Think back for a moment, to the Conservatives leadership campaign trail in 2016 when Theresa May warned of the infamous ‘magic money tree’ politicians are so wont to harvest from.
So, why is it that six years on, the leadership candidates vying to replace Boris Johnson have forgotten the warning and put fiscal responsibility to one side?
Is this a cynical move to win votes from MPs who are concerned about the former “much-lamented socialist Chancellor’s” (Jacob Rees Mogg’s words not mine) high tax and spend economic formula, or are we seeing the return of ideology after years of populism.
“Not even one nation”
The Tory MP WhatsApp Groups have certainly been on fire this week. “Dossiers” attacking the former Chancellor have been circulating from “unknown sources” attacking Sunak’s “Big Tax and Big Spend!” agenda.
All 3458 candidates standing for the leadership know Sunak is the one to beat. However, once you analyse the attack lines, the split within the Conservative Parliamentary Party becomes clear.
This dossier does not seem to have been written by Boris loyalists. The first bullet point states that Sunak “enabled Boris Johnson’s reckless over-spending and increased UK taxes to the highest level since Clement Attlee.”
If Sunak is to become the leader of the party, he is going to face opposition from multiple fronts and it will be hard to unify the party over economic policy when different wings have diametrically opposed viewpoints. The Tory heartlands would like tax cuts for their wealthy voters and ideally a balanced budget. The Red Wall intake need spending and levelling up to secure their re-election.
Rishi Sunak will surely remember the “fixing the roof while the sun is shining” line that George Osborne and David Cameron parroted in opposition and as a self-styled disciple of Thatcher he will also be well versed in housewife economics. Of course, these old mantras are easier said than done in office.
Of course, it’s easier to fix the roof when the sun actually shines. The lackluster recovery from the financial crisis followed by Covid 19 have not been ideal weather.
In 2010 a return to fiscal responsibility seemed essential as Britain’s budget deficit was over 10% (the rule of thumb is that at 12% Government is headed for default), subsequent losses of Britain’s AAA bond ratings seemed to confirm a perilous position.
What was not clear at the time is that much of the West was also borrowing at a rate of knots and so with nowhere safer to put their money, the Government could probably have called investor’s bluff and saved the UK a few years of harsh austerity and the low growth it brings.
These are lessons Sunak seems to have learned well during his eventful time at the treasury. With no interest in dismantling the Conservative Government’s signature policy success of deficit reduction, he has often paired the spending increases needed to keep the economy moving with tax rises designed to reduce the impact on the deficit.
This mixture of taxation and spending seems to have made him many enemies within his party.
The strange death of fiscal responsibility
There is no doubt that the Conservatives after 12 years of Government, yearn for tax cuts. Time and again they have been promised sunlit uplands and have received cold realities.
Whoever is the candidate to fight Sunak in the final two, they will no doubt rally around a substantial cut in tax and reduction in spending that will make George Osborne look like Mother Theresa.
There is no way that “efficiencies” are going to be found to pay for rising public sector wages in the face of inflation as well as increasing costs of service provision. Health care inflation continues to run ahead of the more regular kind and while the population over 65 held steady at 16% between 1987 and 2010, by 2035 it will approach 25% with obvious implications for the already colossal health budget.
To win the top prize some of the candidates are sacrificing fiscal responsibility. What will future generations think when they are pay back the new Prime Minister’s debts?
Who doesn’t want tax reductions? Who doesn’t want to keep more of their own money? However, sometimes in life and in politics, difficult decisions need to be made.
It is clearly a sign of strength, rather than weakness for a candidate to say No.
No, we can’t afford to cut taxes now. No, we shouldn’t straddle future generations with debt. No, the magic money tree is not in fruit.
With carful navigation, some of the more fiscally grown-up candidates understand this. But it is so important – particularly now – after years of cakeism and Boris Johnson’s passing acquaintance with telling the truth – that the Conservatives re-establish their credentials for fiscal responsibility.
Sunak is right to strike a cautious tone with the public finances, however, he will come under increasing pressure to deviate from this strategy. Now he has now been unshackled from the restraints of Chancellor, he is free to create his own path.
Other candidates need to be a little more pragmatic. They may promise jam tomorrow, but if they do not deliver within their first 100 days their chances of winning the next General Election will evaporate fast.
The UK’s tax take is at about the OECD average. Much lower than France, significantly lower than Germany and even lower than Canada. It is unclear whether with an ageing population there are sensible tax cuts to be made. To wash away the baseless optimism of the Johnson premiership the next Prime Minister will have to make realistic promises and deliver on them.
Their first should be a commitment to keeping the budget deficit manageable.