Paul Teasdale says that Truss may have been rapidly removed from office, but her ideas are still playing a big role in government
Liz Truss was roundly and rightly mocked in January when she had her lawyers write to Sir Keir Starmer to demand he stop saying that she crashed the economy. However, the time has come for Starmer to say that he now believes, after all, that she was right.
He and Reeves have set out economic policies, both macro and micro, of which Truss should approve. Like her, he has spoken out against the “anti-growth coalition” or “alliance of naysayers” in which he includes civil servants, regulators, NIMBYs and environmental zealots (Starmer, Daily Mail 23 January 2025) Being pro-growth is again synonymous with being pro-business. He has spoken of the need to cut benefits to push people into work. All in all, Reeves and Starmer appear to be taking their lead on economic policies from Truss’s 2012 tract Britannia Unchained (written with Sunak and others) rather more than from traditional social democracy.
Truss ignored the manifesto on which she was elected. The Conservative manifesto of 2019 spoke of levelling up, of spending and of government intervention. However, after the tax and spend of the Johnson years, she believed that taxes were too high. She claimed tax cuts for the rich would pay for themselves through faster growth. The Kwarteng fiscal “event” proposed abolishing the highest tax band, lowering basic income tax and NI Contributions. Truss’s actions caused alarm in financial markets, but she did not quite “crash the economy”. Consequences would have been serious had she stayed, but her policies did not last long enough to have much effect on the real economy. She did much less long-term damage than Johnson, whose EU trade deal set the economy on an even slower growth path than it was on before. But Starmer seems reluctant to mention that.
The lesson drawn by Starmer is that Labour must stick to fiscal rules: he does seem to really believe that more borrowing will crash the economy. So, although Labour’s 2024 manifesto was committed to restoring public services, that has been tempered by Reeves in favour of austerity based on Conservative rules about the size of the public debt. They seem to have misunderstood the purpose of rules. There is no set debt-to-GDP ratio which an economy hits trouble. Rules are a signal to financial markets of the government’s intention, but they appear to have become the target themselves. Borrowing was not Truss’s only problem. Her faults were many: a sudden switch of policy without consulting the Office for Budget Responsibility, sacking the Permanent Secretary at the Treasury, and being disliked by most of her parliamentary party. Not being Liz Truss means that Reeves could have more borrowing flexibility.
Starmer has repeatedly said that his priority is growth – something that could probably be said of every government except Cameron/Osborne. But while repeating the slogan, the government has done little in practice that would stimulate growth. Growth is mostly driven by investment, and that depends on expectations of success, whether markets are expected to be expanding, on access to new markets, in summary, on the macro-economic environment. And Labour has done nothing to improve that.
Reeves has avoided talking about the thing that would give the fastest and greatest stimulus to growth, and would be the easiest to do (not requiring more public expenditure). That is aligning the UK with the EU Single Market. In the 2016 referendum, representatives for the Leave campaign said that the UK could retain access to the single market, but Johnson’s “oven-ready” deal failed to deliver the frictionless trade he promised. Starmer did not touch the subject until the announcement on 19 May of a new deal with the EU, though this still requires action to implement the changes. The message was spoilt somewhat by the announcement a week earlier that he wanted to cut immigration, which would certainly bring down growth.
When she was in oppositionOpposition, Reeves called the Conservative Chancellors reckless (Guardian 13 June 2024). But nothing was as reckless as her promise, while in oppositionOpposition, not to raise personal taxes, then sticking to it when Hunt made big cuts to NIC, and still sticking to it when she discovered a large gap in public funding. With this irresponsible promise, she has, in effect, crippled the Labour government from the start. That might have been less damaging if she had raised borrowing. It was widely expected that she would introduce new fiscal rules to guide borrowing, but what we had in November was just some tinkering.
To increase revenue, she raised employer NICs – probably the worst tax in the Treasury’s armoury – while doing nothing about a wealth tax, or equal taxation for wage and non-wage income. One unexpected consequence was that, in response to the resulting furore about the new burdens on business, she abandoned the promised pension review and plans to improve pension schemes for retirement amid accusations that it would add more burden to British business (16 December 2024).
It appears that she wants to prove that she is responsible, and to do that by sticking to Conservative orthodoxy more rigorously than her recent predecessors. Sunak raised taxes and borrowed when it was necessary without reference to rules. Reeves has gone back to the austerity of Osborne.
Slow progress on alignment with the EU and sticking to Conservative tax plans and borrowing rules means that Reeves has chosen not to use the tools most likely to have some effect on growth so they must look to microeconomic levers. This is the traditional right-wing perspective that leads to so-called “supply side” policies. Macro-economic issues are reduced to micro-economics.
A few years ago, there was talk of “industrial strategy”, and this has resulted in a Green Paper (in October) Invest 2035 and the resurrection (in December) of Theresa May’s Industrial Strategy Advisory Council. There has been a good start in the energy sector, and perhaps defence and housing; but without public spending as a lever there is little sign of much meaningful beyond.
Increasingly economic policy is being addressed from a traditional right-wing perspective, what Rees-Mogg described as “non-fiscal interventions to make the economy more efficient and lower cost” (European Scrutiny Committee 20 April 2022). This has been the Conservative approach for decades, with little regard to economic theory or evidence. Cutting costs, for example cutting corporation tax, has failed to bring investment to the levels seen in countries with a better macro environment.
After the October budget met a very negative response, Reeves turned to the regulatory environment (that bête noire of the Tories and Brexiteers). Starmer, paraphrasing Hunt, says he wants to change the purpose of regulators from protecting the public to being more “pro-growth” (28 December 2024).) and he has been critical of the regulators themselves.
Starmer has fallen into the error of assuming that measures favoured by business people are good for growth. Most depressing in this regard was the sacking of the head of the Competition and Markets Authority (22 January, 2025)..). This was the point where the government went from failure to do good to actually doing bad. The October Green Papergreen paper on industrial strategy said that a strong CMA is necessary for markets to function well and serve the economy. But by January (after the budget) Reeves and Starmer had changed their priorities. The CMA is responsible for ensuring competition is fair and that oligopolies do not quash innovation, so it is particularly perverse that the new head comes from Amazon, a firm that has abused its monopolistic position. Furthermore, there was a reduction in the CMA workforce. The message is clear that the government does not want competitive markets that work to benefit consumers and the economy as a whole; it would prefer to listen to big tech firms.
Across government we see similar developments. The proposed employment rights will be useless if there are not enough people to enforce them in HMRC, HSE, ACAS, or Employment Tribunals. Even Sunak’s pet project of freeports continues. Commentators hoped they would be ended but, incredibly, Reeves in October announced five more.
Meanwhile, Starmer has taken aim at the same agencies and quangos targeted by Rees-Mogg when he was Minister for Government Efficiency. The dumping of Sue Gray was the end of any attempt to create a better relationship with civil servants. Starmer has followed Truss (FT 7 October 2022) in singling out civil servants within the anti-growth coalition – Starmer accuses Whitehall of being comfortable with failure”, (Guardian 5 December 2024). Now, Reeves wants an arbitrary 15% staff cut, set by spending limits rather than an assessment of departmental needs, which will make it even harder to deliver on manifesto missions.
Achieving economic change is difficult for any left of centre government; but some of the difficulties that this government faces are self-imposed. Starmer is repeating policieses that have been tried and tested, and failed. His micro interventions will not stimulate growth without a suitable macro environment. With a downturn in world trade, and with further cuts to public services ahead, it is feels unlikely that households will be feeling better off in four years’ time.
Truss may have been ejected from office quickly but her ideas are setting the agenda. The 2024 Conservative manifesto had no trace of Johnson’s approach. As well as tax cuts there were attacks on regulators, civil servants, and on disability benefits. Sunak, launching the manifesto, said that rolling back on benefits was a “moral mission” (8 June 2024), pretty much the words used now by Starmer (19 March 2025).
The worst thing that Starmer has done is to reinforce the belief, held by too many, that voting makes no difference, you always get the same, unless perhaps you turn to a strongman. This increasingly looks like a one-term government.
And then we come to the war in Europe. How can a Labour government cut foreign aid at such a time? That is what the Tory party and the Daily Mail wanted. Funding defence expenditure through borrowing or tax could have been easily justified without much dissent, perhaps issuing something like war bonds, as used in the two world wars, to emphasise that this is a collective effort. If defence is worth having, then it is worth paying tax for. Starmer seems to want it with no sacrifice.
Paul Teasdale now ex-Exeter Labour Party