Conservatives can end identity crisis by building on their iconic leader's legacy to create a route to lower taxes by Roger Bootle for the Telegraph - 3 October 2021
Behind all the bluster, swagger and platform assurance of this week’s Conservative Party Conference, all is not well.
A battle is raging for the soul of the party. Does it still believe in low taxes and free markets or is it a sort of Labour-lite? Or worse: many thousands of party members are worried that the Government is drifting into a position well to the left of Tony Blair’s New Labour. How did this happen?
Actually, I doubt whether many ministers or senior Tories actually want a bigger state with accompanying higher rates of taxation. It is just that this is what emerges from umpteen spending decisions taken when the need to exercise restraint is not paramount.
This has been particularly true in the recent period of apparently free money. But that is coming to an end as rising inflation looms and higher interest rates no longer seem a distant prospect.
Yet the source of the problem lies deeper. Big spending comes naturally to modern governments. Ministers can easily point with pride to the spending projects that they have pushed through and bathe in the reflected glory. Whenever they are spending money, they can convince themselves (and others) that they are making a real difference.
By contrast, the whole point of an economy with low taxes is that you don’t know what people will spend their money on. What’s more, when people spend their own money, politicians don’t get any reflected glory. Markets work their wonders largely unseen.
That is why modern democratic societies have found it difficult to keep government spending and taxes low.
It is interesting that so many low tax countries have not been democracies in the conventional sense. I am thinking particularly of Hong Kong, whose economy flourished as a British colony, and Singapore, which has been dominated by a single political party.
Admittedly, in Europe, Switzerland is a democracy that sustains a low tax regime. But its direct democracy is super-charged, allowing the people to undermine the political middlemen who would like ever-ready access to public funds.
Of course, there are some social democratic countries that manage to be very successful while operating high levels of government spending and high accompanying rates of taxation. Denmark and the Nordics spring readily to mind.
But these are very different countries from the UK and their small size makes it easier to govern them effectively and to spend money wisely.
The lack of such competence here should restrain any British government from wanting to entrust a bigger role to the state. Huge parts of our public sector are extremely inefficient. If anything, this problem is getting worse. The continued enthusiastic embrace of working from home in much of the public sector just as the private sector returns to the office in droves speaks volumes.
The Conservative Party’s lurch to the Left also has roots in recent ideological history.
For all its triumphs, Thatcherism left modern Conservatives with a serious problem. In trying to break away from the collectivism and corporatism of the 1970s, Mrs Thatcher and her governments gave the impression that they believed that rampant individualism and untrammelled market forces would solve every issue and should be allowed to dominate all parts of society. This found its most cogent expression in the remark by Mrs Thatcher, often taken out of context: “There is no such thing as society.”
Of course there is such a thing as society and we all need to feel part of it. Moreover, there is such a thing as community, or rather several communities. Duty, responsibility and public service have their place in a market economy, as Mrs Thatcher well knew and often celebrated.
But that is not how the Conservatives were badged, and they have been trying to escape from their branding ever since. However, they have recently gone overboard and apparently fallen in love with the public sector and out of love with incentives, competition and markets.
In fact, Mrs Thatcher left huge swathes of the economy untouched by market forces, notably health and education. And we continue to pay a very heavy price for the continued grip of the public sector on these two very important areas. Far from moving away from the market in these important sectors, we need to be adopting more market-based solutions.
After the huge spending of the last two years and extreme interventionism, the Government needs to return to its Conservative roots and to reassert the importance of low taxes and market forces. This is why I have repeatedly urged the Government to adopt a strategy for reform of the tax system and a route to lower taxes.
This would not represent a reversion to Thatcherism, but rather a development of it. It can readily go hand in hand with a recognition of the limits to markets and an admission that they can sometimes fail.
Mind you, from where we currently stand, it is recognising the failings of the public sector and the limits to its effective reach that should be paramount. Law and order and the operation of the criminal justice system constitute a major example.
Conservative politicians anxious to assert communitarian values and to uphold the role of the state would do well to support effective policies to correct the evident failures of recent governments in this most public of public policy areas.
I don’t suppose that many Conservative footsoldiers object strongly to the massive pandemic spending unleashed over the last two years.
After all, battling with Covid has been like fighting a war. We didn’t baulk at spending and borrowing colossal sums to win the Second World War. But that gave us a legacy of collectivist thinking and practice which left a deep impression on this country long after the war had ended.
It wasn’t until Mrs Thatcher’s governments in the 1980s that this incubus was thrown off. Let’s hope that we don’t have to wait so long this time.
Roger Bootle is chairman of Capital Economics. You can email him at roger.bootle@capitaleconomics.com
For this article in pdf, please click here:
Comments