No, Trussism Was Never Really Tried
And everyone on earth misunderstood what it was all about anyway
Liz Truss is this weekend expected to make her first intervention into the national conversation since stepping down as Prime Minister. At the same time the Conservative Growth Group is growing. Formed towards the end of last month, this group of pro-market MPs now boasts over 50 MPs, forming a Parliamentary caucus that is set to become a significant player in the run up to the budget. Although not all MPs are exactly happy about this…
“You’ve now got these people pro-growth in the party. As far as people in Plymouth are concerned, we’ve done that to destruction… We’ve done all that now, we’ve been through that now and we’ve literally tested it to destruction.” -Johnny Mercer MP
These were the words of Veterans Minister Johnny Mercer, according to a report this week on the Guido Fawkes website. That we have tested pro-growth policy to destruction. That for 49 days, the country was subjected to unbridled libertarianism. And what a test it was. Liz Truss implemented all of her ideas, which were of course understood widely by everyone, and sailed onto the statute books facing no resistance from the Tory party or other vested interests at all. And after all that policy implementation, no growth came as a result. All within 49 days.
This is, of course, nonsense. In reality Truss implemented virtually none of her pro-agenda. In fact she had barely announced any of it before the men in grey suits came knocking.
But didn’t she cost us £65 billion? So say reputable sources like the Have I Got News For You twitter account, French TV's ‘Mr Europe’, and Afghan dog rescue enthusiast Dominic Dyer. In reality, however £65 billion was not lost due to the mini budget. That was the amount that the Bank of England said it was willing to commit to stabilise the gilt market. As the independent economist Julian Jessop notes, in reality about £19 billion was spent by the bank, which - crucially - ended up delivering a profit of about £4 billion. But again, this was all before anyone had even got to the real point of Trussism.
The framework of what could have been is found throughout a document that the Rishi Sunak promptly ripped to shreds upon entering number ten. And no, it’s not all about tax cuts. In fact, the most important parts - the most interesting bits too - are the other areas of supply side reform. Cheap or free to do, and potentially transformational. It was all laid out, albeit not in full detail, in The Growth Plan.
The plan listed a dozen or so key areas of reform, including but not limited to:
Investment Zones “to drive growth and unlock housing”
Reforms to improve access to affordable, flexible childcare
Reforms to ensure the immigration system supports growth
Pension reform
Financial services reform
Wider planning reform
Changes to accelerate delivery of infrastructure
Options to encourage people to stay in the labour market for longer
It is these packages of reform - far more so than any tax cuts - that had the real potential to unlock growth and boost productivity. And yet which of these has been so thoroughly implemented that it has been tested to destruction? None.
The media’s focus on taxes is ill placed. Not only due to the supply side reform agenda being the genuinely transformational element of the Truss growth plan, but also given the real upset that followed the mini budget. Looking back to that fiscal event, it was not the tax cuts that were the biggest or most important bit.
The two single largest elements of the Truss tax agenda had of course long been known about - reversing the previous administrations’s not-yet-implemented decision to raise corporation tax from 19 to 25%, and its recently implemented hike in national insurance.
Taken together, these two well-anticipated tax cuts would forego an anticipated £37 billion in extra revenue by 2026-27. That’s £37 billion out of what the Growth Plan lists as £45 billion in total tax cuts. In other words, over 80% of the tax cuts by value were the two well publicised, well understood, not-a-surprise set of measures that formed the key planks of Liz Truss’s campaign to become Conservative Party leader. They could not have been more widely reported, over the many months of the (rather too long) leadership contest. And they were both promises to do away with extra taxation that did not exist as recently as 2021. Both were reversals of recent tax rises. Until last year neither measure due to be reversed had raised a single penny for HMRC.
So in terms of what might have actually been new or surprising to markets, it was at the very most £8 billion in tax cuts by 2026/27. Again, £45 billion in ‘tax cuts’ (cancelled tax rises) had already been well trailed in Truss campaign events, national TV debates, and hustings in every region of the country.
So what then was the issue? Did £8 billion more in borrowing than was expected out of a £2.6 trillion economy really send everything haywire?
Well, let’s look back to our old friends at the IMF, who released an extraordinary statement on UK fiscal measures on 27 September last year. It was widely reported with headlines like “IMF warns UK against mini-budget that will 'likely increase inequality” or even “IMF urges UK government to reconsider tax-cutting plans”.
But these articles gave the wrong impression of the statement. Was it really more concerned about tax cuts or perhaps another measure announced at the same time potentially four times the size of those tax cuts?
It might be useful to explore what the IMF actually said in its press statement, the primary focus of which regarded the UK’s “aims at helping families and businesses deal with the energy shock”, going on to say that “we do not recommend large and untargeted fiscal packages at this juncture”. It’s talking about the energy price freeze. The least controversial part of the mini budget, pushed for by Labour - that free market think tanks like the Institute of Economic Affairs heavily criticised.
The IMF rightly points out that the energy price freeze would increase inequality - the plan devised by Labour and implemented by the Tories subsidises those who use more energy more than those who use less. Millionaires heating their swimming pools receive more taxpayer support than low income families in small houses or flats. And yet there was almost absolute political consensus on this enormous untargeted intervention.
Indeed, reading the IMF’s press statement in full, before any mention of tax cuts, the primary concern is clearly the energy package. A package that could have cost up to £200 billion. As the numerate will recognise, hundreds of billions of pounds is a larger amount than £8 billion. Perhaps it makes sense that this is what the IMF’s statement focussed on, ahead of new tax cuts. Although the reporting around it seemed to miss the key points:
"We are closely monitoring recent economic developments in the UK and are engaged with the authorities. We understand that the sizable fiscal package announced aims at helping families and businesses deal with the energy shock and at boosting growth via tax cuts and supply measures. However, given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy. Furthermore, the nature of the UK measures will likely increase inequality. The November 23 budget will present an early opportunity for the UK government to consider ways to provide support that is more targeted and reevaluate the tax measures, especially those that benefit high income earners."
The biggest problem with the mini budget - other than a perceived disrespect for institutions like the Office for Budget Responsibility in delaying its report until months after the mini-budget - was the extra and uncertain spending the government committed to. The energy price guarantee was estimated to cost anywhere between 100bn and 200bn, although these estimates were in and of themselves guesses, as the guarantee committed the state to cover the cost of energy above a guaranteed unit price, however high it got. This was a functionally limitless commitment, made at a time of uncertainty in the international energy market. A decision clearly far more dangerous than the reversal of a handful of recent tax rises.
It was bad policy, and it was in no way free market. This element of government’s plan - pushed for by all opposition parties - was the opposite of a libertarian experiment. It was socialist.
If Conservative MPs should be angry about the Truss administration for anything, it was its capitulation to the Labour Party’s policy team and their ill thought through, indiscriminate, untargeted intervention that cost far more than the entirity of furlough.
But this is all a distraction from the fundamentals of what the Truss ministry had planned. And what the Growth Group of MPs may well begin to push for.
Speaking with people who were at the top of government at the time and in the former Prime Minister’s inner circle, it is clearer and clearer that the tax and spend elements of Trussism were not as fundamental to her vision of growth as had been made out. The tax cuts were nice to have and would help on the margins, and the price guarantee was designed to shut down political opposition in a ‘shock and awe’ strategy. All of the noise around these two elements obscured the real mission of the Growth Plan.
The plan wasn’t only about tax. As the executive summary made clear, a bonfire of red tape, building things more quickly, and planning liberalisation were the key elements.
“To drive higher growth, the government will help expand the supply side of the economy. The Growth Plan sets out action to unlock private investment across the whole of the UK, cut red tape to make it quicker to deliver the UK’s critical infrastructure, make work pay, and support people to get onto the property ladder. New Investment Zones will provide time-limited tax reliefs, and planning liberalisation to support employment, investment, and home ownership.”
This was the pitch, as the plan went on to say, “The supply-side reforms announced are at the centre of the government’s Growth Plan and represent an ambitious first step towards achieving 2.5% trend growth in GDP”. And yet, sadly virtually none of the supply side reforms planned were able to see the light of day. Despite the unquestionable need for them.
Expediting infrastructure delivery is overwhelmingly important. As a key example, the plan notes how slow and burdensome the process for delivering wind farms offshore is - four years to get through the planning process alone in some cases - and how not a single substantive onshore wind farm has received planning consent since 2015. If we want to grow we have to be able to build things. Allowing the market to build the energy infrastructure it is so evidently desperate to is such an obvious key to unlock growth, and the Truss ministry really understood this.
To me that government’s plans for wind power are a key window through which it is easy to see a fundamental issue with elite understanding of the Truss ministry, and what it was all about.
It wasn’t that long ago that I was speaking to a well informed BBC journalist who had no idea Liz Truss’s ministry had announced an end to the effective ban on onshore wind farms. All the attention had turned to Fracking. Yet the plan from Number 10 at that time was liberalising it all, both renewables and relatively low carbon shale gas at the same time. Not many looked past the fracking question. It was only when Simon Clarke laid his pro-onshore wind amendment to the Levelling Up and Regeneration Bill that the issue was flagged to most of the Parliamentary press - who tend to prefer personality to policy.
Yet again, looking at the growth plan’s top five priorities, two out of five of them are about building things - infrastructure and home ownership;
investment: creating the right conditions and removing barriers to the flow of private capital – whether taxes or regulation
skilled employment: helping the unemployed into work and those in jobs secure better paid work
infrastructure: accelerating the construction of vital infrastructure projects by liberalising the planning system and streamlining consultation and approval requirements
home ownership: getting the housing market moving
enterprise: cutting red tape and freeing business to grow and invest.
They are a far cry from the five priorities announced by the Prime Minister last month. Far from prioritising an already-expected fall in inflation, and a nebulous promise about legislation to deal with small boats, the Growth Plan spoke about investment, employment, infrastructure, homes, and enterprise.
And this takes us to the policy that could have been most transformational of all. Something misunderstood by almost everyone who came across it. Derided by those who thought they were simply all about tax incentives. Investment Zones were nothing of the sort. They were actually about building things.
Investment zones were designed to deliver targeted accelerated development. Within them were designated development sites to deliver growth and housing. Instead of far more difficult wide ranging planning liberalisation, investment zones could target an area prime for growth and deliver the homes, lab space, or whatever else is needed outside the normal growth crushing constraints of the Town and Country Planning Act.
These were a smart solution to the issue that scuppered planning reform time and time again. To allow housing to be delivered in precise areas, not the shires that would like to remain shires, but the key areas that have the highest demand.
Far from the ‘low tax areas’ they were painted as, these targeted areas would become regulatory sandboxes, delivering specific regulatory freedoms to drive world leading research and enterprise. Crucially too, a rules based planning system rather than the arbitrary home-blocking mess of the planning system as it exists across the country today.
As Centre for Policy Studies Director and 2019 Conservative Manifesto co-author Robert Colvile has powerfully noted, in the 30 years before 1990 the United Kingdom built 7.5 million homes. In the 30 years that followed we build just 3.3 million. All this, as our population has grown. This isn’t just leading to a housing crisis, but so many other knock on effects to growth too.
Jeremy Hunt spoke last week about his vision to “turn the UK into the world’s next Silicon Valley”, referencing our world leading research hubs like Oxford and Cambridge. As things stand we are punching above our weight - but there is a ceiling. These areas have such potential to be as transformationally productive as places like Silicon Valley and Boston have been for the Untied States - with all the new industries and companies that have sprung up around these centres of research.
There is just one problem for Jeremy Hunt’s approach or hope. Four million people live in silicon valley. Greater Boston is home to five million. Meanwhile, 152,450 live in Oxford and 145,700 live in Cambridge.
This is perhaps best understood visually, as the tweet below makes clear.
This is crippling what should be an enormous engine of growth. In June 2022 companies were looking for a combined 1.2 million square metres of lab space in Cambridge. Can you guess how much lab space there was available for these companies looking to invest and grow? None.
In Oxford at the same time, things were barely better. Over 800,000 square metres were being sought, with just 18,000 available.
The fact is that without significant construction in or around places like Oxford and Cambridge we are suffocating our country, and turning away those who want to invest. Liz Truss understood this. Think about what an investment zone could do if one was attached to Cambridge or Oxford in the style of Edinburgh New Town. Perhaps the investment zone could be mandated with its bespoke planning rules to copy the Georgian vernacular of Edinburgh New Town too, a fresh square mile or so of gentle density providing desperately needed space for growth.
Or (or indeed and) more transformationally, imagine the power of an enormous modern investment zone - in effect an entirely new city - with time limited tax incentives but more powerfully independent planning rules allowing world leading development and infrastructure delivered at the speed and with the sort of industriousness of which the Victorians would be proud.
This was the promise of the Liz Truss ministry. This is what jumpy MPs threw away.
And in some ways, if Keir Starmer were to genuinely to follow through on his party’s newfound planning and infrastructure rhetoric, he could lay a greater claim to the Truss inheritance than Sunak has. Starmer has even made wind farm construction a core and popular plank of his policy platform. It’s just he is louder about it than Liz Truss was. And in her conference speech Rachel Reeves spoke proudly of the need for construction and development.
“What you will see in your town, in your city, with Labour is a sight we have not seen often enough in our country. Cranes going up, shovels in the ground. The sounds and the sights of the future arriving. Secure, skilled jobs, for plumbers, electricians, and joiners, for designers, scientists, and engineers.” - Rachel Reeves, Labour Party Conference 2022
I doubt, however, Labour’s commitment to this. They voted down the last two major attempts at planning reform. The Party’s Shadow Levelling Up Secretary is one of the most market-averse politicians in the Shadow Cabinet. The defenestration of Liz Truss and her ministers like Simon Clarke and Ranil Jayawardena has left us with no key champions for the kind of market driven development this country is so desperately crying out for.
And the worst thing of all is that too many people believe that Trussism had been given a genuine opportunity. That it was given a chance. That the raft of supply side reforms; from pro-growth migration to childcare liberalisation to targeted areas of far freer planning… had all somehow been given a good go.
So no, until we build a glittering investment zone between Oxford and Cambridge, connected up with expedited world class infrastructure which has been funded by savvy private investment including from newly freed British pension funds, powered by the abundant cheap energy coming on stream thanks to other market liberalisations like ending the ban on onshore shale and wind, and welcoming new arrivals on the Growth Visa to conduct world leading research in newly constructed lab space, free from restrictive EU rules in areas like gene editing, while the new children of Britain’s fresh baby boom are cared for in our equally booming and rapidly less and less expensive liberated childcare sector, all before they return to beautiful new homes which are fast becoming more affordable thanks to the millions that have been allowed to be constructed in the most productive zones in the country. Until that day, real Trussism has not been tried.
Absolutely spot on, the reluctance of the government to recognise the genuinely credible plans from the 'mini budget' to help this country will cost us. I've written a bit myself on this already on my own Substack, but thank you for putting it into a much more detailed format!