The Mini-Budget was not breaking with Conservative economic policy, it was trying to make it work
There has been a lot written in the past week about the Chancellor’s Mini-Budget. Most of this has focused on the individual decisions, particularly the cuts to the 45p rate. There also been discussion about the ideology driving these tax cuts, in particular the “Tufton Street” think tank set.
However, there has been little appreciation of a simple truth about the Conservative Party’s current circumstances. The Prime Minister and the Chancellor did not wake up last Friday morning and then decide to gamble on tax cuts to drive growth because things are going well. They decided to announce a radical change of course because things are not going well.
seem a banal statement, but it is the failure of the UK economy to see investment increase, productivity increase, wages increase and, therefore, living standards increase that is driving politics and policy within the Conservative Party.
There will be more tax cuts or more big spending promises because the party has got itself in a position where it is emotionally dependent on the belief that if only the state can get its policies right, then businesses will be unleashed to create growth and prosperity. It is the state that is the problem, whether it is too big or too small, intervening too much or too little.
The Conservative Party delivered a programme of austerity and tax cuts because it thought that was what business and the markets wanted. May and Johnson focused on higher levels of public spending and investment because it believed that this was what business and the markets wanted.
At first, Truss and Kwarteng wanted to slash taxes and deregulate without spending cuts because that is what they thought business and markets wanted. Events on Friday have led them to the view now that business wants tax cuts and spending cuts.
Whatever it is that business wants, the Conservative Party must provide. The only cardinal rule is that you must never question whether business will uphold its end of the bargain.
There is no real ideological divide between Cameron/Osborne, May/Hammond, Johnson/Sunak and Truss/Kwarteng. It is merely a question of means.
All Conservative Prime Ministers and Chancellors since 2010 have been desperately trying to make, what Professor Colin Mayer has called the UK’s “particularly extreme form of capitalism”, work.
Last spring, I wrote on this website:
“Conservative Prime Ministers and Chancellors are simply running out of options. Some on the right have criticised the Prime Minister and his predecessor because they are borrowing and taxing more, to spend more on infrastructure and skills. But they fail to see that this as Conservatives trying to “back business”, just as much as George’s tax cuts. The problem, whether high taxes or a lack of infrastructure, rests with the state in their mind, not business. The hope is that there must be something that can be done by the state to unleash British business. Anything to avoid acknowledging that there are structural, cultural weaknesses in UK plc.”
Recent policy changes are only the latest wave of an economic storm which has been getting bigger and bigger for over a decade. The Conservative Party’s economic policy will never move forward until it is prepared to confront the hard truth that it is not the marginal policies of the state (whether raise/cut taxes by 1-2% of GDP or cut/raise spending by 1-2% of GDP) but the structure of the private sector, the structure of our businesses, the structure of our financial system, the incentives and culture that exists within UK plc, outside of the state but within its ability to influence, that determine the future.
The Prime Minister and Chancellor are right to say that simply carrying on as usual was not going to deliver results. Unfortunately, they are also making the same mistake of their predecessors in believing that they have answered the question “what does business want?”
The real question is: how must business change to deliver the future we want?
On the way up to Conservative Party Conference, this question may seem further away than ever before. Yet, with every desperate change in policy direction that fails to deliver anything, the party comes closer to the realisation that maybe the problem isn’t us (the government), it’s you (the private sector). Conservatives better hope this epiphany comes before it is too late.