The Tories should listen to their own economic adviser

Senior Tory pundit warns that early spending cuts would plunge UK economy back into recession.

Conflicting advice for the Tories on spending cuts this morning.

Here's the Institute of Directors:

We are convinced that we need swift action to tackle the Budget deficit. This means making significant spending cuts in 2010. We believe that lower spending is likely to trigger a whole series of positive developments that will assist growth.

And here is Sir Alan Budd, one of the party's senior economic advisers:

If you go too quickly, then there is a risk that the recovery will be snuffed out and we will go back into a recession -- I mean what the Americans say: "Remember 1937."

Budd, who is expected to run the Tories' new Office of Budget Responsibility, is of course right. As our own David Blanchflower has consistently warned, the immediate spending cuts promised by George "Slasher" Osborne would likely trigger a double-dip recession. So long as the level of lending to businesses remains low, the state must step in to boost demand.

Osborne has hailed the IoD's Budget submission (and a similar report from the CBI) as evidence that the economic consensus is moving in the Tories' favour.

But he should be wary of courting such right-wing company. The IoD has called for public spending to be slashed from 48 per cent of GDP to 35 per cent, in part so that corporation tax can be reduced from 28 per cent to 15 per cent.

Osborne has already promised early action to cut the headline rate of corporation tax to 25 per cent and the Tory treasurer, Michael Spencer, has spoken of a rate of 20 per cent by the end of a first parliament.

In a previous report, co-authored with the TaxPayers' Alliance, the IoD suggested, among other things, a two-year public-sector pay freeze, abolishing Sure Start and scrapping the Education Maintenance Allowance.

Osborne may yet need to turn to the IoD for advice on cuts. The Institute for Fiscal Studies has estimated that the Tories' promise to ring-fence spending on health and overseas aid, combined with their pledge to reduce the deficit faster than Labour, means that all other departments face cuts of 22.8 per cent by 2014-2015.

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George Eaton is political editor of the New Statesman.

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Who'll win the Richmond Park by-election?

There are three known unknowns that will decide the contest. 

It’s official: Zac Goldsmith has resigned as the Conservative MP for his Richmond Park seat, and has triggered a by-election there, where he will stand as an independent candidate.

Will it be a two-way or a three-way race?

The big question is whether the contest will be a three way fight between him, the Liberal Democrat candidate Sarah Olney, and an official Conservative candidate, or if CCHQ will decide to write the thing off and not field a candidate, making it a two-horse race between Goldsmith and Olney.

There are several Tory MPs who are of the opinion that, given that latitude to disagree on Heathrow has been granted to two Cabinet ministers, Boris Johnson and Justine Greening, similar leeway should be extended to Goldsmith. It’s win-win for Downing Street not to contest it, partly because doing so would put anti-Heathrow MPs, including Johnson and Greening, in an impossible position. Theresa May isn’t averse to putting Johnson in a tricky spot, but Greening was an early supporter of her leadership bid, so her interests come fairly high up the prime ministerial radar.

But the second reason not to contest it is that Goldsmith’s chances of re-election will be put in a serious jeopardy if there is a Tory candidate in the race. Everything from the local elections in May or the Liberal mini-revival since Brexit indicates that in a three-way race, they will start as heavy favourites, and if a three-way race results in a Liberal Democrat win there will be bloodletting.

Although people are talking up Goldsmith’s personal vote, I can find little hard evidence that he has one worth writing home about. His performance in the wards of Richmond Park in the mayoral election was actually a bit worse than the overall Tory performance in London.  (Boris Johnson didn’t have a London seat so we cannot compare like-for-like, but Sadiq Khan did four points better in Tooting than he did across London and significantly outperformed his general election performance there.) He did get a big swing from Liberal to Conservative at the general election, but big swings from the Liberal candidate to the Tory were a general feature of the night, and I’m not wholly convinced, given his performance in Richmond Park in 2016, that it can be laid at Goldsmith’s door.

If he wins, it’ll be because he was the Conservative candidate, rather than through any particular affection for him personally.

But will being the Conservative candidate be enough?

Although on paper, he inherits a healthy majority. So did Robert Courts, the new MP for Witney, and he saw it fall by 19 points, with the Liberal Democrats storming from fourth to second place. Although Goldsmith could, just about, survive a fall of that magnitude, there are reasons to believe it may be worse in Richmond Park than Witney.

The first is that we already know, not just from Witney but from local council by-elections, that the Liberal Democrats can hurt the Conservatives in affluent areas that backed a Remain vote. But in Witney, they barely squeezed the Labour vote, which went down by just over two points, or the Green vote, which went down by just under two points. If in Richmond Park, they can both damage the Tory vote thanks to Brexit and squeeze Labour and the Greens, they will win.

Goldsmith's dog-whistle campaign for the London mayoralty will particularly help squeeze the Labour vote, and thanks to Witney, the Liberal Democrats have a ready-made squeeze message. (In Witney, Green and Labour votes would have been more than enough to elect Liz Leffman, the Liberal candidate.)

But their good performance in Witney and Goldsmith's mayoral result may not be enough on their own.  Ultimately, the contest will come down to the big question that will decide not just the outcome in Richmond Park but the future of the Liberal Democrats.

Have the voters forgiven the Liberal Democrats for going into coalition?

We know that Brexit can help the Liberal Democrats at the direct expense of the Conservatives. What we don’t know is if Brexit is enough to convince 6,000 Labour voters in Bath to vote tactically to get Ben Howlett out in exchange for a Lib Dem, or for 7,500 Labour voters to back a Liberal candidate in Hazel Grove to defeat William Wragg.

One of the reasons why the Liberal Democrats lost votes directly to the Tories in 2015 was fear: of uncertainty and chaos under an Ed Miliband government propped up by the SNP. That factor is less live in a by-election but has been further weakened due to the fact that Brexit – at least as far as Remain-backing Conservatives are concerned – has brought just as much uncertainty and chaos as Miliband and the SNP ever would have.

But the other reason was disgust at the Liberal Democrats for going into coalition with the Conservatives. If they can’t win over enough votes from the parties of the left, we’ll know that the party still has a way to come before we can truly speak of a Liberal revival. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.