David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the 2019 general election.
Something unusual happened on Friday. A report was published on the economic challenges facing the country. It set out complex issues with great clarity, revealed striking international comparisons and made a credible and coherent argument about the problem and the solutions. It was deservedly well-received.
The report sought to address the issue of our poor productivity record, related to our relatively low levels of investment. This is not new; there has been no shortage of pieces making this point, usually arguing for a greater role for the state in encouraging investment. What was unusual about it was that it was an argument made from a centre right perspective. It was making the case that the government was the problem and not the solution.
The report is question was Foundations: Why Britain has stagnated by Ben Southwood, Samuel Hughes and Sam Bowman. Their argument is that our low levels of investment, high energy costs, poor transport infrastructure stem from what they describe as “the most important economic fact about modern Britain: that it is difficult to build almost anything, anywhere”. They conclude that “the problem is not too little investment by the state… it is that the state has prohibited most of the investments we need to make”.
I highlight the report not to dwell on the specific arguments, although they have great merit. We do need to make it easier to build homes and infrastructure and the obstacles to doing so are holding us back. In particular, the agglomeration effects of expanding the population in high productivity areas (which are also where people want to live) are important. My point is that the economic debate in this country has drifted in a more social democrat direction in recent years and, if the centre right is to revive, it needs to start winning at least some of those arguments. To do that, it at least needs to participate.
On a range of issues, the traditional position of the centre right is out of fashion. Whether it be the austerity of the early 2010s, low business taxes, privatisation or scepticism about industrial strategies, there are fewer voices than there once were in making a right of centre case.
There a various reasons for this. The economic performance of the last 14 years compared to previous eras is not a good one. There are extenuating circumstances (Covid, Ukraine etc) but it immediately puts Conservatives on the defensive. Memories of, say, nationalised industries are slight so privatised industries are judged not in comparison with what went before but by what they should be. And the right – or elements of it – are associated with economically damaging events. Brexit – understandably seen as a Conservative project – has evidently been an economic failure. The Truss administration’s fiscal policy was a disaster.
To pick up the latter point, Liz Truss was a Prime Minister who believed that the economic consensus was moving in the wrong direction and tried to rectify the situation by pursuing a radical agenda in the hope that the economic rewards would quickly emerge. Given what happened, she made matters much worse and now could easily have put off other Tories from talking about the topic ever again.
A more intelligent and reality-based approach is needed that seeks to establish credibility and does not argue from the fringes. Truss sought to make arguments that were never going to be accepted by mainstream economists. By and large, tax cuts will not pay for themselves. There is not scope for massive short-term savings in public spending through efficiency drives. Abstract talk of deregulation is insufficient to deliver a significant supply-side revolution.
Her agenda was dogmatic and ideological and relied on assertion not evidence. Neither the markets nor the public were convinced.
There are, however, arguments that the centre right can make that have the support from the economic mainstream. In most circumstances, the market is the best way of allocating resources. Price signals matter. People respond to incentives. Competitive economies require competitive tax regimes. Just as market-failure can exist, so can state-failure. Not all regulation is bad, but regulation can stifle innovation and (as Southwood et al argue) investment. Achieving net zero is necessary but will require balancing competing trade-offs. The public finances must be sustainable. Consumer interests should prevail over producer interests. Free trade is a source of prosperity. The rule of law is at the heart of a successful market economy.
The centre right does not have exclusivity on any of these ideas but the centre right is inclined to believe in them all more emphatically than other strands of thinking. It should be at the heart of what the Conservatives should offer to the country. This has not been the recent reality.
I mentioned earlier the warm reception the Foundations paper received. This has ranged from David Lidington to Dominic Cummings.
Cummings makes the observation that whereas in 1999 when he first worked closely with Tory MPs, there was great interest in issues relating to productivity, this was no longer the case by 2020. There is an obvious point to be made about his responsibility for Brexit and the consequent damage done to our productivity, but his observation about a decline in Conservative interest in such issues is a fair one.
To the extent that a Conservative argument on the economy has been set out in recent years, it is usually one that consists of a promise to cut taxes. Given that the public is more concerned about the quality of public services and that taxes have gone up, this has been neither credible nor persuasive. A broader economic argument is needed.
Instead, the temptation is to change the subject. Right of centre politics has been more dominated by cultural issues. There are certainly plenty of voters who are socially conservative and approve of a strong line on immigration and wokeness but there is little evidence to suggest that this will enable the Tories to prevail if they are losing the economic arguments. It certainly did not help in July’s General Election when the more the Conservatives focused on cultural issues, the more they validated the temptation to vote for Nigel Farage.
The party leadership race suggests no imminent change in direction. Robert Jenrick, to be fair, has praised the Foundations report but the focus of his campaign is immigration. It is a struggle to think of a memorable contribution to the economic debate from any of the other candidates.
This perhaps reflects the fact that they are seeking to appeal to a selectorate of older, economically secure voters for whom issues of productivity are not a priority. But if the centre right is going to recover its political dominance, it is going to need a compelling economic case as to why it is uniquely qualified to deliver rising productivity and living standards. At least Southwood, Hughes and Bowman have provided something on which to build.