Tax-cut stunts can’t cover up the disaster that is Brexit | William Keegan

Liz Truss and Rishi Sunak feel bound to talk lower spending to party members, but the former chancellor at least must see the folly of losing billions off our GDP

‘They are trying to hide the failure of Brexit behind policy stunts.” This observation about the fiasco of the Conservative party’s leadership contest came from an economist friend and neatly sums it up.

Liz Truss, who voted Remain but is now an ardent Brexiter, cannot admit to herself that she was right first time, and that the trade deals she goes on about that are supposed to have made up for our crass departure from the European Union do not amount to a hill of beans.

Sunak, who was always a Brexiter, must surely have learned from his time as chancellor that the Treasury’s hostility to Brexit was right all along. He is an intelligent man but, like Truss, is fantasising about Brexit “opportunities” that the Treasury and other Whitehall departments know are chimerical.

Whichever contender succeeds the worst prime minister in living memory will have to come to terms with two fundamental consequences of Brexit. One is that the Office for Budget Responsibility’s estimate of a 4% annual loss to gross domestic product not only makes the country poorer but severely limits their tax-cutting ambitions – hers now, his later. Foolishly losing tens of billions of potential tax revenues through Brexit is not a good start to either of their ambitions.

The second is the devaluation of the pound by up to 12%, which the financial markets attribute to, yes, Brexit. This has not only made the country poorer but has also severely aggravated the inflation problem the government and Bank of England now face – with price growth running significantly higher than in most other European and G7 nations.

Because they are not facing up to the consequences of Brexit, the leadership contenders have resorted to promising major tax cuts – Stunt Truss; and to a “Thatcherite” approach to the public finances – Stunt Sunak.

This tax-cut business is holy writ among rightwing Tories, and a classic illustration of the cloud cuckoo land in which they reside. They may not have noticed, but most UK citizens are not only suffering from a severe squeeze on real incomes, but are also only too aware of the dilapidated state of so much of our infrastructure and public services.

Public services need to be paid for. The truth that dare not speak its name in rightwing circles – and the modern Tory party is dominated by the rightwing tail that wags the dog – is that improvements to public services require tax increases, not decreases. There has been much fuss recently about our historically high levels of taxation, but in those European countries – not least Scandinavia – whose public services we in Britain tend to admire, public spending and taxation are much higher as a proportion of gross domestic product.

Sunak’s obsession with his putative Thatcherite credentials is worrying. But is he paying enough attention to the social implications of the budget cuts now affecting the public sector? Many experts think the industrial troubles on the railways are only the start. Even former Treasury permanent secretary Lord Macpherson recently observed that although “public expenditure must be controlled” it is worth remembering the 1931 Invergordon mutiny. He points out that “HMG is currently seeking much bigger real pay cuts” than those that caused such social disturbance all those years ago.

When Jack Kennedy was running to be US president (in 1960) he said: “I do not run for the office … with any expectation that it is an empty or an easy job.” He was running because it was “the centre of action, and in a free society the chief responsibility of the president is to set before the people the unfinished business of the country”.

Sunak and Truss are not standing to be president, but whoever wins will face almighty problems at home and abroad. So far one could be forgiven for thinking they were vying to host a game show. What they should be doing is facing up to unfinished business, recently described by Spain’s El Pais as time to “sow the seeds of reversal” of Brexit.

Of course the immediate problem is that our candidates feel obliged to pay obeisance to the pro-Brexit prejudices of so many of their members. For Truss, this is no problem. She has developed a loathing for the European Union that has not been lost on Brussels and Dublin. It is not just the economic damage of Brexit that needs to be repaired. For obvious geopolitical reasons, we need to get as close as we can to the EU.

Frankly, I think Truss is beyond the pale. One must hope that Sunak wins, and is then able to make a serious assessment of where the country’s interests lie. This would involve learning the lesson of the failure of Brexit, and recognising that the Thatcher “miracle” was not all it was cracked up to be.

William Keegan

The GuardianTramp

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