The hole at the heart of Tory economics

3 November 2019

7:42 PM

3 November 2019

7:42 PM

Whatever else is true of Jeremy Corbyn and John McDonnell, they have communicated a fairly clear idea of what they think about economics. The same cannot be said of the Conservatives – and that is unlikely to change. What with Brexit, Corbyn-bashing and low-level culture wars, I suspect the 2019 general election campaign will be very light on discussion of Conservative economic policy.

In particular, my bet is that Boris Johnson will make it all the way to polling day without articulating a Johnsonian vision of economics. How big (or small) does he think the state should be? What proportion of GDP should public spending account for? Should economic policy liberate markets from regulation, or protect people from markets’ adverse outcomes? What’s the Tory plan for state aid and industrial strategy outside the EU? Is the Bank of England’s current mandate adequate to respond to the next crisis?

I do not expect answers to these questions between now and 12 December. The PM is not much interested in the dismal science. Nor has his No. 10 team been keen to give Sajid Javid much space to answer these questions either. And there are several other good reasons for Johnson to avoid using the campaign to outline his personal vision for economic policy.

The most compelling reason for avoiding any attempt to articulate a Conservative economic philosophy is that there isn’t one right now. Or possibly it’s because there are several such philosophies, and they can’t easily be reconciled.

At the best of times, politics trumps economics when it comes to policymaking, and elections are never the best of times for policy. But I think the particular circumstances of this election matter quite a lot for Conservative economics.

The Tory election pitch is, of course, ‘get Brexit done, then build hospitals and hire more police’. The second half of that offer makes perfect electoral sense for a party seeking the votes of people who want stronger public services, especially after almost a decade of ‘austerity’.

The race is on to define and name those voters: Onward’s ‘Workington Man’ is an early offer here; personally I’d suggest paying more attention to female voters, and also maybe avoiding discussing poor northerners as if they were a curious Amazonian tribe recently contacted by intrepid explorers. But whatever you call them and wherever you find them (Ashfield, Bishop Auckland, Bolsover, Gedling etc.) there is fairly broad agreement that the best way for the Conservatives to win their target voters over is with a stronger, more protective and generous state.

But economically, where does that take the Tories? There are a few options for how you go about increasing spending on public services. You can find the money elsewhere, either by cutting spending, borrowing or increasing taxes. The first will be tricky – there really isn’t much fat left to trim, without making cuts that could well be felt by the very people you’re trying to please.

As for tax hikes, that’s never a comfortable choice for a Conservative government. I’d argue for greater taxes on accrued wealth, especially property, and I think that might just play well with the Tories’ target voters: imposing a Mansion Tax on property valued at more than, say, £1.5 million wouldn’t trouble many people in Workington (average property price: £144,573) or Darlington (£158,689).

Yet the fact that many Conservatives will recoil at the very notion of their party taxing property (a very non-Tory policy, surely?) highlights some of the difficulties that lie ahead for the party if it really is going to pursue the Brexit-driven realignment strategy that means Gedling is more important than Guildford. Because a Conservative Party that relies on the votes of lower-income voters who like a more generous state is not a party that can easily maintain supposedly Thatcher-inspired ambitions to shrink the state and lessen the tax burden. It may well be a party that tries to duck the hard choice between cuts and taxes by borrowing more; the last couple of years suggest modern Tories aren’t afraid to splash borrowed cash on unfunded promises. But if that continues, what remains of the Tory claim to be the party of sound money, good housekeeping and balanced budgets? More on this in a moment.

Ideas of Thatcherism are especially relevant to this discussion when we get to Brexit and the economic model that Britain constructs outside the EU. Brexit might bring Workington man to the Tories, but does he expect or want our exit to turn his country into a bigger, colder Singapore? To develop a coherent economic policy, Tories will sooner or later have to confront the discordance between what voters in Leave-leaning Tory target seats want and the libertarianism of senior Tories such as Liz Truss.  Truss has won fame and popularity among a certain sort of Tory for celebrating the freest of markets and lauding young Brits as ‘#Uber-riding #Airbnb-ing #Deliveroo-eating #freedomfighters’. Several of her colleagues worry that the voters needed to win this year’s election experience the economic disruption Truss celebrates as a negative force in their lives. On the long list of economic questions for the Tories to answer one day: can a party celebrate Uber and get the votes of taxi drivers?

If there is a Conservative government after the election, and it takes Britain out of the EU, expect these questions to be forced on the party by future talks with the EU. Many Tory Brexiteers want to diverge from the ‘level playing field’ on regulations that would likely be the price of a deep free trade agreement with the EU; they argue this divergence was the very point of Brexit. But again, is that what Leavers in Sunderland voted for? Free trade talks with the US and other global powers are likely to turbo-charge those tensions: will the Tories be the party that champions free trade, specialism and comparative advantage, as Truss, Dominic Raab and others might like? Or will they offer to protect the voters and industries that stand to experience the greatest disturbance from such change, as Tory thinkers such as Nick Timothy might wish? And perhaps more importantly, how would newly-elected Tory MPs in Workington, Darlington, Ashfield and the rest answer these questions on behalf of their voters?

The unanswered economic policy questions don’t end there. Stian Westlake and Sam Bowman have asked and answered several others here, and rightly observed that one of the biggest gaps in Conservative economic thinking concerns productivity: just how would Conservatives deliver the productivity gains that are the only long-term route to the wealth and security that pretty much all voters, Tory and otherwise, want? But it’s hard enough to get politicians to engage seriously with productivity issues in normal times. During an election campaign, it’s unthinkable.

A lot of the reason they avoid the productivity question is that it’s boring, technical and fiddly. Only a very particular sort of person gets excited about skills development and capital investment, after all.

That being so, I’ll end with an economic question that’s much easier to get excited about. How will Conservatives respond to the next economic crisis?

As night follows day, one is coming. It has been more than 12 years since the start of the global financial crisis. China and the US are flirting with a trade war. Central banks are all but out of ammunition: interest rates are low and in some places negative. Can and should fiscal policy take the strain? Even if a newly-elected Tory government managed to fix the roof while the sun was shining instead of splurging (and both electoral politics and the impact of Brexit mean that’s unlikely), government alone might not have the clout to support an economy in real trouble.

When that trouble comes, there are a growing number of voices suggesting that new, unconventional approaches to economic policy will be needed. Should central banks be given more power to print and then spend money directly to support economies in crisis? What does Conservative economic thinking make of that? And if the party rejects such options, what will be the Conservative answer to the next crisis?

The Conservatives might, just, be able to win the general election without answering these questions and setting a coherent economic policy. They will not be able to govern that way. 

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