The new Prime Minister will inherit an in-tray from hell: double-digit inflation; a predicted recession; anaemic productivity growth; a war in Europe; and the ticking time-bomb of the Northern Ireland Protocol to boot. With the next General Election no more than 2 years away, there’ll be no opening heats or warm-up laps. They’ll have to hit the ground running from the very first day.
Even worse, most of the traditional economic answers come with problems. Ramp up demand to stave off the recession and you’ll only stoke already-strong inflation. Clamp down on inflation and you’ll only make a recession more likely, and probably deeper too. That’s the debate at the heart of the race to become our next Prime Minister.
Luckily, there’s an alternative and thoroughly Conservative solution to the problem: a way for our economy to grow faster while still holding inflation in check. Forty years ago Margaret Thatcher used economic supply-side reforms to turn Britain from the ‘sick man of Europe’ into a modern, internationally-competitive country which grew faster than the European average for the next thirty years. It’s time for another dose of the same medicine now.
What should it look like? We will need a rolling programme of reforms that covers a new industry every few months, but the first priority has to be energy because the crisis is now.
Government can and probably should cut energy taxes and fuel duties in the short term, because they will make bills more affordable immediately and help to reduce broader inflation too. But those are only sticking plasters: temporary treatments for the symptoms, rather than cures for the underlying economic disease.
The problem is that, even though the costs of renewable electricity have been falling for years, and are now miles lower than Putin’s international gas price, none of it is feeding through to our energy bills at all. There’s a reform programme that’s just started and which ought to fix it, but it’s far too slow. It’s chugging along at a business-as-usual speed that won’t make any difference until the mid-2020s, which will be too late. We need to treat it like the covid vaccine project, and start introducing reforms this autumn, so people can see progress by the time this winter’s cold weather arrives.
Next should be housing, where we haven’t built enough places to rent or buy for decades, under Governments of all types, creating impossibly-unaffordable prices for ‘generation rent’. A supply-side revolution should sweep away the failed housing targets which haven’t been achieved for decades, and which impose housing on communities without their consent. It should replace them with incentives to build beautiful, green homes using locally-agreed styles and materials, in town centres and suburbs where local residents want their children and grandchildren to live. Not concreting ever-more countryside.
Most fundamentally, our competition and consumer laws need a serious makeover. They’re the economic plumbing that does a vital but mostly unseen job of protecting us all from being ripped off, and giving small businesses, challengers and entrepreneurs a level playing field so they can compete on fair terms against big, comfortable incumbents. If those laws work well then we will have a steady supply of strongly-competitive, cutting-edge new exporters creating jobs and wealth in Britain; if they’re weak, then our economy will start to fall behind. Our current rules all pre-date the digital world, and haven’t been properly updated since Google, Amazon, Uber and Facebook were invented, so reforms are urgently needed. There’s an update coming but, as with energy, it is moving far too slowly. We need a new Competition Act now.
So there’s a better economic alternative that won’t let inflation off its leash, and which would make Margaret Thatcher proud. But who should it be? Which of the two final candidates for Prime Minister gets the urgency and the scale of this opportunity?
There’s one whose programme is already closest to what’s needed. One who understands the need for speed and action today. And one who has the courage to take on all the vested interests that will try to block reforms because they rather like the – for them – all-too-comfy status quo.
That person is Liz Truss, and I’m backing her to become the next Prime Minister, because there isn’t a moment to lose.
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