The economy collapses. Yet I cannot remember a government so devoid of a plan | Will Hutton

Wwelcome to Britain, May 2022 – and one of the most toxic and dangerous economic moments I can remember. Last week, the Bank of England forecast inflation above 10% and forecast negligible growth for the next two years, before tumbling into months of recession accompanied by massive pressures on living standards. This is serious enough, but less noticeable and equally important is the pound’s 10% devaluation over the past three months.

This is in response to Britain’s economic downturn, exacerbated by the implosion of our EU trade post-Brexit and the Brexit-induced slump in inward investment. If the pound continues to fall, the Bank of England’s policy choices will be even more grim.

Right now, it hopes interest rates will peak at a manageable 2.5% before inflation begins to fall back to 2% in 2025. But that depends on the end of the pound’s decline. If the Bank needs to reassure the financial markets that it is determined to contain inflation and contain the pound’s ongoing weakness (why would anyone buy it?), interest rates could still rise.

The economy will be forced into a deeper recession, intensifying already visible tensions in parts of the property market.

The markets would be more relaxed if it was clear that the government had a strategy, a program, a plan. The problem: The government has no idea and clings to two quasi-religious shibboleths it can’t get rid of. In his view, the hard Brexit he has negotiated is a sacred achievement that can only hold opportunities, not a crisis. His mistakes cannot be acknowledged. Second, Thatcherism has such prestige that any targeted action to address the weaknesses of the economy is considered “unconservative”.

Thus, the government’s economic understanding is childish: free markets, low regulation, low taxes, balanced budgets and cheap labor available as the alchemy of driving 21st century economic growth.

The futility of these attitudes has been evident in recent weeks. Called on to brainstorm responses to the cost of living, ministers proposed expanding the number of children carers can care for, encouraging people to claim benefits they are entitled to and making MOT tests biennial. Real? Meanwhile, controls of products imported into the EU at our borders are postponed until the end 2023 without mutual easing of UK exports to the EU.

To curb our weakness, Boris Johnson had to beg Softbank, the owner of our hi-tech jewel Arm, to let the company float in London instead of New York. This is the $40 billion takeover made weeks after Brexit for Tory and applause from the Brexiter, a sign that Britain remained “open for business”. Those of us who warned that it was opportunistic asset stripping and that Softbank’s promises were worthless were dismissed because Remoaners were too attached to Project Fear. Expect poor float in New York rather than in a diminished Brexit London.

Brexit Tories do not understand modern capitalism or how to manage it. Preventing inflation from becoming self-feeding and entrenched takes more than rate hikes and rousing blunders.

Markets need to see a confidence-building plan to restore economic growth and boost investment and productivity.

Working people need to know that the government will turn its back on protecting living standards for the duration of the cost of living crisis, counteracting aggression over wage demands that could trigger a wage price spiral. There is neither.

While the new German government vigorously pursues a two-track strategy to go to net zero and create a new digital economy that impresses the markets, we own nothing. Leveling up, the creation of globally competitive cities in every region and country, could have been such a strategy, one that could plausibly see GDP double in a generation. It must become central to the government’s economic policy, along with a pursuit of net zero. Instead, the chancellor vetoed his piggy bank to protect tax cuts in 2024.

There is also no cost of living strategy. There is more than enough leeway, even before the windfall tax. The Office for Budget Responsibility predicts that in three years’ time the government will have exceeded its target of a balanced budget by £31 billion. The chancellor could make a targeted annual cash payment of £500 to each of the 10 million hard-hit households who rely on benefits to relieve them of the choice between food, heating and clothing. If he had to do it for the rest of this parliament, the total bill would be £10 billion, comfortably affordable and allowing millions of people to breathe easier.

The industrial strategy needs to be revitalized and renewed, but focused on the new economy of “intangibles” where intellectual property, knowledge, digitization, brands and human capital are central. We need to build institutions ranging from a smarter competition authority to better banks, and investors who are experiencing the immaterial revolution – and how to drive it.

Reality must prevail over where economic opportunities lie. Modern economies are closely linked, with supply chains that span across borders. Britain has too few corporate primes leading their sector, but it does have many medium-sized companies whose activities are part of a wider supply chain.

Membership of the internal market with common regulatory standards makes that easy. Now, as Ulrich Hoppe, Director General of the German-British Chamber of Commerce said last weekBrexit Britain is being cut from these supply chains because the red tape to meet common standards is too great. Outside the EU and without strategy, deindustrialization is accelerating in the Midlands and the North.

But the presidency of this is a government without direction, fiercely protected by the press, whose sole aim is to keep the prime minister in office. Rather than addressing these weaknesses, future parliamentary time should be devoted to pursuing its vendetta against Channel 4 and the BBC. Those who would destroy the gods, to come up with a sentence, drive them mad at first.

Will Hutton is a columnist for Observer

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