This week, British Prime Minister Liz Truss surrendered, abandoning her signature conservative economic proposal in the face of imminent economic collapse and public rebellion.
The reversal is mostly being reported as a massive failure for Truss and the Tory party. And it is that. But it’s also a rebuke to conservative economic orthodoxy. It’s an indication of where the US could end up if Republicans gain control of the government.
As one of her first acts as prime minister, Truss wanted to eliminate the top income tax tier of 45 percent on individuals who earn more than £150,000 (around $172,000) a year.
The tax cut was part of a huge package of spending, including eliminating caps on banker’s bonuses, and reversing a planned corporate tax increase. The total was in the tens of billions of pounds. The top rate tax cut alone would cost £45 billion (nearly $52 billion) over five years. Truss and Finance Minister Kwasi Kwarteng planned to pay for the shortfall through borrowing.
Truss insisted the package would strengthen the UK economy. But financial markets didn’t agree. There was panic selling and the pound cratered to $1.03, its lowest exchange rate in history.
Unsurprisingly, the crisis has made the government extremely unpopular. After she announced the tax cuts, Truss’ approval fell from a poor -9 to a catastrophic -37. Only 18 percent in the UK approved while 55 percent disapproved, according to one poll.
The opposition Labour Party has been ahead by 33 points in polls. Some analysts predicted the Tories could be reduced to only four seats in the 650-member Parliament if the election were held today.
The pound rebounded somewhat after Truss scrapped the tax cut. But Britain faces numerous other economic challenges.
Like many European countries, the UK has experienced rising inflation because of pandemic supply chain issues. It has also struggled with energy shocks from the Ukraine war.
However, Britain is worse off than many of its neighbors because of its reliance on natural gas. Its homes rank lowest in energy efficiency in Western Europe. Consumer price inflation for households in the UK is expected to be 80 percent in 2022. In the Eurozone, it is only expected to be about 40 percent.
The UK has a larger gap between rich and poor than its peers. As a result, the poorest 10 percent of households in Britain will spend a whopping 17.8 percent of their 2022 budgets on energy costs.
The UK’s decision to leave the EU through Brexit, which was fully accomplished at the end of 2020, has further weakened its economy.
A report released in June of this year found that Brexit had reduced the openness of the British economy, threatening to shrink growth over time. Since 2019, the UK has seen trade fall by eight points as a percentage of GDP. (France has seen only a two-point decline.)
By 2030, British workers will be £500 (around $574) worse off with Brexit than they would have been without it, the report found. Sectors like electrical equipment manufacturing, which rely on supplies from the continent, will be worst hit.
In sum, the Tories have pushed for xenophobic policies to restrict immigration through Brexit. They’ve fought against green energy. And they’ve embraced tax cuts for the rich.
The result has been a series of long-term, mid-term, and short-term economic disasters that have resulted in long-term stagnation. The UK is the only G7 country whose economy shrank over the covid, and its economy is currently teetering on the verge of a recession.
The failed Tory agenda is based on policies also embraced — often even more rabidly — in American rightwing political circles.
Donald Trump enacted draconian restrictions on immigration. He helped exacerbate inflation and labor shocks during the pandemic.
Republicans have fought adamantly against any move toward green energy — most recently by voting en masse against the climate bill that the Democrats passed through reconciliation earlier this year.
And Republicans love tax cuts for the wealthy. They were at the core of Trump’s agenda. His $1.5 trillion tax reduction was a huge giveaway to billionaires. The 600 richest families in the US ended up paying a lower tax rate than the poorest families in the country.
The US is more economically prosperous than Britain. There are many reasons for that. But one big one is that the GOP has not been in power in the US as long as the Tories have controlled the UK.
The Tories took office in the UK in 2010 and they have retained control of the country for the past 12 years. In contrast, Republicans have only held the presidency in the US for four of the last 12 years.
In addition, the US system is more fractured than that in the UK. In Britain, Parliament selects the prime minister. In the US, different parties can hold the Congress and the presidency. Republicans had unified control of the Congress and presidency from 2017 to 2019.
Nonetheless, it’s worth remembering that the last two Republican presidencies ended in economic and political disaster.
George W. Bush’s term concluded with the 2008 financial crisis and the beginning of the Great Recession. Trump’s tenure finished with the massive failures of covid policy and a resulting recession.
Polls in the US show that voters tend to view Republicans as more trustworthy on economic issues. But the GOP has done little to earn that trust. And Liz Truss’ damaging first month in office suggests what would actually happen if conservatives had their way in the US.
Xenophobic trade and closed borders shrink the economy. Opposition to green energy makes it more vulnerable to energy shocks. Trickle-down economics — giving more money to the rich in the hope that they’ll pass the benefits on to everyone else — doesn’t work. Even financial markets know it’s a dangerous boondoggle.
Rightwing economic policies have a record of egregious failure, stunted growth and compounded misery. Twelve years of Tory dominance has left Britain a smaller, colder and poorer place.
Republicans, though, are undeterred. They long to enact the Tory plan here. If they do, we can expect a similarly bleak result.