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In the summer of 1983, Margaret Thatcher was re-elected.  Her new Chancellor, Nigel Lawson, introduced emergency cuts (as he labels them in his memoir, The view from No.11).  Speaking in the debate on the final day of the Queen’s Speech, he told the Commons that he intended to “maintain rigorous control of public sector borrowing…[which] in turn requires firm control of public expenditure, otherwise there will be no room for significant tax cuts throughout the lifetime of this parliament”.  The then Chancellor was thinking politically, as well as economically.  Get going on the unpopular stuff as soon as you take office. This makes space to do the popular stuff during the run-up to the next election.

Theresa May’s new government is the third Conservative-led one to take office after a poll since 2010, Philip Hammond is not a new Chancellor, and she has no majority rather than Thatcher’s landslide one.  But the position is in one sense not unlike that of 1983.  This is a moment in which a new Tory Government will show the world, as it begins to frame an economic policy for the new Parliament, whether this is set within a coherent plan for the whole political cycle.

Yesterday, Downing Street first signalled that the cap might be lifted from public sector pay before signalling later that it will not be.  That this incoherence betrays confusion is too obvious a point to linger on.  Instead, it is worth pausing for a moment, and mulling the politics of pay and the cap.  The conventional approach would be to lift it, if the Government’s position on public spending and inflation is solid, during the run-up to 2022 (assuming that the next election takes place then).  Ministers might get some thanks for doing so then.  They would not get any worth having were they to act now: what they do or don’t do to public sector pay this year will have been forgotten by most voters in five year’s time.

Why the muddle yesterday, then?  Because the Chancellor is under post-election pressure from his colleagues to lift the cap.  Jeremy Hunt is worried about nurses’ pay; Justine Greening is anxious about teachers’.  But the reason for the push to abandon it is more fundamental.  The Government is spooked by Jeremy Corbyn.  Labour’s manifesto pledge to get rid of the cap was popular with many voters.  Some Ministers want to run after them.

There is an economic argument for ending the cap (the deficit is now less than one per cent of GDP) and one for not ending it (the difference between spending and revenue is still over £50 billion).  But there is no political one for playing a vote-winning card immediately after people have voted rather than before.  The panic is a symptom of the Tory shock of winning 42 per cent of the vote but not gaining a majority.  It takes place against an apparent background of change in public attitudes to tax and spending. “There are clear signs of increased support for a government that is more generous with its spending and a growing public willingness to pay for it,” according to the new British Social Attitudes Survey. The Conservative-DUP deal will do nothing to shift this trend: if May can find £1 billion for Northern Ireland, the argument runs, she can surely find a few more for everywhere else.

The moral many Tory MPs have drawn from this month’s election is that, when presented with a prospectus for grown-up government, voters will take refuge instead in clinging to childish things – namely, a public spending settlement under which younger poorer working voters fork out for older richer retired ones: an arrangement that is ultimately unsustainable.  One can scarcely blame them for thinking so, but they may be wrong.  If the social care policy hadn’t been bungled, May would have made it over the winning line.

What should those Conservative Ministers and MPs do, then, who will disagree on policy detail (and whether capitalism is working well), but agree on the broad outline: sound money, the market economy, a smaller state, wealth creation, lower taxes?  First, they need to get speaking and writing.  If the No Turning Back Group and the Free Enterprise Group can’t do so under these circumstances, there’s not much point in them carrying on.  Next, they should link up – as some do already – with the free market think tanks.  Third, they must chivvy and harrass CCHQ into putting some energy and resources, as the Party did during the Thatcher era, into making the case for conservatism to a new generation of voters.  Who’s up for a revived, modernised Swinton College?

The difference within the centre-right family isn’t about market economics.  It agrees on the fundamentals – as Francis Maude’s piece on this site today reminds us.  Rather, the divergence is between those who are keeping their heads and those who are in danger of losing them.  A leadership election is very likely before 2022.  Each of the swelling number of Tory MPs who are mulling standing should think very hard about how to help lead the fightback for a free economy.

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