The Truss growth plan: more money for the rich

Truss addresses the Heritage Foundation. Screenshot

Truss has launched her so-called ‘plan for growth.’ This article shows that the likely impact of that plan is to redistribute wealth upwards at an increasing rate, impoverishing most of the UK population.

The post-war period 1945-1980 was known as the Golden Age of Capitalism; the period from 1980-2015 was the age of Market Capitalism. The three charts below highlight some of the key differences between these two periods.

The first chart shows a comparison between the Golden Age and the age of Market Capitalism in the USA and the UK on a range of economic measures. As you can see, the Golden Age saw stronger performance on economic growth, on growth per head, on household incomes and on unemployment – in fact on every measure bar inflation. And since real (ie inflation-adjusted) figures are all better for the Golden Age, that means overall performance was unequivocally better during the Golden Age.

The second chart focuses just on the UK and shows average real growth rates for each decade since 1900. This chart confirms that the Golden Age was more successful than the age of Market Capitalism; and further that the age of Market Capitalism is increasingly failing to deliver.

The third chart shows that wealth inequality, which had been in decline since the early 1900s, when the share of national wealth in the hands of the top 1% had reached over 70%, started to rise again in the 1980s and is continuing on an upward trend.

Most rational people, looking at these charts, would conclude that since the policies of Market Capitalism had failed, it was time to change track.

But not everybody sees it this way. A few members of the top 1 per cent– typically members of the top 0.01 per cent – see the trend back towards increasing wealth inequality as both extremely welcome and unfinished business. As Charles Koch put it, “I just want my fair share — which is all of it.” From that perspective, there is roughly another 50 per cent of the UK’s national wealth still waiting to be transferred back to the top 1 per cent

Which perspective will prevail?

If Truss becomes leader and implements her plan, it is probable that the Koch position will prevail, which will see a vast upwards transfer of wealth away from the least wealthy 70% of the population:

  • We now face an unprecedented economic crisis;
  • The government’s response is likely to compound the plight of UK citizens;
  • We could see rapid impoverishment of the bottom 70 per cent.

We therefore need to return to rationality

We now face an unprecedented economic crisis

The Bank of England has released its projections for the economy. The forecasts are dire: they anticipate six successive quarters of contraction in the economy. During the Global Financial Crisis, for comparison, we saw five quarters of contraction.

Unlike the Global Financial Crisis, however,  this one is not expected to be global – every other country in the G7 is projected to grow next year. Although all countries face headwinds because of energy prices, this recession is a crisis home-grown in the UK.

The government is likely to compound the plight of UK citizens

The UK’s response will be determined by government and by the Bank of England (which is an arm of the government). We cannot predict future decision-making, of course, but we can look at recent trends.

The government, though aware of the cost-of living crisis, has consistently failed to address the root causes and to prevent the impoverishment of its citizens. And the Bank of England, though aware that its proposed means of tackling inflation will not help inflation and will damage the economy, hurting the poorest most, seems to lack the imagination and courage to try an alternative approach. The members of the Monetary Policy Committee are acting like doctors in the late 19th century, aware that blood-letting might not help, but reluctant to give up their historic practices.

The reaction of the Prime Minister and Chancellor to the looming crisis has been to go on holiday, while the remaining members of the cabinet seem focussed on the leadership election and on maximising their personal career prospects after the change of leader.

Based on current policies, the Bank’s forecasts look reasonable – the economy will contract; inflation will remain high; wages will fail to keep pace; and unemployment will rise. UK citizens, many of whom are poorer today than they were in 2010 – a period of mass impoverishment unmatched since the 1820s – will find themselves significantly poorer still by 2025.

The Bank of England is predicting “the worst drop in living standards for 60 years.” For most people, this will be well beyond awkward, it will be devastating to their financial position.

So we should remember that, as the Golden Age suggests, and the performance of other countries shows, there is an alternative to the UK’s poor performance, but it requires policy change.

We could see rapid impoverishment of the bottom 70 per cent

For most of those at or below median income (and for many above but not wealthy) the coming energy price rises will not be affordable out of their income. This means that, if they have household savings, they will need to deplete them; if they do not have savings, they will need to go into debt; and if they are already too deeply in debt to take on any more, they will risk bankruptcy.

Let us just see what those household savings are likely to be. Here are data from the Office for National Statistics (ONS) from their last survey in 2018. It is likely that at the bottom end, finances will have deteriorated further since then.

According to the ONS, most households up to the 50th centile have less than £10,000 in savings. This is the buffer they have to cover all contingencies, not just fuel bills. But these bills alone could easily wipe-out £4,000 of their savings over the next two years.

If the government does not take action now to protect the population, we shall see:

  • Extreme pressure on many poorer households’ finances – bankruptcies, evictions, homelessness, poverty and destitution rising still further among those without significant savings or already in debt;
  • The pain reaching middle-class households – erosion of savings, going into debt, being forced to sell assets (eg the house) to meet debts;
  • Greatly reduced demand for non-essentials, and business failures in leisure-related sectors;
  • Organised resistance – eg orchestrated refusal to pay and possible civil unrest.

At that point, the government will be forced to decide, even more visibly that it has so far, whether to back the debtors (UK citizens) or the creditors (which are in many cases multi-national corporations). There is a real risk that they will side with the creditors, who are, after all, their donors.

We need to return to rationality

Returning to the issue of wealth distribution, the Koch position is market fundamentalism – which is the philosophy shared by almost every member of today’s cabinet. It does not merely extend to a view that the wealthy should be far wealthier still, even if that can only happen by impoverishing the mass of the population, it goes further: to a dislike of democracy and a disdain for human rights.

All of the problems highlighted in this article are the result of a slavish devotion to that market fundamentalist philosophy and a tendency to double down each time their policies fail: when each new policy harms the economy and weakens the social contract which has made the UK a civilised country, they try even more tax cuts for the rich, even more deregulation and even less protection for the population as a whole. Truss’s so-called ‘plan for growth’ is a perfect example.

To secure the future of the UK, we need change at the next General Election:

  • Moderates and progressives in all political parties (including the Conservatives) to realise how high the stakes have become and to co-operate to avoid another Conservative government – together, moderates and progressives have a very good chance of winning;
  • Voters to drop their traditional party allegiances and vote tactically – it is unlikely that the next government will be perfect, but it need not be destructive, and voters have the power to elect the least harmful option;
  • Non-voters to understand that – even if in the past they did not feel that their vote could make a difference, it can now(as the results in Shropshire North, Chesham and Amersham, Wakefield and Tiverton and Honiton all show, there is no longer such a thing as a safe seat).

Meanwhile, we need to make sure that as many UK citizens as possible understand the threats to their – and their children’s – future. Please help to share the message.

And we need to keep the pressure on this government to act in our interests rather than those of their donors. Writing to MPs can seem futile, but when they get letters in large numbers, not from ‘the usual suspects’ and written in their own words rather than following a template, they start to worry about their own election prospects. If you would like to write, you may find these notes useful.

If you think you might like to help or just to keep informed, please do sign-up and join the 99% Organisation.