Peter Franklin is an Associate Editor of UnHerd.
The Conservatives are supposedly the party of low taxation. Yet after twelve years in power, the tax burden is rising to its highest level since 1950. It’s not that the party has forgotten the tax-cutting agenda: this summer’s leadership race was basically an auction of tax-cutting promises.
But when the winning bidder attempted to honour her promises, she — and her followers — lost everything. In his latest column for The Telegraph, Alilster Heath admits that “the Right has been routed.” He reels off a long list of policy defeats – but there’s no doubt that tax policy is the most spectacular.
We saw it unfold live on TV — when Jeremy Hunt stood before the House of Commons and renounced almost every measure in Kwasi Kwarteng’s mini-budget. Sat beside him, Liz Truss maintained her composure. Nonetheless, her political stature diminished with every word from the new Chancellor’s lips.
Heath blames this “final, abject humiliation” on the failure of the Right to undo “the Left’s near-total intellectual hegemony.” He’s wrong about that. It was the international money markets that did for Truss and Kwarteng, not “the Left”. The only reds to blame were capitalists red in tooth and claw. For the ideologues of the free market Right, the irony is too much to bear. Hence why so many of them prefer to blame the Bank of England or the Office for Budget Responsibility – or even a “globalist coup”.
In an earlier column, Heath came up with a more convincing excuse: sheer bad luck. The mini-budget “didn’t crash the economy — it was about to come tumbling down anyway.” It was Truss and Kwarteng’s “misfortune” to come to power just as the money markets were running out of patience with the western world’s overdrawn governments.
One can understand the Trussites’ frustration. After many years in which the bond traders snapped-up government paper at historically low interest rates, the traders suddenly turned-up their noses at Truss’s debt-fuelled tax cuts.
Except that this moment of acute market sensitivity was entirely foreseeable. You’ll remember from the leadership debates that Rishi Sunak did foresee it. His warnings, however, were ignored. The Trussites pressed-on to their doom. Inadvertently, they demonstrated the primary weakness of the tax cutters’ simplistic agenda: if it’s always time for a tax cut, then, sooner or later, you’re bound to pick the worst possible time.
Yet this isn’t just about the mini-budget or Liz Truss. Every one of the last five Tory Prime Ministers have paid lip service to reducing the tax burden. But compared to Margaret Thatcher their efforts have faltered. So what explains the contrast?
The facile answer is that only Thatcher had the courage and determination to govern as a Conservative Prime Minister. But though she certainly had those qualities, she also had some other things in her favour. North Sea oil revenues for a start. Demographics too: forty years ago, we were a younger nation — not to mention a slimmer one — which meant less demand for spending on the NHS and social care.
Let’s also not forget that Thatcher was cutting tax rates from the confiscatory levels of the 1970s. Those were the days when there really was a Laffer Curve case for self-funding tax cuts.
In the 2020s, those advantages no longer apply. This is a decade in which energy costs are surging, the population is greying, and the Laffer Curve argument is tired. There’s also the enormous overhang of debt from the Covid pandemic, the triple lock on the state pension, and the cost of war in Europe. Of course taxes are high.
By constantly harking back to Thatcher and Reagan’s golden age, free-marketeers can portray the failure to cut taxes as a lack of political will. It’s an effective tactic – up to a point. By promising The Lady’s return in the form of Liz Truss, Tory right-wingers won their first leadership election since 2001. What they couldn’t bring back were the economic conditions of the 1980s.
There’s a paradox here. While the Right is obsessed with tax cuts, it is not serious about achieving them. If it was, then it would seriously engage with the underlying reasons for why cutting tax is so hard.
For instance, where’s the groundswell in voter support? The Conservative Party has shown that it can mobilise votes on issues like Brexit, immigration, and levelling-up. Tax, however, doesn’t have quite the same effect. But that hasn’t sunk in yet. In her first – and last – conference speech as party leader, Liz Truss remembered her “shock” at opening her first payslip only to “see how much money the taxman had taken out.” She was certain that “this feeling is replicated across the country.”
Is it?
In many cases, the first thing that younger workers see taken out of their wages is their student loan repayments. And, then, from what’s left, they have to pay the rent — not to mention escalating fuel bills, food costs, train fares, and so on. These days, HMRC is just one bogeyman among many — and by no means the most feared. Until younger voters hate the taxman more than the landlord, the tax-cutting agenda will be of diminished relevance.
Yes, economic growth would help. Sunak recognises that Truss was right about that. What’s missing is a credible pro-growth agenda. We never got one from the Trussites and we’ve yet to get one from her successor. Indeed , I’ve yet to hear any Prime Minister, from David Cameron onwards, advance a convincing explanation for UK growth and wage stagnation since the 2008 crash.
Tony Blair and Gordon Brown stalled Britain’s economy. Not one of their Tory successors has been able to start it up again. One thing that Sunak realised as Chancellor is that George Osborne’s policy of slashing corporation tax did not have the desired effect. British companies have not reciprocated with a wave of business investment. So the hoped-for productivity improvements have not materialised.
If the tax-cutters want us to believe that their catch-all remedy is the key to growth, they must explain why Osborne’s experiment was so disappointing.
They should also contemplate what to do about the size of government. If the state was smaller, taxes could be lower. But since the privatisations of the 1980s, the free-marketeers haven’t had any big ideas on this. For a while, the America Right pursued a “starve the beast” strategy: cut taxes first and leave the state to shrink itself in response to falling revenues. But far from starving, the state ran-up debts, growing fatter than ever on deficit spending.
Instead of trying to reduce the supply of government, tax-cutting conservatives need to focus on reducing the demand for it. But this means so much more than cutting out waste. Until we get serious about addressing the roots of need in what should be a universally prosperous society, there will be little hope of shrinking the state or slowing its rate of growth.
One thing is for sure. The tax-cutters have tested their established strategies to destruction. When they got their woman into Downing Street, it took just 45 days for their agenda to crash-and-burn.
That should prompt a fundamental re-think – or their cause is lost for a generation.