18 September 2022

Weekly Briefing: The ‘optics’ illusion


In her first fortnight in the top job, Liz Truss has shown a promising disregard for the ‘optics’ of policy decisions.

Exhibit A is the proposal to lift the cap on bankers’ bonuses. For her opponents, this is the very apogee of ‘not a good look’ politics – a Tory government making it easier to pay the already wealthy even more, in the teeth of an economic crisis?!

But that critique mistakes the kind of ‘optics’ the Government is going for, namely showing they are serious about getting the economy growing, which is the sine qua non of tackling the ‘groaning filing cabinet of problems’ I described in my last briefing. In that context making the UK as attractive as possible to highly mobile international financiers is a no-brainer.

Of course, lifting the cap is not going to do much ‘turbo-charging’ on its own. Where it might have some power, though, is as part of a package that mixes supply-side reforms with measures to cut costs for consumers. That includes scrapping the planned six-point rise in Corporation Tax, reversing the spring National Insurance increase, lifting the fracking moratorium, pausing green levies and, hopefully, removing a swath of pettifogging anti-obesity regulations.

It’s also encouraging that the Government continues to ignore the clamour for an extended windfall tax on energy companies. Again, that stance risks the ‘bad optics’ charge, given that the public love the idea of hitting energy companies where it hurts.

But popular policies and good policies are not the same thing. And as Karl Williams set out this week on CapX, the numbers for a windfall tax to fund an energy price freeze are nowhere near adding up, even before you come to the potential effect on investment in the industry, or the fact that oil and gas companies already pay an enhanced tax rate.

Nor do voters necessarily judge parties purely on whether they like particular policies. Labour’s manifesto in 2019 was stuffed with promises the public liked, but they still got walloped because a) people didn’t trust the frontman and b) the overall package was totally implausible. Ultimately, consistency and conviction matter as much as having a shopping list of crowd-pleasing plans.

That’s why we should look at the nascent Truss agenda not in terms of how palatable the individual policies are, but whether it works as a package. The yardstick should be not popularity per se, but how policies contribute to the overarching, ambitious aim of getting growth up to 2.5% a year. Truss’ recent comment about no longer looking at tax policy solely ‘through the lens of redistribution’ was a sign of how unapologetic she is about putting growth first after more than a decade of extraordinary economic stasis.

As Stephen Bush noted in the FT this week, Truss’ approach also opens up a big, uncomfortable dividing line for Labour – if the PM is an enthusiastic tax-cutter, do they fall into the trap of being the ‘we’ll raise your taxes’ party?

Intriguing though all that is, we shouldn’t get ahead of ourselves. The Government has to deal with an economy and public services in profound crisis. Though we await the final details, freezing the energy cap will be very expensive, even if the falling cost of wholesale gas may mitigate things somewhat. Had it not been for the Queen’s passing, we would also have heard a lot more about the parlous state of the pound, which fell to a 37-year low against the dollar this week.

Against that backdrop, Kwarteng’s ‘mini-Budget’ on Friday really does feel like a make-or-break moment, especially coming so early in Truss’ premiership. Judging by what we’ve heard so far, we can at least hope it will be guided by a sense of urgency and conviction, rather than just whether policies are a ‘good look’.

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John Ashmore is Editor of CapX.