What will Liz Truss’s legacy be? The obvious answer is her 49-day stint in Downing Street. But she is determined not to settle for that. Today in Westminster, she oversaw the formal launch of her new project, The Growth Commission, dedicated to spreading the message she tried to convey as prime minister: the importance of growing the size of the economy.
Truss can take some credit for shifting the national conversation towards a more pro-growth agenda
Today’s launch was attended by Truss, who is stressed to have convened the commission but holds no formal role within it. The Telegraph’s Liam Halligan chaired a panel of four members of the commission: co-chairmen Douglas McWilliams and Shanker Singham, economist Tyler Cowen and senior trade economist in the White House Council of Economic Advisers Christine McDaniel. All four panelists commented on the publication of the commission’s first report, entitled ‘The Growth Challenge’, which sets out what the commission has been set up to do – mainly to ‘investigate the causes of the slowing down in GDP per capita growth worldwide’. It also explains why this is going to be an uphill battle, especially in countries like the UK, which ‘is one of the few international economies where GDP per capita is actually falling’.
The commission’s members have joined from all over the world, which means its first report, and its broader remit, are looking at economic growth in an international context, with emphasis on lagging growth across advanced economies. Whereas the G20 continues to show positive signs of growth, led largely by the ongoing economic progress in China and India, the G7 cannot boast the same optimistic story. Draw out these advanced economies, and GDP per capita growth by decade shows a serious slow down, dropping from 2.6 per cent per annum in the 1970s and 1980s, to just over 1 per cent in the 2010s. Given the ‘bigger trade openings in services’ that came in the mid-1990s, the authors argue the 2000s should have seen much better growth than actually occurred. This indicates to the commission that something is going badly wrong.
What are the answers? That is what the commission proposes to find out, through the use of long-term, dynamic modelling. Their ‘contention is that many official policy evaluation tools have an excessive short-term focus and take insufficient account of behaviour changes generated by the policy measures themselves'. With more than one joke made at the expense of the Treasury and Office for Budget Responsibility during the launch, it was abundantly clear that the commission is not impressed with the official forecasting taking place now – an echo of the lead-up to Truss’s mini-Budget last year, when the OBR was sidelined from scoring her fiscal announcements.
But rather than cut anyone out this time around, the Growth Commission is adding new players to the game, adding a bit more competition to economic forecasting. ‘'We’ve got better ways of looking at tax and fiscal policy in modelling,’ said Singham on the panel. ‘What we don’t have…is the impact of domestic regulation. We don’t have good models to determine those effects.’ This has been a gripe among free-marketeers for years, who note that the labour market reforms implemented during the David Cameron years were always underscored by the OBR.
There were also some hints that the commission would be looking at public sector efficiency and how that was impacting growth. Until there was a serious assessment of ‘small productivity growth in the public sector,’ said McWilliams, ‘we won’t quite see why our taxes are going up or why our productivity is going down.’ Cowen pointed towards areas he thought would be the main drivers of growth in the future: artificial intelligence, biomedical science, and green energy. But ‘will regulatory bureaucracy hold us back’ he asked. ‘Are we going to be afraid? Are we going to overregulate it? Are we going to make it easy to build?’
While the crux of the commission will be economic modelling, the narrative crafted around it is going to matter too. The headline numbers presented at today’s event tried to put into perspective the importance of economic growth, not as some jargony term, buy rather as the key driver of individual and collective prosperity. They argued that if UK GDP per capita could grow by 3 per cent a year, by 2040 it would be 65 per cent higher, and translate to an extra £24,000 in GDP per capita annually, or £35,000 of extra household spending. ‘It is the fate of Britain we are talking about,’ insisted Cowen, who argued that Britain's role in the world was made stronger by a healthy economy. ‘‘We need you, we need you as a wealthy nation.’
For all that went wrong during her short-lived premiership, Truss can take some credit for shifting the national conversation towards a more pro-growth agenda. Her attack on the ‘anti-growth coalition’ had Labour MPs flooding in with remarks about how much they wanted growth, too – a point they continue to make by hinting at supply-side reforms around housing. Today’s launch confirms she plans to grow the seeds she planted last year, putting further pressure on all political parties to commit themselves to pursuing higher GDP. But the extent to which they’ll listen will depend on how robust the commission's models turn out to be. And they’ve set a very high bar, planning to go toe-to-toe with the OBR from day one.
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