Whatever happened to the deficit? For almost a decade the gap between what the government got in taxes and what it spent was the single most important fact in British politics. Yet today it is barely mentioned by the Conservative leadership contenders.
Reducing the deficit was the defining economic mission of George Osborne’s while he was chancellor from 2010 to 2016. Following a terrible financial crisis, only slaying the monster of public spending would prevent Britain becoming Greece, “a country that didn’t face up to its problems”, as Osborne put it. He imposed the harshest spending cuts this country had known since the Great Depression.
Today British government debt today stands at almost 103 per cent of GDP, 30 percentage points higher than when Osborne became chancellor. The government’s deficit is 8 per cent of GDP, scarcely lower than the 9 per cent it had reached in 2010.
This is not solely due to Covid. Even before the pandemic public spending was increasing; Sajid Javid, the chancellor at the time, raised real terms expenditure by 2.5 per cent just before the 2019 election. The Office for Budget Responsibility predicts that by 2026 the government is set to spend more, as a share of GDP, than Tony Blair did on average during his years in office. Borrowing, despite recent tax rises, is forecast to remain well above the (never achieved) Osborne-era deficit targets.
The striking thing about the Tory leadership contest is how little any of this matters. The word “deficit” is scarcely mentioned by any candidate. And the media, obsessed for years with supposed overspending, scarcely bats an eyelid about it.
One part of the reason for this 180-degree flip is obvious. It’s difficult to complain about the dire state of the nation’s finances when you’ve been in government for 12 years. People ask awkward questions. But another is more subtle: there are no easy solutions to Britain’s predicament. Our economy lags well behind comparable large, developed countries. Investment by businesses has flatlined, real incomes are falling fast and our public services, led by health and social care, will require bigger and bigger doses of funding well into the future.
Dealing with some or all of this will involve taking on some real (rather than fictitious) vested interests – to raise taxes on wealth, or shift the management of big businesses, or drive up wages at the expense of profits. Ofgem is forecast to raise average household energy bills by 64 per cent in October, weeks after the conclusion of the leadership election. No candidate now has anything useful to say about this.
The result is to reproduce in Britain the new politics of the right in which fighting the culture war takes clear precedent over the fiscal probity conservatives once claimed. See Trump, or Bolsonaro, or Duterte for recent international editions. It’s toxic, and actively dangerous for the targets of abuse, but the mob of pretenders currently vying for the Tory crown have collectively spent longer making homemade signs for toilets or whinging about “woke rubbish” than they have outlining plans for the economy. Rishi Sunak is derided as a “socialist” for sticking too closely to the Osborne-era script, and now is promising tax cuts only later. Like Penny Mordaunt’s fantasy of “trans orthodoxy”, the economy is discussed in fantastical terms, where tax cuts mean a better economy and the bigger the cut the betterer the economy. A summer heatwave might sustain this Tory mirage. By autumn, grim reality will have intruded.
[See also: Tory leadership race tax cuts could cost the UK tens of billions]