Faisal Islam: Truss plan must tackle more than taxes

"Growth, growth, growth," is the metric the prime minister wants us to use to judge the effectiveness of her government. That much she made clear in her conference speech.

In forthcoming weeks we will get the economic reforms, in planning, regulation, worker visas, and elsewhere, that the PM hopes will unleash that growth.

As one minister from the John Major era, who phoned me after the speech, said, even if the strategy works perfectly, it will take time. In the mid-1990s he experienced an economic shock that affected mortgages, and that was linkable, at least in part, to government decisions. In his view "British voters do not give credit for cleaning up your own mess".

And will the strategy work, even in the long-run?

The theme of the PM's speech to conference was that she would take on the "vested interests" of the "anti-growth coalition" in order to deliver a step-change after two decades of anaemic growth.

The epitome of the problem, for her, is a 70-year high in taxation, which is why she is urgently prioritising tax cuts.

There is a tremendous amount of debate over why the UK has had sluggish growth, more or less since the financial crisis. But a 70-year high in taxation is not usually a big part of it.

For a start, it has never actually come about, because it has always been a forecast for future years (from the Office for Budget Responsibility), rather than fact, and it seems contrary to attribute decades of low growth to something that was only a prediction. Taxation over the past quarter of a century, under prime ministers Blair, Brown, Cameron, May and Johnson, has averaged 32.8% as a proportion of economic output, or GDP. Under Mrs Thatcher's 11 years that number was 32.4% of GDP.

It is clear that some lower taxes can help boost growth; all of this begs the question as to what has been weighing down the economy. Indeed it is striking the government's comprehensive and transformational policy agenda is proceeding without a thorough, published analysis of what the growth problem is, why it occurred here and not in say the USA or Germany, and therefore how it should be addressed.

That brings us back to the "anti-growth coalition". At a tense political conference, the PM was always going to focus on her external political enemies. But that coalition stretches well into her own membership in that hall.

Planning reform, for example, would help growth and productivity, but always seems to get thwarted. One interesting part of the Kwarteng growth plan refers to changing regulations to allow more onshore wind to be built. That certainly would be a statement of intent.

What other policies could increase forecast growth so quickly that they would help the current numbers add up, when the OBR does its sums? Increasing the number of foreign workers to address the visible labour shortages around the country. Are people who oppose changes to the immigration rules for political reasons part of the "anti-growth coalition"? Moves to lower new post-Brexit, non-tariff trade barriers for British exporters, could also help reverse recent reductions to the OBR's long-term growth forecast. Neither move is on the government's agenda.

Number 11 may, in general, struggle to persuade the OBR that its plans will materially change the economy. And, indeed, there is then the reverse risk in the short term: that the turbulence of the past fortnight could have a permanent effect on perceptions of the UK's macroeconomic stability.

For 20 years Britain has set the gold standard for institutional independence when it comes to economic policy, built up by successive governments. That meant low borrowing costs, even through financial, and eurozone crises, and the pandemic too. In recent weeks this administration allowed the perception to grow, that it was fiddling with these essential controls on the economy. That perception was fed by leadership campaign rhetoric, and the mini-budget's massive tax cuts, presented without hard borrowing numbers.

Whereas sterling recovered its losses over the last few days, government borrowing costs remain materially higher. Perceptions of how high the Bank of England will have to raise benchmark interest rates are also higher. Rates were always going to get back to normal - higher levels - at some point after a decade-and-a-half of ultra-low interest rates. But it didn't have to happen so violently, in a matter of days. It is rates for mortgages and company lending that have been "moving on up", to echo the PM's choice of theme tune.

The OBR is right now calculating how hard the extra interest rate shock will hit the economy, and how much it will cost the government too. And it is true to say that UK growth will also be affected by rising economic challenges elsewhere in the world, including the eurozone and the USA.

So if the PM's speech was light on policy, that might reflect the need to not do anything at this point, that could further spook markets. Above all, it seems the lesson of the last week may have sunk in: that macroeconomic stability, rooted in institutional credibility, is actually a prerequisite for "Growth, Growth, Growth".