The prime minister wants us to use growth, growth, growth to judge her government's effectiveness. That's what she said in her speech.
The PM hopes that the economic reforms in planning, regulation, worker visas, and other areas will unleash growth.
Even if the strategy works perfectly, it will take time according to a minister from the John Major era. He experienced an economic shock in the mid 1990s that affected his mortgage. British voters don't give credit for cleaning up their mess, according to him.
Will the strategy work in the long run?
The theme of the PM's speech was that she would take on vested interests in order to deliver a step change after two decades of anaemic growth.
She prioritised tax cuts because of a 70 year high in taxation.
There is a lot of debate over why the UK has had slow growth. A 70 year high in taxation isn't usually a large part of it.
It has never come about, because it has always been a forecast from the Office for Budget Responsibility, rather than fact, and it seems contrary to attribute decades of low growth to something that was only a prediction. Over the past quarter of a century, under prime ministers Blair, Brown, Cameron, May and Johnson, taxation has averaged 32.8%. During Mrs Thatcher's 11 years in office, that number was over 30% of GDP.
It's clear that lower taxes can boost growth, but what has been weighing down the economy? The government's comprehensive and transformational policy agenda is proceeding without a published analysis of what the growth problem is, why it happened here, and how it should be addressed.
The "anti-growth coalition" was brought up. The PM was always focused on her political enemies at the conference. She is a member of that hall.
Growth and productivity can be helped by planning reform, but it never gets done. The Kwarteng growth plan talks about changing regulations to allow more wind to be built. It would definitely be a statement of intent.
What other policies could increase forecast growth so quickly that the current numbers add up? There are visible labour shortages around the country. Is there a group of people who oppose changes to the immigration rules for political reasons? Recent reductions to the OBR's long-term growth forecast could be reversed by moves to lower trade barriers. The government doesn't have anything to do with either move.
Number 11 may have a hard time convincing the OBR that it will change the economy. There is a chance that the turbulence of the past fortnight could affect the perception of macroeconomic stability in the UK.
The gold standard for institutional independence in economic policy has been set by Britain for the past 20 years. Borrowing costs were low through eurozone crises and the Pandemic as well. The administration allowed the perception to grow that it was fiddling with the economy's vital controls. Leadership campaign rhetoric and the mini-budget's massive tax cuts fed that perception.
Over the last few days, sterling recovered its losses, but government borrowing costs are still high. The Bank of England will have to raise interest rates. After a decade-and-a-half of ultra-low interest rates, rates were always going to return to normal. It didn't have to happen so quickly. To echo the PM's choice of theme tune, mortgage rates have been moving on up.
The extra interest rate shock will cost the government and the economy a lot. The UK's growth will be affected by economic challenges elsewhere in the world, including the eurozone and the USA.
If the PM's speech was light on policy, that would make markets nervous. The lesson of the last week is that macroeconomic stability is a precondition for growth.
All Rights Reserved © 2024
