Truss also needlessly alienated Britain’s entire government establishment. She fired Britain’s most powerful civil servant, the permanent secretary of the Treasury, for no good reason. She refused to allow an objective analysis of her plans by the Office of Budget Responsibility, which would normally be a legal requirement for any budget. And she ridiculed the Bank of England’s monetary management. After these unprovoked attacks on Britain’s longstanding tradition of nonpartisan public service, Treasury and Bank of England officials may not have been too distressed by the market turmoil last month.
Because of all these blunders, pollsters are now near-unanimous that the Conservatives will lose the next election. In fact, throughout British history, the party in power has always lost it after financial crises, even those that were followed by decent economic recoveries. This pattern is likely to be repeated in the coming two years.
Suppose, as I think is likely, Britain manages to avoid the economic collapse that many observers now consider inevitable and, using energy subsidies and price controls, squeezes inflation back to tolerable levels – not to the 2% official target, but to 4% or 5%. By next summer, other countries stuck in recession may start looking with interest at Britain’s heterodox economic experiment.
But inside Britain, Truss will get no credit for averting a short-term economic catastrophe, because she never presented that as her main objective. Instead, she will face ridicule for breaking her impossible promise to achieve sustained supply-side growth. Meanwhile, the opposition parties will be preparing for government, and will need to propose alternative policies for achieving the long-term growth the Tories failed to deliver.
With fiscal leeway exhausted by Truss’s tax cuts and inflation still a serious problem, there will be no serious prospect of alternative policies based on more public spending. But any non-Conservative government that emerges from the next election could offer one completely credible policy that would instantly improve Britain’s growth prospects with no budgetary costs: Restore cooperation with its overwhelmingly dominant trading partner, the European Union.
This would not mean reversing Brexit. It would mean negotiating a new customs union, aligning British regulations with the EU single market, and gradually moving toward a closer relationship with the bloc, similar to Swiss and Norwegian arrangements. A month ago, this would have been a fantasy, but stranger things are now happening in Britain almost every day.
Anatole Kaletsky, chief economist and co-chairman of Gavekal Dragonomics, is the author of Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis.