Rishi Sunak is a friend and a great talent. In my opinion, however, recently he has been too defensive about his record and too unwilling to listen to opinions to be the Prime Minister we need now.
The first lockdown meant people and businesses needed help, and his first instinct – to introduce furlough – was right, as was his second to get people back to work.
The decision to lock down nationwide again in late autumn 2020, while the bespoke regional policy was working, was controversial, however. Imposing it and extending it to the following year, and therefore extending such costly benefits and holidays, was a mistake.
The resumption of activity to pre-pandemic levels, driven by huge increases in health spending and online shopping with leave money, has been placed on dislocated or still closed supply chains. , driving up prices for whatever was available. They still haven’t returned to normal and, unfortunately, Putin saw this as an opportunity.
Slow to recognize the inflationary impact, embarrassed central banks now risk overreacting with blunt monetary policy tools they admit they don’t quite understand. If we are to avoid recession – and a sharp drop in tax revenues that fund public services – our tax and regulatory policies must encourage a greater supply of energy, goods and services into the economy and increase productivity. Higher taxes on jobs and businesses do the opposite, worsening potential stagflation and the prospect of higher interest rates.
Liz Truss is right to want to reverse tax trickery and simplify taxation and regulation to put the UK economy on a sustainably higher growth path. Investors and participants should be excited and leave no doubt that the UK is the place to be.
In the context of this growth and income confidence plan, Liz is also right that the emergency health and benefit costs to deal with the pandemic and recovery should be treated differently in the budget than recurrent public expenditure. Investors primarily want to know whether recurring costs and liabilities are sufficiently balanced with annual revenues, and whether the latter are growing sufficiently to exceed debt repayment. The trajectory and sustainability of economic growth is the most important factor.
The NHS should account for the one-off costs of the pandemic separately, so it is clear what they really are. Similarly, any temporary reductions in green levies, VAT and fuel duties directly linked to the reduction in price increases of basic inputs to our economy that have been inflated due to the pandemic and war, should be considered in the budget as separate.
This is a more sensible approach than treating them as a short-term cost and raising taxes accordingly.
Times are dire and the foolish approach to sterling taken by the former Chancellor risks sabotaging growth and precipitating economic disaster.
We need change and delivery in weeks and months, not years. We need a “Barnes Wallis” type dam-breaking moment. Among the candidates, only Liz Truss has the experience and the will to do so.