WHAT was striking about the largely cringeworthy debate on the BBC between Rishi Sunak and Liz Truss on Monday night was the Conservative leadership hopefuls’ refusal to acknowledge in any way whatsoever their contribution to the UK economic woes they talked about solving.
Each seemed to be at extreme pains to paint a picture of how they would be the best person to be in charge in these grim economic times, and to declare why the other candidate’s plans were not the answer.
However, we should take a step back here.
Mr Sunak is the former chancellor, and for nearly two-and-a-half years from early 2020 held key responsibility for the economy. He was determined to leave the European single market, and end free movement of people, which the Tories sadly delivered through their hard Brexit at the end of 2020. And he was found wanting time and again over his determination to end the coronavirus furlough support scheme prematurely, and forced into multiple U-turns.
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It was good to see him announce in his March 2021 Budget a hike in the main rate of UK corporation tax from 19 per cent to 25% from April next year. This makes good sense, given it is projected to raise £17 billion a year and that the dramatic previous cutting of corporation tax by the Tories failed utterly to boost investment as had been promised. The extra money raised under the current plans should be deployed to help those on the lowest incomes, who have to spend all or the vast bulk of what they have to live. That is the most straightforward way to boost the economy in an emergency such as this, by supporting aggregate demand.
However, even taking into account his plan to raise corporation tax, Mr Sunak did not impress at all as chancellor.
As for Secretary of State for Foreign, Commonwealth and Development Affairs Ms Truss, who lamentably but predictably wants to scrap the planned hike in corporation tax, she is a long-time Cabinet minister who has seemed to fail spectacularly to grasp the grim arithmetic of Brexit.
In her previous role as Secretary of State for International Trade, the globetrotting Ms Truss seemed at pains to portray various rollover trade deals and new agreements with Australia and New Zealand as some sort of game-changing or at least very major developments for the UK. The fact of the matter is they amount to a hill of beans in aggregate terms, relative to the huge damage caused by the loss of frictionless trade with the world’s largest free trade bloc and the ending of free movement of people.
Brexit was like the elephant in the room during the BBC television debate. Mr Sunak and Ms Truss are clearly big fans of Brexit – the latter an enthusiastic convert – which meant there was little room for a difference of opinion or drama on that front. But Brexit is a far more important factor in the context of the UK’s economic outlook (obviously for the worse) than the piffle on which Mr Sunak and Ms Truss appeared to focus for too much of the time.
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There is obviously room for a debate about the overall fiscal stance. And premature tightening of fiscal policy would be a grave mistake, one the Tories made in spectacular style in 2010 after coming to power in the wake of the global financial crisis.
However, while there is certainly scope for controversy over the national insurance hikes implemented from April which Ms Truss plans to scrap, abandoning the rise in corporation tax is no kind of answer to anything. The UK was very competitive in a global context on the corporate tax front before the Tories cut the main rate from 28% after coming to power in 2010. And the plan is only to take the rate back up to 25%.
Increasing welfare benefits and helping others on low incomes would, in contrast, be a sure way to provide economic stimulus.
READ MORE: Ian McConnell: Little hope of blinkered Tories tackling UK’s unfolding post-Brexit shambles
The UK economy is in a very sorry state and it would have been good to hear Mr Sunak and Ms Truss be even slightly apologetic for the mess which their party has made of it since 2010. It was not at all surprising though that they merely attempted to paint themselves in the best possible light in terms of what had gone before and hold themselves up as the answer to everyone’s woes, when the reality is that they have been very much part of the problem.
The general Tory refusal to accept responsibility for what has occurred on the economic front was summed up well this week by the Treasury’s response to a report from the International Monetary Fund projecting the UK would be the worst-performing among the Group of Seven leading industrialised nations next year.
This report came hard on the heels of projections last month from the Organisation for Economic Cooperation and Development that the UK would be the laggard of the G7 in 2023. The OECD expects the UK economy to stagnate next year, having forecast 2.1% expansion in 2023 back in December.
The IMF has cut its UK growth forecast for next year to just 0.5%, from 1.2% in April.
Following the IMF report, the BBC quoted a Treasury spokesperson as follows: “We know that people are feeling the impact of rising prices, caused by global economic factors, triggered by the illegal Russian invasion of Ukraine.”
Of course the Russian invasion of Ukraine, as well as inflicting a terrible humanitarian toll, is having a major impact on many countries from an economic perspective.
However, it is not the downgrading of the growth forecasts for the UK in the IMF and OECD reports that is of itself the key issue from an economic viewpoint, given the mounting global challenges, but rather the fact the country is expected to be the worst-performing in the G7 next year.
For years now, the Tories have made huge mistakes in economic policy-making, including the ill-judged and savage austerity programme following the global financial crisis and the Johnson administration’s hard Brexit. They are also answerable for the UK’s staggering lack of energy security, which has made the surge in prices much worse than it might have been.
Yet, when the Government is faced with a projection that the UK is going to be the worst-performing in the G7, it points to global factors. If the UK were going to be top of the table, you would imagine the Conservative Government would claim credit for this, whether it was due any or not.
Other G7 countries are obviously being affected by the same global factors as the UK. However, the crucial point is the UK is projected to be the poorest-performing of the major nations, on the Tories’ watch, yet the Conservatives seem almost oblivious to the notion they could be in any way to blame.
Even by their standards, this is astounding.
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