ways. Truss, in particular, stands for a small state, low tax, nasty party reset of Johnson’s Brexit agenda.
By moving the Tory party so decisively to the right after Johnson, Truss runs a risk that could destroy her in the end. She may emphasise her Brexit credentials within the party and among the rightwing press by keeping the Northern Ireland protocol row alive, cutting regulation and the civil service, or by appointing Lord Frost as her foreign secretary. But she will not be broadening the Tory electoral base. She offers nothing material to the working-class voters in the north whom Johnson seduced in 2019, but she will hold little attraction for middle-class Tory voters in the south who are thinking of backing the Liberal Democrats either.
In an article this week, Tim Pitt, a former Treasury adviser to both Philip Hammond and Sajid Javid, wrote that Conservative economic policies have more often been pragmatic over the years than intellectually rigid. The government’s priority task today, said Pitt, is to manage inflation, to plan for growth and to continue trying to tackle inequality. This required the party to adapt to realities, he said, not to lose itself in “the vacuous promises of a partial imitation of Thatcherism”. Yet that imitation, drawn in a doctrinaire way from a bygone era that is irrelevant to the problems of 2022, is precisely what Truss offers – and nothing else.
Poll