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10 October 2018

Theresa May has declared the end of austerity but that’s no guarantee it will happen

Gloomy MPs fear the PM will promise an end to cuts as Philip Hammond delivers yet more of them.

By Stephen Bush

The Conservatives know they need to learn something from Jeremy Corbyn – they just can’t agree on what it is. For most MPs in marginal seats, and any minister in charge of a spending department, the lesson of Labour’s unexpectedly good result in the 2017 general election is that the voters are fed up with austerity and that the years of ever-shrinking budgets must end. This school of thought is well represented by vocal Tory backbenchers such as George Freeman, Nick Boles and Heidi Allen, who regularly call for extra cash for one part of the state or another.

These MPs are opposed by another group within the parliamentary party, albeit one whose champions are less well represented in the media. This group believes that the Tory problem is not that voters lost their appetite for austerity – but that the party stopped talking about it. This tendency has just one high-profile advocate: Liz Truss, a former secretary of state at Defra and the Ministry of Justice, who is now second in command at the Treasury.

The 43-year-old South West Norfolk MP is an alumna of the “Britannia Unchained” group of neo-Thatcherites, whose other members include the Brexit minister Dominic Raab and Priti Patel. Truss has taken one big lesson from Corbyn: be yourself. She has taken personal charge of her Twitter and Instagram feeds, posting pictures with her morning coffee – “#downingstreetdrink #wakeupandsmellthecoffee – and of Gladstone, the Treasury cat.

After a meme of her calling Britain’s high level of cheese imports a “disgrace” went viral in 2014, she mocked herself at this year’s party conference in Birmingham. “I’ve been told that there’s not to be any cheese chat,” she told the hall. “Conference, that’s not just annoying… That is a disgrace.”

This new-model Truss has certainly succeeded in changing the mood music around her. When she was moved to the post of Chief Secretary to the Treasury after the 2017 election, observers noted that it was a role usually handed to ministers as their first job in cabinet, or as their last. Yet the newly candid Truss has won fans among the membership and become the standard-bearer of a brand of Conservatism that at present looks to be in retreat.

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When you speak to Conservative activists, Truss isn’t exciting them as committed Brexiteers do: but she is far and away the most popular of the Tory politicians to have backed a Remain vote. It was a measure both of her growing popularity and the weakness of her boss, the Chancellor Philip Hammond, that she got a bigger round of applause for her joke about the “disgrace” meme than she did for introducing him.

There is not – yet – any such thing as a Trussite. But she has won the respect of MPs who don’t agree with the party’s shift away from public spending cuts. These austerians point out that the United Kingdom’s debt mountain is still more than 85 per cent of gross domestic product (GDP) – so they oppose further borrowing. Wage growth has been sluggish to non-existent since the financial crisis; they also believe that tax rises would be an error. They note that public sector spending accounts for 40 per cent of GDP. And they despair that the party’s Brexit obsession has stopped it arguing for fiscal discipline, even as the government continues to cut spending.

The Conservatives now face an unpleasant reality: Theresa May has declared the “end of austerity” (as she did in her conference speech) – and therefore the end of making the case for its necessity – when it is demonstrably continuing. In terms of the party’s electoral prospects, this is the worst of both worlds. The 2017 election was the first since 1964 in which the chancellor played next to no role in the campaign and the condition of the public finances was absent. This left Labour free to make the case against austerity unopposed. At the same time, George Osborne had already made the least politically contentious cuts by 2015, with the bulk of the pain concentrated on the inner cities and other groups that are more inclined to vote Labour. Tories liked to taunt the Ed Miliband-era Labour Party with the note that Liam Byrne left at the Treasury in which he joked that “there is no money left”. But now they have a problem of their own: there are no Labour voters left to cut.

So, what’s the way through? The Prime Minister is telling anyone who will listen that austerity will end in the first spending review after Brexit – and that our debt mountain will continue to fall. Those two promises can be met only if the coming spending review offers substantial tax rises: not an easy prospect given weak wage growth and the number of households already carrying large credit card debts.

Even then, there is no prospect of a Budget that contains a tax hike passing parliament as it stands. What’s left? More borrowing? Gloomy MPs fear that May will promise an end to cuts as Hammond delivers yet more of them.

This all bolsters the optimism around Corbyn’s allies, who think that any move the Conservatives make will hand Labour an advantage. If May’s promise of an end to austerity never arrives, the dashed expectations benefit Team Corbyn. If Hammond raises taxes, it will be harder for the Tories to run against Labour tax rises at the next election, and the extra revenue will make John McDonnell’s manifesto maths easier. If the government simply borrows more, the whole of the Osborne-era message looks increasingly like a sham.

The Conservatives need to decide, ideally before the end of the Article 50 process and certainly before the next election. Are they the party of Nick Boles or Liz Truss? At present, they are trying to be both, and failing. A government that fears destruction over Europe could yet be ruined, instead, by its economic policy.

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This article appears in the 10 Oct 2018 issue of the New Statesman, How austerity broke Britain