Tories must dismiss Project Fear 2.0 if Britain is to beat recession

The Bank of England announcement of interest rate rises merely confirms that excess money printing, encouraged by former chancellor Rishi Sunak, has been inflationary and that the government should have taken long term loans when money was cheaper. Long term debt is still possible and should be sought. The answer to the stagflation facing us is economic growth and there is no time to lose. In my view, only the Foreign Secretary Liz Truss is offering this.

What is most astonishing in observing the key economic debate within the Conservative Party is that perfectly intelligent MPs and commentators are prepared to believe the very same institutions and characters who got their predictions so wrong during Brexit’s Project Fear. The OBR, OECD, the likes of George Osborne and John Major. The wrangling amongst the leadership hopefuls of the Conservative Party is reminiscent of the very same thing that had Major lead us into “Black Monday” and the Conservative Party being out of office for fifteen years. I refer, of course, to the desire to stay close to the failing Eurozone, an attachment to the value of Sterling and for fiscal prudence.

The OBR warning that UK Government debt is on an unsustainable path is a red herring. The current economic situation is analogous to that after the First World War: we have a one-off debt pile which can be paid off via long-term or perpetual government bonds, while there is a desperate need to stimulate growth which will itself generate tax receipts. It is a mark of Mr Sunak’s capture by Treasury mandarin doctrine that he did not institute long-term debt while interest rates were even lower, a mark of his weakness.

The perspective of Mr Sunak is that of the myopia of a city boy, blind to the wider economy and business, who through adherence to the socialist formulae of tax rises, big state largesse and unimaginative regulatory prudence will lead our country into stagflation.

The recipe for a successful economy at this time, on which all else depends, is not rocket science, it is simply: cut taxes, cut the state, cut regulation, cut net zero, cut tariffs, cut the NI protocol, cut HS2. Boost investment in business and infrastructure including house building, roads and digital. Provide energy security by extracting British natural shale gas at below world market prices and invest in the long-term development of home grown nuclear.

The first action should be on taxes, in particular the supply side. In order to encourage investment and business confidence, corporation tax should be immediately reduced to fifteen percent with a view to eliminating it in the long run. This is a tax paid by British businesses and largely avoided by multinationals. There should be a major cut in fuel duty and a one percent cut in income tax. This will aid the cost of living crisis and boost confidence.

Mr Sunak has caught onto the idea of ​​deregulation late in the day, but seems to be limited to City rules and GDPR – whilst this is laudable, deregulation should be across the board. The one thing that family businesses, who are 85% of UK business, complain about as a burden is red tape. To reduce drag on enterprise, a simplification of the tax code would be a good starting point.

Tax cuts are not inflationary. Even if this were true, the impact would be small. The Bank of England suggests that the recent cost of living support package of over £15 billion will add just 0.1 percentage points to inflation. In any event the global supply pressures which are generating inflation will subsidize next year. Within a few years of the First World War which had similar inflationary supply pressures, there was deflation of minus ten percent.

The tax cutting, deregulatory, free market agenda is a recipe for growth and a much needed productivity boost. It incentivises hard work and provides for the UK to attain net zero without inflicting poverty upon the people of our country. It is a Conservative agenda for liberty, independence and self-improvement, not to mention home ownership.

There is only one candidate left in the race who demonstrates any understanding of the current economic challenges: Liz Truss. It is astonishing that our former Chancellor and the Treasury seem to be so very much off-beam.


John Longworth is an entrepreneur, Chairman of the Independent Business Network of family businesses, and former DG of the British Chambers of Commerce

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