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3 August 2018

The Conservatives are in crisis over austerity, not just Brexit

Spending cuts are ever more harmful and unpopular and Tory MPs will revolt against tax rises. 

By George Eaton

The Conservative party is engaged in the bloodiest incarnation yet of its 30-year Europe war. After Theresa May’s Chequers deal succeeded in alienating almost everyone, Remainers are backing a “people’s vote”, while Leavers are embracing no deal. There is no obvious means by which the parliamentary deadlock can be broken.

But the Brexit crisis is masking another one: over austerity. The Leave vote in 2016 and the loss of the Tories’ majority in 2017 were symptoms of voter discontent over spending cuts (a new study published this week suggested that austerity may have directly caused Brexit). As the New Statesman’s Crumbling Britain series has charted, eight years of austerity have enfeebled the public realm.

Rough sleeping, which fell by three-quarters under the last Labour government, has risen by 169 per cent since 2010. The NHS has been forced to cancel operations and even urgent surgery as it struggles to meet ever greater demand. Relative child poverty has increased for three consecutive years and now stands at 4.1 million, or 30 per cent of children. Nearly 1,000 Sure Start children’s centres and 478 libraries are estimated to have closed since 2010. Potholed roads and uncollected bins are evidence of the scale of austerity borne by councils (real-terms funding for local authorities has been cut by 49 per cent since David Cameron took office as prime minister). Northamptonshire Council, a Conservative flagship, has declared itself effectively bankrupt and others may follow.

In advance of the 70th anniversary of the NHS (“the closest thing the English have to a religion” in Nigel Lawson’s words), Theresa May finally made an exception. The health service was promised a funding increase of £20bn by 2022/23 after the longest period of austerity in its history. But beyond promising a non-existent “Brexit dividend”, the government has yet to specify how the new spending will be financed.

The obvious answer to be delivered in the Budget this autumn would be to increase taxes. But there is no parliamentary majority for suggested rises such as a rise in fuel duty or other regressive measures. Tory MPs, already alienated by May’s Chequers plan, would revolt against tax increases (as they did against Chancellor Philip Hammond’s 2017 bid to increase National Insurance on the self-employed).

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Though additional borrowing could partly fund the NHS plan and the promised abolition of the public sector pay cap (the deficit has been reduced to £39.4bn, the lowest level since 2007), Hammond has ordered non-protected departments to identify further cuts in advance of next year’s Spending Review. The fiscally conservative Chancellor is determined to maintain his fiscal rules: to reduce the national debt as a share of GDP by 2020/21 (it presently stands at £1.8trn or 85.2 per cent of GDP) and to reduce the cyclically adjusted deficit to below 2 per cent in the same year. 

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Though austerity has been moderated, then, it has not been abandoned. Both Hammond and May are too fiscally cautious to embrace the Keynesian approach long urged by economists. The Chancellor conceded in 2017 that voters were weary after seven years of hard slog” but vowed to “make anew the case” for austerity. But other Tories believe they need to stop fighting a losing battle. After nearly a decade of austerity, further cuts impose unambiguous harm – there is no “fat” left to cut, merely bone. 

The Conservatives’ historic strength has been their adaptability. Depending on circumstance, they have been Europhile and Europhobic, statist and laissez-faire, isolationist and interventionist. If the Tories are to retain power, yet another metamorphosis may be needed: from austerity to investment.