Opinion | The Liz Truss Economic Plan to Save Britain

Opinion | The Liz Truss Economic Plan to Save Britain


British Prime Minister Liz Truss



Photo:

Markus Schreiber/Associated Press

The business of governing the United Kingdom resumes this week after the mourning period for Queen

Elizabeth II,

and new Prime Minister

Liz Truss

appears set on making a strong start. Press leaks suggest several major policy announcements culminating in a new tax-cut plan on Friday. Her calculation is that the Tories need an economic recovery to get their groove back.

Ms. Truss will reverse a 2.5-percentage-point increase in the payroll tax imposed by predecessor

Boris Johnson,

and freeze the top corporate rate at 19% rather than raising it to 26% as Mr. Johnson intended. She and new Chancellor

Kwasi Kwarteng

also will scrap certain green levies on household energy bills.

Mr. Kwarteng is expected to announce this week, or in a formal budget in November, a raft of personal tax cuts. These could involve a reduction in the 20% rate that applies on incomes up to about £50,000, and an adjustment to tax brackets in light of recent inflation. Other tax cuts, such as on business premises, could be in store. Ms. Truss also will make energy production a priority, having campaigned for the job on a pledge to ramp up drilling in the North Sea and consider shale fracking.

As important as the details is the philosophy. Ms. Truss says the goal is to return the U.K. to 2.5% annual GDP growth, a level not hit since 2016 with the exception of last year’s pandemic rebound. To emphasize the point, one of Mr. Kwarteng’s first acts was to fire a senior bureaucrat viewed as a guardian of the Treasury’s high-tax, low-growth fiscal orthodoxy.

That anguished noise you hear through the morning mists is the caterwauling from British mandarins convinced Ms. Truss’s plans will flop. But she can hardly do worse than the economy she inherits. Inflation is 10.1% and the U.K. is expected to be the worst-performing major economy next year.

Britain’s high-tax, low-deficit fiscal scolds claim to be stewards of the pound and gilts, but the real threat to the exchange rate and the marketability of British government debt is a failing economy. A plunge in retail sales pushed the pound last week down to a 37-year low below $1.14. Who can blame consumers for spending less when they recently learned their household energy bills will rise by 80% in October on top of April’s 54% increase?

This fiasco tanked voter trust in the Conservatives in opinion polls and sank Mr. Johnson. Ms. Truss’s pitch to the Tory rank and file when she campaigned for the party leadership was that she’d offer something radically different. Tories chose that over the orthodoxy pushed by opponent

Rishi Sunak,

Mr. Johnson’s former Chancellor.

Ms. Truss isn’t about to usher Britain into libertarian nirvana. Serious reform of the crumbling National Health Service remains off the table, so the NHS will persist as a drag on Britain’s health and fisc. Mr. Johnson’s net-zero carbon fixation has wrecked the energy market to the point where the enormous consumer subsidies to be announced this week are politically unavoidable. Ms. Truss concedes a post-Brexit free-trade agreement with the U.S. won’t soon arrive, and both countries are at fault.

Still, with only two years to run until she must call an election, Ms. Truss is at least giving her government and party a chance at recovery. Conservative parties around the world have rebranded themselves as big-government redistributionists in recent years. But Ms. Truss is betting voters want the Tories to be a party of prosperity again. The risk is the economic hole is so deep that two years won’t be enough to dig out. But staying on the Johnson path meant almost certain defeat.

The state funeral of Queen Elizabeth II has taken place at London’s Westminster Abbey, followed by a committal service at St. George’s Chapel at Windsor Castle, where Her Majesty was buried with her father, mother, sister and husband. Images: WPA Pool/Getty Images Composite: Mark Kelly

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