Peter Franklin is an Associate Editor of UnHerd.
The 2024 Reform UK manifesto took the form of a £90 billion tax-cutting bonanza. The single biggest item — costing £50 billion — was a pledge to raise the income tax threshold to a mega-generous £20,000.
But by this time last year Nigel Farage was having second thoughts. Given his party’s polling ratings, an alarming possibility presented itself: that he’d actually have to make good on his promises in government. And so, last November, the tax cuts were abandoned. That included the flagship policy on the income tax threshold, which was unceremoniously scuttled. Farage made no bones about it: “substantial tax cuts, given the dire state of debt and our finances, are not realistic at this current moment in time.”
It was an important moment for Reform — one that marked its emergence as a serious political party. But it didn’t last. At this year’s Reform jamboree, the flagship was raised from the sea bed — or rather, like the wreck of the Mary Rose, the partial remains of the vessel. Reform is now promising to increase the income threshold to £15,000, at a self-declared cost of £17.7 billion in the first year, rising to £21 billion by the fifth year.
But that’s okay, because Reform’s “shadow chancellor”, Robert Jenrick, says the cost will be covered by all the welfare savings he intends to make. After all, it’s not as if those will be needed for anything else — like getting the defence budget back up to a serious level or addressing the social care crisis or perhaps getting some proper infrastructure built. Furthermore, a Reform government wouldn’t have to make provision for the escalating cost of the Triple Lock, because the party is surely committed to, er, reform on that front.
I’m sorry, what’s that you say? Reform is committed to keeping the Triple Lock? Oh.
Perhaps I’m being terribly zero-sum about our public finances. Instead of trying to cut thinner slices, why don’t we try to bake a bigger cake? When Farage cancelled those tax cuts last year, he said they weren’t realistic at “at this current moment in time” (my italics). So, presumably he’s now u-turning on his U-turn because the fiscal outlook has dramatically improved.
Except, of course, it’s done no such thing. Instead, the yield payable on 10 year UK bonds has hit its highest level since 2008 and that for 30 year bonds the highest level since 1998. Furthermore, compared to those dates, our national debt is much higher — currently standing at around 94% as opposed to 52% in 2008 and 40% in 1998.
In 2004, Oliver Letwin (then Shadow Chancellor) opened a speech with the words “our green and pleasant land is in in the red“. I may, or may not, have had something to do with that line, but I do definitely remember that the big concern at the time was over household debt, not the national debt (which had yet to breach the £500 billion barrier).
Well, folks, we’re about to crash through the three trillion pound barrier (a trillion being a thousand billions). Is it any wonder, then, that the bond markets — who don’t owe anyone a living — are charging us a growing risk premium on our teetering debt-pile?
The money men are extra jittery because there’s no end in sight to Donald Trump’s war with Iran or to Vladimir Putin’s war on Ukraine. For all the talk of fossil fuels being more reliable than clean energy, two of the bottlenecks through which the former must flow — the Strait of Hormuz and the Russian gas pipeline network have been choked-off — and a third, the Red Sea route, is under threat.
The oil and gas supply crunch threatens further waves of inflation, with knock-on consequences for the cost-of-living and government finances across the West. Even if the geopolitical omnicrisis subsides, the AI revolution will continue — together with its gargantuan appetite for debt. For governments, the age of unlimited credit is over.
I do believe that we can make substantial savings to the welfare budget, but the priority must be to use that money to stabilise our public finances — and, after that, to make direct investments in economic productivity and national security. So why on Earth is Reform prioritising crowd-pleasing tax cuts?
I’ll leave aside the unworkable nonsense of abolishing income tax on overtime — and look at the merits of the £15,000 income tax threshold instead. It’s a weird priority when the UK tax burden on incomes, especially lower incomes, is not especially high by international standards. Needless to say, this isn’t about sound economics, but targeting the pensioners that Andy Burnham is currently winning-back for Labour.
Still, what can you expect from a party reverting to its populist origins? So let’s turn to the last best hope for fiscal conservatism in the UK: the Conservative Party.
The watchword of Kemi Badenoch’s recent reshuffle was “seriousness”. We certainly have a serious Shadow Foreign Secretary in the shape of Tom Tugendhat; but do we have a serious Shadow Chancellor? Well, the fact that Andrew Griffith has more business experience than the whole of Andy Burnham’s Cabinet put together clearly has Labour rattled.
As a result, they’re going all out to tar him with the Truss brush. In particular they’ve focused on the fact that he was a Treasury minister at the time of the Mini Budget meltdown. In doing so, they’re hoping that people don’t understand the distinction between the different HMT ministerial positions — and that as Financial Secretary, Griffith was only tangentially involved with budget planning.
The best way that he can fight off Labour’s attack is to become the shining white knight of fiscal conservatism. In normal circumstances, one could very well identify a heavy tax burden as the main drag on economic growth. But the animal spirits unleashed by a tax cut (or a public investment programme) will be muted if the over-riding fear is one of impending national bankruptcy.
There is a reason why UK bond yields are among the highest in the western world. The markets just don’t believe that our politicians are serious about fixing our finances. Perhaps that perception might begin to change if at least one of our political parties made the case for lower debt as opposed to spending increases or tax cuts. So if not us, then who? And if not now, then when?
Kemi Badenoch and Andrew Griffith could make a start at this year’s party conference. This means no attempt to follow-up last year’s big policy announcement (the abolition of stamp duty) with another showy tax cut. If a rabbit is pulled from the Leader’s hat or the Shadow Chancellor’s, it should only be to strangle the beast before an ashen-faced Tory audience.
In place of a feel-good announcement for the party faithful, they should make an offer to Andy Burnham and John Healey: to support any reasonable action plan to fix the national finances, both in the short-term and the long. We should even be willing to consider a hypothecated levy on incomes to deal with the social care crisis — on the condition that deep cuts are made to welfare payments and other areas of government expenditure.
But Badenoch could go even further — and declare that she’s willing to sink her flagship policy on stamp duty (cost: £9 billion a year) as the price of a cross-party deal to rescue Britain. The political pain would be the point. There can be no return to a sustainable fiscal path without sacrifice — and a true leader should lead by example.
Ultimately, it comes down to that most conservative of insights — that “if something cannot go on forever, it will stop“.
Make no mistake, the debt-fuelled, something-for-nothing politics of the current era cannot go on forever. When, inevitably, it does stop, the Conservative Party must be ready.