Liz Truss should have stood her ground

OPINION:

As she campaigned for party leader, it seemed to us that Britain’s Liz Truss consciously encouraged favorable comparisons to her late - but still beloved by so many – predecessor, the Right Honorable Margaret Thatcher. Indeed, when her Chancellor of the Exchequer, Kwasi Kwarteng, introduced an economic package that included a surprising, pro-growth cut in the top tax rate, we believed she was off to “a ripping good start,” as her countrymen might say.

Alas, it was not to be. In the face of pressure from everyone from Labour to the head of the Bank of England to the International Monetary Fund, Ms. Truss announced Monday that the reduction of the top rate from 45% to 40% — the best part of her plan — was headed for the ash heap. By doing so, she blinked, allowing concerns about short-term damage and plummeting poll numbers — her Tories are now 25-point underdogs in the latest polling — to win out over the possibility of long-term gain.

Much as it was in the late 1970s when Mrs. Thatcher first assumed leadership of Britain’s Conservative Party, the United Kingdom’s economy is ailing. It’s not the “sick old man of Europe” it might have once been, but thanks again to the sustained effects of the Thatcherite revolution, it’s in deep trouble. The cost of efforts to make the Tories “kinder and gentler” by embracing what remains of the welfare state has finally come home to roost.

Think of it. The naysayers who trashed Truss’ tax cut proposal — which would have deprived the country of $2 billion as it was implemented — cheered on the COVID-19 spending and the plus-ups for the National Health Service and the government subsidies Ms. Truss signed off on to help families and businesses deal with the spike in energy prices caused by former Prime Minister Boris Johnson’s full-throated embrace of a net zero carbon emissions policy. What the chancellor proposed, even though it would have required increased borrowing in the short term, is a drop in the bucket compared to the expenses incurred to maintain what’s left of the welfare state.

Moreover, as Mrs. Thatcher proved in England and President Ronald Reagan proved here in the U.S., lowering the top rate would have provided an incentive for people to work harder so they could earn more, invest more, and take bigger risks because of the possibility of greater gain. Lower tax rates, as economist Arthur Laffer’s famous curve brilliantly illustrates, generate the same, usually more revenue for the government over time than higher rates would have because lower rates provide an incentive for people to generate more income for themselves.

Her plan still has some good bits that we hope she continues to fight for, but we’re no longer as enthusiastic about it — or her — as we were. A true leader would not have blinked, even in the face of such overwhelming opposition, if she had truly believed her proposed policy would work.

She would have stood her ground, as conviction politicians invariably do, even against the opposition coming from within her ranks. If she had, two years from now, when the next election must be held, the economy would be in much better shape, with interest rates down and inflation tamed. Her tax rate cut would have produced greater growth than currently projected, increased investment in new businesses, productivity gains, and, because Britain’s corporate tax remains at 19% under her plan rather than rising to 21% as the previous prime minster wanted, the isles would be an attractive place for European businesses looking to escape the high tax rates and meddling coming out of Brussels to relocate.

That would have been exciting, not just for the Brits but for conservatives here in the United States trying to find a way to thread the needle on economic policy and find themselves split between Reaganites who favor incentives and growth and supply-side approaches and Nixonians who are obsessed with the central bank, flirt with price controls, and embrace outmoded and disproven Keynesian theories about economic management.

Had Ms. Truss stood firm, the Tories could have gone into the next election under a winning banner of “In Truss Britain Trusts.” By blinking so early, on such an important policy change, she’s let the opposition know she’s weak.

She no longer has us thinking she’s the next Margaret Thatcher. We’re not sure what she is, but we think it might be the next George Herbert Walker Bush, who campaigned successfully for the presidency by promising to follow the policies of one of his predecessors and then, seeking to find a path of his own, lost both his way and the presidency. We’ll be watching her lips for clues.