David Smith: I’m sorry but Truss and Sunak have failed the audition

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David Smith: I’m sorry but Truss and Sunak have failed the audition

David Smith

8 - 10 minutes

Never one to pass up the opportunity of a popular cultural reference, albeit one that is decades old, the late John Lennon’s words at the end of the Beatles’ last live concert — on the rooftop of the Apple (no, not that one) headquarters in London’s Savile Row, were: “I hope we passed the audition.”

I have been thinking quite a lot about that as we have watched the two candidates to be Britain’s next prime minister auditioning for the role. And well, sorry to spoil the suspense, but I guess the answer is in the headline: no, neither has passed.

Don’t stop reading now, because there is plenty more to say. And, I have to tell you, this is not the smartest of career moves. The sensible thing would be to laud Liz Truss — as many Tory MPs and would-be ministers have done since she established herself as favourite — with perhaps just a side-bet of applause for Rishi Sunak. But I have to tell it as it is.

Let me start with the frontrunner. Some people have begun to describe her approach as Trussonomics. I think that is going much too far, for I have struggled to detect much, if any, economics in her approach. It pains me to hear people I like and respect, who happen to support her, describing Truss as having a credible plan for growth.

There is no such plan, save from returning one part of the tax burden to where it was in 2019, when the UK was a weakly growing economy. Income tax is still scheduled to rise, due to the four-year freezing of allowances and thresholds, as will the national insurance (NI) burden for similar reasons from April next year.

Using the expression “supply side” is not a strategy for growth, and neither are unfunded tax cuts. I hate to say it, given that there was so much wrong with everything else he proposed, but Jeremy Corbyn’s “green new deal” was a more coherent growth plan than anything she has yet come up with.

Vague noises about revisiting the Bank of England’s mandate, or establishing a new economic unit in 10 Downing Street, do not cut much ice. Changing the Treasury’s mission to one of growth is also very familiar territory.

Truss is fond of criticising her rival for “Gordon Brown economics”. Brown gave the Bank independence in 1997 not just to improve the trade-off between inflation and growth/employment — which, for most of the past 25 years, it has done — but also so the Treasury could become more of an economics ministry, focused on improving the UK’s long-term performance.

He, the last chancellor to preside over a growth rate for which his successors would give their eye teeth, concentrated on productivity even when it was not obvious that we faced a crisis. On his watch, the productivity gap between the UK and competitor countries narrowed.

Truss, I have to say, comes over as a novice on these matters. We can only hope it is deliberate, and she is not as economically challenged as she sounds.

But Sunak has also been disappointing during this contest. The economy should have been his strongest card, yet he started on the back foot. Before his spring statement in March, I and others urged him to delay the NI rise because of the cost of living crisis — but, having secured agreement from Boris Johnson to do it, he was determined not to lose the moment.

His claim that the furlough scheme helped to limit the pandemic rise in unemployment is certainly true. But many older voters, including some Tory members, did not like the idea of people being paid by the government to sit at home doing nothing. Hence, I presume, Truss’s clumsy “no handouts” remarks.

Sunak has managed to snooker himself during the campaign, and not just by thinking it was sensible for his wife to maintain her non-dom tax status while he was chancellor.

When inflation is already here, warning that Truss’s tax policies will mean yet higher inflation, which it only marginally might, was not clever. Citing Professor Patrick Minford, a Truss-supporting economist, saying that her tax policies would lead to a 7 per cent Bank rate was not very clever either. Many older voters would love higher rates on their savings. As it is, Minford has strongly denied to me, and in a letter to The Times, he said any such thing.

Sunak’s attack on the Truss tax policies should always have been about affordability and the magic money tree aspects of it, not inflation. Truss’s Johnson-like “cakeism” — simultaneously promising to cut taxes and increase public spending, and debt — should have been his focus. Public spending will have to be increased further, as the Institute for Fiscal Studies points out, to avoid unintended austerity arising from the effects of inflation.

As it is, if she were to win, we could find ourselves in a worse position than under Johnson. Though he had to go for repeatedly demeaning the office of prime minister, his cakeism was at least balanced by Sunak’s steadying hand at the Treasury. The loyalist that Truss appoints as chancellor, assuming she wins, is unlikely to show such resistance.

It has not just been Tweedledum and Tweedledee in this leadership contest. Both are guilty of one of the oldest deceptions in the book — that there is a mass of EU red tape to set alight. The Daily Express wrote that “Brexit wonder woman” Truss was going to do so.

You may think that this sounds rather familiar, because it is. Johnson, holding a kipper aloft, promised a bonfire of red tape three years ago and this was embodied in Queen’s speeches under his government. He was following a tried and trusted route, but such conflagrations never happen.

The EU is a rule-maker, often setting global standards, so businesses wishing to trade often have to abide by those rules. The chemicals industry is grappling with the cost and hassle of adopting home-grown red tape, the UK’s version of the so-called Reach system, knowing that it will also have to meet EU standards to trade. The reality for most businesses, and certainly those that export or import, is that Brexit has resulted in a significant increase in red tape. Both candidates have failed the honesty test over the costs of Brexit.

Both are also guilty of supporting something that fails every test on effectiveness and cost, but which is popular with Tory members. The policy of sending asylum seekers to Rwanda, if any are ever sent, was the desperate act of a beleaguered home secretary, not a policy for a new prime minister.

Both Truss and Sunak have also been remarkably insouciant about the economic meteorite heading our way this autumn in the form of a further huge increase in energy prices and the prospect of inflation running at between 13 and 15 per cent over the winter. Consumer confidence has fallen again to a new low, according to the data-analytics firm GfK, and Truss’s tax cuts are about as useful as a flimsy umbrella in a hurricane in this context.

Sunak has reversed his opposition to a temporary, but untargeted, cut in VAT on fuel, and said he would find another £5 billion in help for low-income households, making £10 billion in total. But he has been constrained by his own edicts on responsible public finances, and this would not be nearly enough.

Perhaps the only crumb of comfort for him, if the contest goes the way the polls suggest, is that this may not be a great election to win — given the scale of the problems that the new prime minister will inherit.

PS

Just time for a quick news flash from the world of work. Amid tentative signs that the labour market is beginning to soften, one cause of recruitment problems for employers, a lack of foreign workers, may be resolving itself. In the second quarter there were 78,000 more foreign nationals working in the UK than before the pandemic — a 239,000 fall in EU workers offset by a 317,000 increase in other foreign nationals.

Something curious has also been happening with the main cause of worker shortages: increasing economic inactivity. In the latest three months, there was a small fall in employment and a rise in inactivity among the 16-64 age group. But there was a big, 173,000, rise in employment in the 65-plus age group, mainly driven by men.

Older people may be being driven back to work by the cost of living crisis, or by discovering the elixir of youth — or it could be a statistical aberration. Let’s see what happens next month.

david.smith@sunday-times.co.uk