Liz Truss’s economic plan is ruinous nonsense with no reference to reality

Liz Truss has observed the dynamics of today’s Tory party – and the media and thinktank ecosystem that supports it – as a minister under three prime ministers. It is the Brexit right’s Taliban-like belief in the righteousness of its cause that drives the party. To win, she has resolved to be its uncompromising representative, but her decision has not stopped there. The only way for a Tory leader to sustain the leadership of what is ever more obviously a deranged and factionalised political movement is to govern from the hard right. It will end in failure.

The epicentre will be the economy. Her uncontroversial stated aim is growth of 2.5%. Consensus stops there. All the mechanisms to achieve growth are drawn from the evidence-free but prejudice-rich rightwing playbook – persistently anti-Europe, obsessed with tax cuts, buying into the faith that nameless regulations are shackling business and, above all, that a weak political class, deep state and obeisance to technocrats have combined to make Britain quasi-socialist – despite 12 years of Tory rule. Truss is the insurgent carrying the Thatcherite flame who will put the world to rights.

Consider her six-point plan for growth. It starts, inevitably, with a commitment to cut taxes “now”. She will “unshackle business from burdensome regulation” buttressed by “supply-side reform”. She will “scrap all EU-derived laws by 2023” and “work with industry leaders to regulate for British businesses and consumers”. She will “create low-tax, low-regulation investment zones”. And she will revisit the Bank of England’s mandate so that it is better at managing inflation. It is ruinous nonsense.

Reality is not allowed a look-in. There is no recognition that what matters in a decade beset by a pandemic, climate breakdown, fragile energy markets and threats to food supplies is the resilience of a country’s energy, public health, water and farming systems to support business and civil society, in all of which the state has to play a leadership role. There is no comprehension that today’s economy is built on the “intangibles” of knowledge, intellectual property and digitisation for which smart regulation – not no regulation – is foundational.

There is zero acceptance of the role of city regions as growth motors, set out in the government’s own levelling up white paper last December, and the vital institutions and processes that support great cities, again perforce led by the state. As British exports stagnate, there is not a nod to the role of trade as a propellant of growth. The UK, as the second largest exporter of services in the world – built on intangibles that sit behind sectors as diverse as finance and the creative industries – is locked out of the country’s largest markets in Europe. It is a growth plan built on sand.

So, will revoking the remaining national insurance contribution hike (to pay for enlarging public health and social care capacity, recall) and stopping the planned corporation tax rise spur growth, at the same time retaining the four-year freeze on personal allowances, on which Truss is silent?

Here, too, evidence is not allowed a look-in. Successive Tory chancellors – quasi-socialists in the absurd Truss story – have cut the UK corporation tax rate from 26% in 2010 to 19% today. Private business investment has remained stubbornly at the bottom of the G7. The key propellant of investment is not the corporation tax rate but the confidence that any investment will pay back, and in strategy-free Britain in the grip of rightwing ideology, cut off from its major market, there is little or no long-term confidence. Truss will forgo much needed tax revenue – and achieve nothing.

Few directors of British PLCs have a good word for Brexit and the likelihood of trade war over the Northern Ireland protocol in private. The view is shared by the tens of thousands launching startups in an extraordinary entrepreneurial revolution centred around our 100 top universities, ranging from an Oxford that is very different to the one attended by Brexiters in the 1980s to centres of innovation such as Northumbria University.

The Tory edifice is ignorant about this enterprise revolution. In their terms, these can’t be real entrepreneurs: they vote Labour, Lib Dem and Green, abhor Brexit, worry that the UK is being kicked out of the EU’s Horizon programme, prize universities, want action on climate change and, for the main part, can’t bear the Tory party, its press and freakish leading commentators.

For what is shackling them is the lack of a British ecosystem that fosters growing companies – another deficiency that falls to the state to remedy – reinforced by trying to put the union jack on regulations and diverge from the regulatory standards in our biggest market. A classic example is the government insisting that the chemical industry should abandon its £500m-a year membership of the EU chemical regulatory system, which allows it to export to 27 EU countries and become tied to a £2bn UK-only programme, which allows it to trade in one country and not to the highest safety standards. In the 2020s, regulation is a way to guarantee product standards and win market access. Badging regulation British is an expensive means to suppress enterprise.

Supply-side reforms? For Truss, they seem to consist of removing the vestigial remnants of employment protection in the least regulated labour market in the OECD, permitting fracking (a non-starter because Britain’s geology means the risks of damage and subsidence are extraordinarily high) and scrapping incentives to go green. Low-tax, low-regulation zones? As a wealth of evidence shows, these displace economic activity rather than create the new.

Do the Tees Valley or the West Midlands want to become international showcases for industrial injury, tax avoidance and goods that are dangerous or just plain shoddy? As for blaming the Bank of England for inflation of 13%, get a life. If it had acted six to nine months earlier – which I recall almost no one urging at the time – inflation might be peaking at 12.5%.

This is populist bullshit, unless Truss has the chutzpah to raise the inflation target to 4% for a period, an intriguing idea floated by the Bank’s former deputy governor Howard Davies. That is genuine outside-the-box thinking, rather than rehearsing tired Thatcherite nostrums.

All the while, British households confront energy bills of up to £5,000 next year, unpayable by tens of millions – another reality ignored by the Truss camp. Truss has become very adept at saying what her audience likes to hear. It is no compass for governing.

• Will Hutton is an Observer columnist