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27 November 2017

If Tory MPs want to end austerity, they need to get serious on Brexit and tax

Without a softer Brexit and tax rises, the government won't be able to afford higher public spending. 

By George Eaton

In 2017, the Conservatives lost their parliamentary majority. But it was two years earlier, in 2015, that they lost their majority for austerity. Ever since the end of the coalition (and the Lib Dem votes it provided), the Tories have struggled to pass new spending cuts and tax rises. This, as Stephen noted in his column this week, reflects the rise of the “austerity nimbys”: Conservative MPs who favour cuts in theory but rarely in practice. 

George Osborne’s last Budget (which forced a U-turn on disability benefit cuts) and Philip Hammond’s first one (which proposed a doomed rise in National Insurance) were both thwarted by this tendency (prompting last week’s £25bn giveaway). Austerity has been politically discredited by the election result and economically discredited by the UK’s parlous performance (Britain is the slowest-growing major EU economy, average wages are not due to regain their 2008 peak until 2025, and the deficit is not forecast to be eliminated until 2031 – 16 years late). Unsurprisingly, then, an ever great number of Tories are demanding a shift from cuts to investment. 

Sajid Javid, once renowned as a dry Randian, called for Philip Hammond to announce £50bn of housing spending (the Budget provided just £3bn more). Tom Tugendhat, the foreign affairs select committee chair, has urged Theresa May to “invest in our economy even more than she is already, and perhaps take the chance to build more homes”. Another Conservative backbencher, Ben Bradley, has called for the government to “start to invest again” and warned that “austerity is grating on people”. Others have demanded an end to defence cuts (long a pet concern of Tories) and even an increase in military spending from 2 per cent of GDP to 3 per cent. 

But though there is political and economic merit in ending austerity, too many Tories are avoiding hard choices. Brexit, the Office for Budget Responsibility has forecast, will deliver a net fiscal hit to the UK of nearly £300m a week. Yet though the majority of Conservative MPs backed Remain, most are still committed to withdrawal from the single market and the customs union (one could call it “have your cake and eat it conservatism”). 

Labour’s 2017 manifesto proposed £49bn of tax rises to match a £49bn increase in public spending. Economists debate whether the party’s assumptions are reasonable (the IFS warned that higher taxes on the well-off would cost more by depressing economic activity) but Tory MPs, by contrast, propose few if any tax rises at all (and, indeed, demand further tax cuts).

Abysmal productivity, an ageing population and rising public expectations are already imposing severe pressure on spending. Unless Tory MPs acknowledge the need for tax rises and a softer Brexit, the end of austerity will remain a dream, rather than a reality.