Liz Truss returns to the fairy tale economy of the 1980s
Our new Prime Minister has already laid out his basic economic principles. Although a £90bn bailout to help households and businesses tackle the energy crisis looks on the cards, Liz Truss has made it clear that ‘handouts’ are not her preferred path.
Truss has little choice but to take bold action to prevent a catastrophic drop in living standards. But she has also publicly rejected the idea of looking at the economy through the “prism of redistribution”. By this, she means that she abandons any idea of fighting against inequalities. Instead, growth will be prioritized “because it benefits everyone.”
Both of these statements show a total misunderstanding of recent and past political history.
They are a repetition of arguments used in the 1970s by the anti-egalitarian school of “New Right” evangelists. One such evangelist, Keith Joseph, a close adviser to Margaret Thatcher, argued that “true” Conservatives must “advocate against egalitarianism… The pursuit of equality has done and is doing more harm, curbing the incentives and rewards that are essential to any successful economy.
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More than 40 years later, we now have hard evidence of real experience creating inequality. Far from benefiting everyone, Britain has deliberately gone from being one of the most equal wealthy nations to the second most unequal (after the United States). Over the same period, the child poverty rate, in relative terms, more than doubled (Figure 1).
Due to the impact of inequality, Britain’s poorest 20% are now much poorer than their counterparts in other more equal nations (Chart 2). The poorest people in Germany, for example, are a third better off than those in Britain.