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11 July 2022

The Tory leadership candidates are desperately short of new ideas

Free-market dogma is no solution to the UK’s living standards crisis.

By George Eaton

The UK leads the world in decline: no major economy other than Russia is forecast to perform worse next year and wages have fallen far behind those of European rivals such as Germany and France. After the sinister and farcical diversion that was Boris Johnson’s premiership, now should be a time for his putative successors to reckon with these challenges. But those looking for fresh thinking will not find it in the Conservative leadership election. 

The contest has so far been dominated by reheated Thatcherism: both Jeremy Hunt and Sajid Javid have called for UK corporation tax to be cut from 19 per cent to 15 per cent (rather than increased to 25 per cent). In other words, they would spend billions on a policy that will do nothing to help the poorest. 

Though some plead that such measures “pay for themselves” by generating economic activity, there is no evidence that this is the case. From 2011 to 2018, when UK corporation tax was reduced from 28 per cent to 19 per cent, there was only one year when the cost of the tax cut was matched by the increase in business investment. The UK has consistently trailed behind Germany, France and the US (all of which have higher corporate tax rates) for investment. While lucrative for shareholders, tax cuts have done stunningly little to stimulate growth. 

Nadhim Zahawi, the new Chancellor, has at least had the honesty to say he would cut spending in every government department by 20 per cent in order to fund tax cuts – but this truly takes the contest into the realm of fantasy (or punity).

Other Tory candidates, such as Liz Truss and Grant Shapps, have proposed reversing the National Insurance rise or cutting income tax. These moves would, at least, benefit low and middle-earners, but they are an expensive means of doing so (and high earners would also benefit). Far better to restore the £20-a-week increase in Universal Credit – a Conservative invention – or boost living standards by raising the minimum wage and public-sector pay, and strengthening trade unions. Rory Stewart, the 2019 Tory leadership candidate, has proposed free public transport.

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But such ideas have no place in the Conservative universe, which resembles a world in which the 2008 crash never happened. The dominant right-wing critique of Johnson’s premiership is that he spent and taxed too much. This is a repudiation of the Tories’ brief flirtation with a more interventionist state, industrial strategy and “levelling up”. But there is an alternative critique: Johnson’s rhetoric was all too rarely matched by reality and he raised taxes on the poorest rather than the wealthiest. 

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The absence of a “Red Tory” candidate advancing this argument demonstrates the Conservatives’ intellectual shallowness. Tory prime ministers from Harold Macmillan to Ted Heath promoted a central economic role for the state. In Europe, Gaullists and Christian Democrats have embraced interventionism.

But the Tory front-runner, Rishi Sunak, is content to recycle the myths of Osbornomics: that the UK must, like a household, “balance the books”, an austere strategy that would further degrade the public realm. The best way to reduce the national debt that so troubles Sunak is to boost Britain’s dismal productivity, but the former chancellor’s model – spending cuts now, tax cuts later – would do nothing to advance this aim. 

The defence offered by some of this impoverished debate – “they’re trying to win over Tory members! What do you expect?” – should be given short shrift. Though the candidates are fighting to become Conservative leader, the victor will become prime minister and the UK deserves better than a narrow, insular debate (not least at a time of economic emergency).

Johnson’s imminent departure is no particular cause for glee. Britain’s biggest problems did not begin with him and they will not end with him. Anyone looking for proof of this need only glance at the Conservative field before them.

[See also: Will Liz Truss be our next prime minister?]