Our confidence in the economy has a direct effect on economic growth and strength.  If consumers are optimistic, they will spend in the economy, businesses will see profits increase, the treasury will see tax receipts rise, and the economy will grow. In turn, businesses become optimistic, increasing employment and investment within the country, not only further driving growth but also expanding the growth potential of the economy.

Much of Liz Truss’ economic catastrophe was caused by offering little support to those who needed it the most, thereby hurting confidence. Lower levels of business and consumer confidence led to reduced investment and damage to the economic capacity of the economy, while people faced even greater interest rates on mortgages, etc., further inhibiting the ability of consumers to spend.

The private sector is often painted as wanting never-ending tax cuts, no matter the cost, but the reaction to Truss’s IEA budget shows otherwise. Most businesses understand, especially over the last decade of austerity, that without confident, spend-happy consumers, tax cuts mean nothing if revenues collapse. The resultant negative multiplier effect on revenue means lower employment and investment, driving a recession. Most businesses which are not multinational corporations interested in monopolising necessities of life and shoring up power see that economic growth and recovery must be built on good foundations. That is to say, grown from the bottom up and middle out, not the top down.

The issue is, in trying to avoid a recession and its recessionary scars, we are wrestling with record-low UK business and consumer confidence caused by immediate financial hardship faced by millions and a lack of confidence in the response to this hardship and future hardships. Inconsistency is present in all aspects of response: a 2-year universal energy guarantee dropping to 6 months, tax hikes announced, a U-turn and tax cuts instead and now a U-turn again.

To go forward and heal the deep scarring that is already present in the economy, we need to not only offer support to citizens and businesses alike to immediately relieve the pain of this hardship, but we must also build confidence that future responses will be consistent and effective. If we can build confidence that future responses will be swift, consistent, and effective, consumers and businesses will feel safer spending, investing, and growing our economy and its capacity. Volatilities will be smoothed out, and confidence will be more resilient to shaky economic signals or signs of supply-side pains. We reach a purpose of minimising deep and self-multiplying damage and creating a more resilient economy with businesses globally, small or large, feeling able to invest and expand for the long term in the UK, and consumers never have to worry about events or decisions out of their control, forcing them into destitution.

So, what should this promise of a consistent and effective response look like?

Firstly, it must minimise the exposure millions face to decisions and events putting them in horrendous hardships and poverty. This must come hand in hand with a strong welfare state, which creates a minimum standard of living through a guaranteed minimum income universally given to those who fall below a minimum standard of living threshold. Thus, one eliminates poverty and creates a minimum expectation that, worst comes to worst, consumers will still have enough to be able to survive and recover post-downturn.

We must also alleviate costs to businesses in times when the threat of decreased spending in the economy will put off any investment and, worse still, lead to pulling investments out. Thus, a hybrid furlough scheme should be designed to ensure that businesses facing significant hardships in downturns can furlough workers, preventing layoffs and closures, essentially allowing for decisions to be made when the economy is back on its feet and eliminating a significant cost to businesses in the immediate term.

Guarantees must also be made on linking welfare, from unemployment to periods of benefits, rising in line with inflation to prevent hardship first-hand for those most vulnerable. However, in times of strong growth, the treasury must, in turn, prevent the overheating of the economy by too much demand chasing a limited immediate supply of goods and build the funds to step in and offer support when needed; thus, efficient taxes on wealth, capital, and profits must be sufficiently increased.

Going forward, we must focus on softening the economic cycle of peaks and troughs, ensuring that when the going gets good, the government builds its defences so that when the going gets tough, the fall is softened, recovery can pick back up, and the economy is in a more sustainable and buoyant state. The final vision is one where we have a strong, diverse economy bustling with business investment and presence, while having a vibrant, confident consumer base ready to enjoy the fruits of diversified choice and greater employment opportunities.