Just over a year ago, I went away on holiday. The break was a welcome respite from the Conservative leadership election. “At best, a damp squib. At worst, self-destructive. Either way, not up to the challenge. Why ConservativeHome isn’t endorsing a candidate yet. If we do at all,” I wrote earlier – disgusted by the candidates kicking lumps out of each other in TV debates, to the benefit of no-one other than the broadcasters.
The Daily Telegraph rang. Charles Moore was away. Would I stand in? On the one hand, my holiday. On the other, freelance earnings. The latter won. Margaret seemed a good subject, in the absence of her biographer. What light might her beliefs and practices cast on the leadership contest?
So I settled down to re-read two of Geoffrey Howe’s budget speeches – the first that of 1979, in which he, as Thatcher’s first Chancellor, cut some taxes; the second that of 1981, in which he raised them. But on both occasions, he sought to lower Government spending and borrowing – a crucial element of its medium-term financial strategy.
This helped to deliver the growth rates of the Thatcher decade, together with a fall in Government spending as a proportion of GDP and a commensurate lowering of the tax burden.
Now on the one hand, looking back to the Thatcher era can degenerate into nostalgia. After all, our globalised world, social media culture, ageing population, reliance on immigration and housing shortages are the product of a different age. But on the other, it would be odd not to glance back at the greatest Conservative election winner of modern times, and ask if there are lessons to learn.
I was struck at once by the noise in the leadership campaign about tax cuts and the quiet about spending restraint – from both candidates. And no wonder: for “the more discussion there would be about higher spending, the more there would also be about the way it is distributed and the value that would offer to taxpayers”.
“Neither Sunak would Truss would relish such a conversation. Its implications are simply too terrifying – first and foremost among them that Britain, like other liberal Western democracies, has become dependent on immigration, given lower birth rates, to fund that higher spending. Especially the third of it that funds healthcare and pensions.”
August went, September came – and it became evident that Truss would win. She had pledged to reverse the Johnson’s Government’s national insurance increase and cancel its planned Corporation Tax rise.
In the days before the result was declared, I met up with a senior member of her team. Would the new Government’s mini-budget cut spending as well as taxes – essential if the package was to have credibility in the markets (and, of course, follow the example of the Thatcher era)? I was told that it would. But when Kwasi Kwarteng’s statement came, the then Chancellor committed only to publishing a medium-term fiscal plan “in due course”.
In her first restrospective on her premiership, Truss wrote that “we agreed not to reopen the settlement of the most recent spending review, which would only have led to more demands for spending.”
“Instead, we would look at specific measures that would bring down costs over time, such as raising the pension age and reforms to the benefits system. By increasing growth while restraining public spending, we would then get debt falling in the medium term.” Here is the fundamental reason, in my view, why her premiership swiftly failed.
Truss’s foes cite her tactless reshuffle, the sacking of Tom Scholar, her inaction on migration, cutting the top rate of income tax, the rise in bond yields, the near-collapse of pension funds, lack of ambition on housing, restoring the top rate of income tax, the sacking of Kwarteng and fracking vote chaos as evidence of her failure.
Her friends, meanwhile, insist that Truss, like Barry Goldwater in 1960s America, was ahead of her times – a prophet brought down by an economic establishment whose sweep includes the Treasury, the OBR and the IMF. In its interview with her last weekend, the Mail on Sunday reported that she is aiming the sales of her forthcoming book “as much at America as Britain, where Donald Trump is dominating the run-up to next year’s Presidential election”.
That sounds right. The claim that Truss was the victim of a blob rather than her mistakes will be easier to sell on the other side of the Atlantic, where the Truss brand and speaking tours will happily marry up.
It should go without saying that Truss’s foes have the better of the argument, but I think that some of them miss the point. The leadership election choice between her and Sunak wasn’t easy to make. “Broadly speaking, Sunak wants to stick with the present plan and Truss wants to change it. In the medium term, she is right: we can’t just carry on with the near-zero interest rates, quantitative easing, zombie economy model of the last ten years.”
“But in the short term, Sunak is right. The combination of tax cuts, higher spending and politicians fiddling with the Bank of England’s mandate during uncertain times could spook the markets.”
So I wrote in a follow-up article on this site to my Telegraph piece, explaining why while ConservativeHome still wasn’t endorsing anyone, I would vote for the candidate who had won most votes among MPs – namely, Sunak. It seemed to me that saddling the Parliamentary Party with the finalist it least wanted was impracticable. That’s a theme to which this site will return.
Truss was right to point out last weekend that “ideas like redistributionism, business being bad, the anti-growth people like Extinction Rebellion and Just Stop Oil – those are the ideas that have made the running in the last decade”.
You will say that she has a brass neck in offering advice at all, given her failure in office. Her friends will disagree – and the right-wing entertainment industry, fixated as it is by tax cuts, will do so too. This takes us back to the fundamental reason why her Government failed. Her supporters argue that she was more Conservative than the present Government. But the truth is that she wasn’t Conservative enough.
An authentic follower of Thatcher would want to use a budget to cut, say, the top rate of income tax – nothing wrong with that, though they would have the political savvy, as Nigel Lawson did, to cut income tax lower down the scale, too.
However, they would also reduce spending at the same time, especially if the markets were febrile. I suspect that a mini-Budget which cut spending as well as taxes would have been just as unpopular with voters – though who can say? But it might have avoided the pension funds crisis, the consequent U-turns, and the reputational damage not only to her, but to the whole Conservative enterprise.
There may well come a time, before too long, when recent history repeats itself – and a leadership challenger again puts to party members a programme of tax cuts without a price (in other words, cuts in the rate of spending). But how can the growth that Truss rightly wants be delivered without proper spending control?
But tomorrow is another day. After all, the Prime Minister is scarcely making a case for smaller government, either. Demographic decline and its consequences – working longer, higher immigration, unsustainable spending (unless AI rescues us): such are some of today’s challenges. And he, not Truss, is now in charge. During the Thatcher era, politicans squared up to fundamentals. Few do so now.