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  • Andrew O'Brien

Conservatives must look at new approaches to tackle economic consequences of COVID-19

"The hegemony, within conservative thought and practice, of neo-liberal ideology has the effect of destroying conservatism as a viable political project in our time and in any foreseeable future.”

These words were not written in knee-jerk response to recent political failures by the Conservative Party or in a leader within the newly revived Tribune magazine. They were published in the mid-90s by the philosopher John Gray in “The Undoing of Conservatism”.


Twenty-five years on from their publishing and the Conservative Party faces a huge crisis in the form of the Coronavirus and the economic repercussions.


The last election saw the Conservative Party significantly shift its economic approach due to public disquiet. The majority of the public, even the majority of Conservative supporters, were tired of cuts to public spending. On top of this, a majority of the country supports the nationalisation of water, gas, electricity, railways, the defence and aerospace industry and 50% think that banks should be nationalised as well. Every age group wants to see business regulated more, not less. Coronavirus could compound these trends, given the significant role of government intervention in propping up the economy.


To get an understanding of what might happen next, it is useful to look back to the Conservative leadership race and election. A lot of Conservative Leadership debate and General Election focused on Brexit, quite rightly. But it is the battle for the economy and the response to this virus which will define the coming five years.


Unfortunately, there was a massive gap both in the Leadership Race and in the election about a positive vision for the economy from a Conservative side, beyond significant infrastructure spending. It is in times of crisis, like now, where a lack of economic vision can be devastating.


Most Conservatives get this but have limited economic tools in their armoury because of the hegemony of neo-liberal thinking.


Most Conservatives get this but have limited economic tools in their armoury because of the hegemony of neo-liberal thinking.

The knee-jerk response from the government following COVID-19 is likely to be calls for lower taxes to stimulate activity. Yet the UK already has one of the lowest corporation taxes in the G20. The personal allowance has been doubled by Conservative Chancellors. Although the basic rate of income tax has stayed at 20% since 2010, considering tax rates over a long term, it is down one-third from when it was introduced in 1973. How much lower can taxes go?


Cutting red tape, another Conservative staple, is also reaching its limits. The UK is already ranked 9th in the world for ease of doing business. We could aim for No.1 spot, but even if this was achieved, would it have a significant impact on the economy? We have the 4th most flexible labour market in the world – one of the reasons why unemployment has fallen so dramatically. A far reaching “Red Tape Initiative” chaired by Oliver Letwin, recently recommended just 37 changes to UK regulation, several of them to do with listed buildings. Important, but exactly likely to turbocharge a recovery.


The fact is that tax cuts and a bonfire of red tape, the two touch stones of recent Tory economic policy, are providing diminishing returns. Although those on the right of the Conservative Party like to pretend otherwise, the past forty years has seen UK economic policy largely go in its favour. However tempting it may be to look at the most recent electoral victory as a vindication of Conservative economic management, in reality Boris won by turning his back on the Conservatives record on the economy over the past decade and recasting himself as a "new" Prime Minister.

However tempting it may be to look at the most recent electoral victory as a vindication of Conservative economic management, in reality Boris won by turning his back on the Conservatives record on the economy over the past decade and recasting himself as a "new" Prime Minister.
What can the Conservatives offer for the post COVID-19 recovery?

Now is clearly an opportunity for the Party to think more broadly and draw on the other major philosophical tradition of the Conservative Party, the “One Nation” tradition. This has largely been sidelined on the economy over the past forty years. Yet it is this Conservativism which is needed to balance and enhance the Party’s economic thinking.


What does the “One Nation” tradition have to say about economics? Contrary to critics on the right of the party, this isn’t about warmed up Keynesianism. Although recognising that demand needs to be boosted and managed will be critical to the government's economic response.


“One Nation” Economics is fundamentally tied up with institutions and making them work effectively in order to deliver objectives. The Conservative Party has always been a party of institutions. Its loves and respects institutions such as The Monarchy, the Armed Forces, the family and charity. It is also wary of the power of institutions, particularly business, recognising that all institutions can be a force for good and for evil. This recognition of the power of institutions that drove the early modern “One Nation” Conservative responses to the economy – for example, the Earl of Shaftesbury’s reforms to limit hours of work and reduce use of child labour.


The “One Nation” tradition has always understood the importance of maintaining effective institutions and their purpose in providing meaning and checking excesses. It is a programme of institutional renewal that “One Nation” Economics should offer. Given the limits of tools such as tax cuts and slashing red tape, we need to confront the fundamental pillars of our economy and make sure that they are operating at top condition.


It is the institutions that work within our economy, particularly business itself, which will determine our economic success or failure in response to this crisis. Tax and regulation have their role to play, but how policy is implemented on the ground will be shaped by institutions. Just look at how the UK's banking structure has led to a lack of delivery on the CBILS scheme for small business loans.


The UK business sector was already underinvesting in people and capital before the crisis. What makes us think that an unreformed business sector is going to leapfrog into action after this crisis?


“One Nation” Economics has tools in the tool box that the Prime Minister and Chancellor must embrace if the Conservatives are going to effectively lead an economic recovery to COVID19. How the Conservatives manage this crisis will create a economic, social and political legacy that will last for years, potentially decades - in the same way that Black Wednesday or the Coalition Austerity programme have showed.

We cannot afford to limit ourselves.

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