By TOM ZUNDEL
“There is no magic money tree”. Theresa May’s words were part-and-parcel of Conservative economics for much of the last 40 years since Thatcher came to dominate the party. This was true, perhaps most of all for Cameron, pursuing aggressive cuts to public expenditure following the Global Financial Crisis on the grounds that the public finances should and must be balanced. Whilst arguably an economically illiterate fiscal policy, it is inarguable that that was the government’s strategy. Yet, it seems that, following the party’s experiment with Boris Johnson, few candidates are in a rush to repeat this.
Promises have been thrown at Conservative MPs, members and the country at large in the little time since this contest started. Most have proposed reversing the National Insurance tax rise, cutting fuel duties and freezing the corporation tax rise. However, the scale of commitments reflects less on good policy but more on desperate politics. Take the plans by two failed candidates, Javid and Hunt, to cut corporation tax to 15%. This would’ve cost £34bn a year in lost revenue, little of which would’ve been recuperated due to the OECD minimum global tax agreement reached last year. Moreover, Paul Johnson (the head of the IFS), has made clear that the economic assumption of some Conservatives -- that tax cuts pay for themselves through higher growth -- is not the case. This is something that Sunak, the frontrunner, has personally acknowledged as he defended the planned increase of corporation tax from 19% to 25%.
Candidates also face Herculean problems: how to prevent inflation and public debt from spiralling out of control. Whilst significant tax cuts are politically popular, such a measure now would risk stoking inflationary pressures higher, especially in light of the current supply crisis. What’s more, the OBR had recently waded into the Conservative leadership contest with its report on the future of the national debt, stating that due to demographic and policy changes, the UK already faces a national debt that would reach 270% of GDP in the next half-century. If Conservatives hope to uphold their core belief of sustainable finances and declining debt, the OBR asserts that £37bn in fiscal savings would be needed every decade to stabilise public debt. This calculation excludes the additional savings required for large and uncosted tax cuts. Is it any surprise that one of the party’s grandees, Ken Clarke, has branded these tax promises as “populist nonsense”? Of course not. Problematically, populist nonsense hasn’t been limited to just tax.
A third of the candidates that survived the first round of voting, mustering over 20% of the vote, have pledged to scrap the 2050 net zero target first adopted by Theresa May in 2019. Other candidates have been remarkably quiet on the issue. Furthermore, on the ever-contentious issue of Northern Ireland, all candidates, including Hunt and Tugendhat, considered on the left of the party, have committed themselves to enacting the Northern Ireland Protocol Bill. This is a commitment to a policy that will breach international law, unilaterally remove checks on goods and risk a trade war with the EU, exacerbating the current trade performance, which is already UK’s record worst.
However, when looking at the contest, it’s no surprise why this has happened. Both in drumming up support to reach the final two and ultimately to win the race to become Prime Minister, MPs need to satisfy the demands and positions of the almost 200,000 party members in the country. When looking at this party’s grassroots make-up, the economically incoherent policies being pushed make a great deal of sense. Over two-fifths either don’t believe global warming is happening or don’t regard human activity as fuelling it and place tax cuts near the top of their priorities. Perhaps expected for a party predominantly over 60 years old and overwhelmingly based in Southern England. Additionally, YouGov polling has found that Conservative members by 54% would’ve gladly seen their party and 61% of the economy destroyed if it guaranteed Britain’s exit from the EU. When the crowd you’re pitching to is this ideologically extreme, the swathes of red meat being thrown at the party seem entirely logical to win votes and become party leader.
The problem is that what the party wants differs from what the country does. Take net zero. Here, Onward has found that the party would lose 1.3 million voters if a future leader abandoned net-zero targets. Businesses, the very constituency burdened by net zero according to sceptics, have pressured contest contenders to maintain the commitment to net zero. Included in this group were Amazon, Unilever and Lloyds Banking Group, which highlighted the economic benefits that the drive for clean energy is bringing to the UK economy and job creation. On the public finances, the drive by candidates to pledge sharp reductions in tax, presumably financed partially by lower spending, seems unlikely to win widespread support with a public still feeling the effects of a decade of cuts to services across government and the biggest backlog in NHS history.
In the end, it seems very clear that candidates will likely tack further to the right in a bid for support as the battle for the membership draws closer. The problem the party will have looking forward to the next general election is whether the public, particularly in its crucial northern seats gained at the last election, is ready to go along with an administration more right-wing than the last.
Image 1 and 2: Flickr/ Number 10