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Quick take: Britannia unhinged
Robert Lind
October 25, 2022
Liz Truss’s defenestration last week exposed deep divisions over economic policy within the UK government and Conservative party.
In winning the general election in 2019, Boris Johnson concealed these divisions by promising both higher public spending to his new voters in the ‘Red Wall’ (formerly Labour seats in the midlands and north of England) and tax cuts to his party’s traditional supporters in the affluent south east. The pandemic derailed Mr Johnson’s plans by boosting public spending and forcing the government to raise taxes. The Truss-Kwarteng fiscal gamble of the last few weeks was an attempt to deliver on the promise of lower taxes while boosting borrowing rather than cutting public spending. The implosion of that plan was the trigger for the latest bout of political turbulence.
Incoming prime minister Rishi Sunak will face some unpleasant realities about the state of the UK economy. Since the global financial crisis, the economy has struggled to generate productivity growth, which has hobbled the underlying growth rate. Output per head has grown at just 0.4% a year compared with an average 2% between 1971 and 2007.
UK output per hour
.png "UK output per hour")
Source: ONS, data to end August 2022
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