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With perfect timing, Liz Truss was talking about fairness on the eve of her being confirmed as our new Prime Minister. We’ll take a look what she said.
PLUS: Fairness Index launch date confirmed for 19 October. Save the date!
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In trickle down we Truss
Yesterday, on the first episode of Sunday with Laura Kuenssberg, Liz Truss stuck to the position that she has maintained throughout the Conservative leadership race. Her priority was tax cuts, because this was necessary to grow the economy, and this was more important than reducing inequality through redistribution.
When asked whether it was fair that her plans to reverse the national insurance rise would benefit high earners by £1,800 a year compared to £7 for the lowest earners, she said:
“Yes, it is fair… The people at the top of the income distribution pay more tax, so inevitably when you cut taxes, you tend to benefit people who are more likely to pay tax. But to look at everything through the lens of redistribution, I believe, is wrong. Because what I’m about is growing the economy. And growing the economy benefits everybody. So far, the economic debate for the past 20 years has been dominated by discussions about distribution. But what’s happened is that we have had relatively low growth.”
If she sticks to her guns in government, we are looking at a huge break with the last ten years of Conservative economic policy. Her small-state, low-tax, low-regulation vision, with its reliance on wealth trickling down from the top, is markedly different from May and Johnson. But her willingness to upend long-standing ‘Treasury orthodoxy’ about not financing day-to-day spending through borrowing is an even more significant break with the Cameron/Osborne era.
Notwithstanding the fact that she seems poised to make an announcement about significant intervention on energy bills that runs totally counter to any vision of a small state, her insistence that it is fair that the richest will benefit the most from tax cuts rests on three assumptions. None of them are sound.
- Firstly, she assumes that there is strong public support for tax cuts. There isn’t.
- Secondly, she assumes that cutting taxes leads to growth. It doesn’t.
- Thirdly, she assumes that the market will ensure that the theoretical proceeds of growth from tax cuts will trickle down from the wealthy to the rest of us. It won’t (and tax cuts won’t lead to growth anyway; they will simply increase inequality).
Senior figures in the Conservative party, including Philip Hammond and David Davis, are lining up to criticise the new Prime Minister’s economic agenda. Hammond said that tax cuts “would deliver an inflationary stimulus and that is not the right thing to do”. Economists agree; Paul Johnson from the Institute for Fiscal Studies said on the Today programme earlier that “it is not a strategy for growth … it will lead to additional inflationary pressure.”
Unfair and unequal societies harm economic growth because they undermine efficient markets. The poor don’t spend money while the rich hoard it offshore. The link between hard work and reward is corrupted when a lot of wealth is unearned, failure is rewarded and fair and open competition is undermined. High levels of inequality dampen both demand and output. Fairer societies are more efficient, more productive and more prosperous. This is why real fairness should be at the heart of the new Prime Minister’s agenda.
Poll of the week
What’s your view of trickle down economics?
Reads of the week
“Epidemic-levels of fuel poverty affecting half of UK households will cause a significant humanitarian crisis with thousands of lives lost and millions of children’s development blighted.” The new Marmot review, Fuel Poverty, Cold Homes and Health Inequalities, predicts significant health, social and education detriment for a new generation of children if, as forecast, 55% of the UK’s households fall into fuel poverty by January 2023 without effective interventions.
“The problem is not just deep, but is also much longer lasting than current talk of a ‘winter crisis’ implies… A significant policy response from the new Prime Minister is needed, otherwise they risk overseeing the culmination of not just the worst two years for incomes in a century, but also the longer-term culmination of two lost decades for British households living standards.” The Resolution Foundation’s latest living standards outlook lays out the full scale of the crisis facing the new Prime Minister.
“There is a growing gap between what people have and what people need for a decent standard of living. Millions of people in the UK risk falling well short of this standard as costs continue to rise and our social security system fails to provide adequate and appropriate support.” The Joseph Rowntree Foundation has published its annual update of the Minimum Income Standard, which sets out the living standards we, as a society, agree everyone in the UK should be able to have.
“While there has been progress on racial equality in Britain in recent decades, there is still an unacceptable gap in the life chances and everyday experiences of people from different ethnic minority backgrounds.” Bright Blue and British Future have launched a collection of essays on reducing racial inequality in modern Britain.
Fairness Foundation updates
We will be launching the Fairness Index on Wednesday 19 October, with an online event at 11am.
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