The Troubled Foundations of Rishinomics
A successful political campaign has two ingredients: (1) a message that is coherent, and (2) a message that is sound. Unfortunately for Rishi Sunak, ‘Rishinomics’ delivers on neither of these.
Though turn back the clock a couple of months, and the picture looked very different. Rishi was touted as the favourite to win the keys to Number 10 as he focussed on driving the hardline conservative principles of sound money and fiscal prudence. Tax cuts would come, but only when inflation had been tamed.
Rishinomics’ stood in stark contrast to what Liz Truss was serving up. Contrary to her straight-laced rival, Liz offered a radical departure from the status quo. Central to this, an immediate reversal in the National Insurance increase and sweeping supply-side reforms. Some voters might have disagreed with Rishi’s stance, though his campaign certainly had potential to win over the members who scoffed at Liz‘s avant-garde policymaking.
Alas, things soon took a turn for the worse for team Sunak. Realising the former Chancellor’s swanky graphics and sharp performance may be insufficient to win the hearts of 180,000 Conservative Party members, they began fleeing from policy proposals with the haste of a hopeless lover the morning after an intoxicated hobnobbing. The veneer of prudence soon came crumbling when deemed unpopular, with Sunak announcing there might after all have to be more borrowing to fund support for energy bills over winter, and that he would also move forward with a temporary cut to VAT on energy bills were he to become Britain’s next Prime Minister.
As the leadership race has gone on, the lines between Sunak’s ‘sound money’ campaign and ‘Trussonomics’ have become increasingly blurred. With it, the synonymous blurring of Sunak’s credibility and campaign coherence. The fatal mistake of Sunak’s economic policies is not only the loss of a clear message that ensued following these last-minute changes, since voters now question the reliability and deliverability of these pledges, but instead, that Rishinomics itself is fundamentally flawed.
Sunak’s initiates to support families through the cost-of-living crisis with rebates and handouts may seem great on paper, but it is ultimately the taxpayer that will end up footing the bill. Sunak has claimed that he will make the broad shoulders of large corporations carry the weight through an increase in corporation tax and the windfall taxes he’s imposed on oil and gas producers, and will possibly impose on energy companies. Whilst this is possibly true in the short-term, it misses the unavoidable fact that only people pay taxes – not corporations. Increasing the tax burden on companies will increase pressure on household pockets and mortally threaten the prospects of the United Kingdom. The wide benefits of corporate tax cuts were summarised in a paper by the National Bureau of Economic Research (NBER), finding a 1% cut to tax paid by companies leading to 2% growth in GDP, on average. Such cuts especially favour the poorest in society through the vast job growth it brings, as indicated by a further paper by the NBER linking a 1% cut to corporation tax with 0.6% increase in employment and 1% increase in wage levels when implemented in a recessionary environment such as ours.
In considering the new policies put forward, ‘Rishinomics’ offers very little that is actually, well, new. His policies have been a banal mish-mash of state intervention and subsidies, resembling a man frantically trying to save his sinking ship by chucking water out with a bucket. ‘Eat out to help out’ and similarly well-branded but flawed schemes have done little to boost Britain’s stagnant productivity and create a more efficient economy. The only way to come out of the cost-of-living crisis is through the creation of a more streamlined policy framework with the market economy at the centre. Redistribution will not suffice.
Conversely, Liz Truss offers a clear and refreshing vision to a re-invigorated United Kingdom. Her policies of broad tax cuts and supply-side reform is a distinct break from the flailing status quo, and has the potential to unlock real change. Conservative Party members will be well-advised to put their support behind her.