The Treasury must stave off a recession that would harm the country and damage the fortunes of the Tories
It’s stupid economics, said President Clinton. Governments in the UK are usually only thrown out of office when the economy goes into recession on their watch, losing too many people their jobs, businesses and prospects. It’s harder to level up if the recession narrows the choices.
The Conservatives were ousted in 1997 because they accepted Treasury and establishment advice to join the exchange rate mechanism. It brought on the boom and bust cycle that some of us predicted and ended the power party. Labor was removed from office in 2010 because it believed excessive debt and credit accumulation was acceptable thanks to better risk management. When Treasury and banking orthodoxy reasserted itself in 2007, we went from boom to bust and Labor ceased to be a governing party.
This government has now been warned by the Bank of England that we are on course for zero growth or even recession next year. I fear they are right. The surge in inflation that has manifested itself this year in higher energy and food prices is expected to subside next time around. The only thing that matters to the nation and to conservative fortunes is avoiding recession and allowing the economy to grow sufficiently. Growth would lead to a lower deficit because we shouldn’t be irresponsible with debt. It will also make it possible to upgrade policies that are essential to the ambitions and support of this government.
The immediate task must be to revise the spring declaration and give people back more of their money so they can pay the gas and petrol bills. Cancel the National Insurance hike. Suspend VAT on heating oil when gas prices are too high. Improve universal credit payments. Offer a larger rebate on council tax.
Then work to alleviate key supply shortages that underpin inflation. Energy policy is changing. All means must be used to produce more of our own oil and gas, as well as to move forward with more electricity capacity of the right kind. Have agricultural policies that promote the production of more food at home as well as donating money for environmental purposes. Farmers need help now in the face of rising fertilizer prices and shortages. Do more to alleviate the plight of energy-consuming industries struggling to survive.
How can you afford all this, the Treasury will ask? How can they afford an austerity-led recession that will increase debts and deficits while making people more miserable? The Treasury overstated the deficit last year by tens of billions of pounds because we grew faster. They will get a lot more tax revenue on energy bills and energy industries anyway at these high prices. They must use some of it to avoid a recession which would be bad for the country and damaging to the fortunes of the conservatives. The Queen’s Speech must demonstrate how Brexit freedoms can be used to promote growth and help leveling off.
Sir John Redwood is MP for Wokingham and former Trade Secretary