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Julian Knight is MP for Solihull and was a member of the Culture, Media, and Sport Select Committee during the last Parliament.

There are some on the Left trying to present the Government’s decisive response to COVID-19 as a repudiation of our Conservative principles – such as Andrew Rawnsley describing it as “a great bonfire of discarded orthodoxies”.

This is a straw-man interpretation of our party, which – aside from a small minority of libertarians – has never held that the State is a problem in every event.

Indeed, a big part of the justification for bringing the deficit down was to ensure that we were better equipped to meet a crisis if it came, although we couldn’t have seen that it would fiscally be of this gargantuan scale.

In fact, I think it’s fair to say that we didn’t go far enough when we had the chance.

While we avoided the Labour route of racking up unsupportable public sector costs and mislabelling it ‘investment’, we were nonetheless too timid when it came to rationalising public spending during the coalition years.

As a result, we’re entering this storm with a total debt nearly double what it was at the onset of the financial crisis in 2008.

We’re fortunate that such debt is currently cheap, but must not fool ourselves into thinking our position is a strong one. We already owe too much money, and by the time lockdown is lifted will owe far, far more.

Whole sectors of the economy may remain on de facto life support for a while yet; receipts from Corporation Tax and VAT will plummet, and our national debt will rise considerably higher than 100 per cent of GDP.

Furthermore, these fiscal problems risk being exacerbated by the Government’s new emergency powers to tackle the Coronavirus.

Though this is intended to tackle lockdown and social distancing, the temptation with this is to let a much higher level of State involvement in the economy become ‘the new normal’ – which the Government must resist.

The real test of our small-state principles is not meeting the immediate exigencies of the crisis.

It will come when we need to plot a path back to normality and prosperity. The road we choose, and the tools we use, will decide whether we have truly lost the confidence of our liberal convictions.

Our present circumstances make it extremely difficult, if not impossible, to return to our post-election programme of holding debt-to-GDP level (and still much too high, in my view) while channelling the surplus into investment in infrastructure.

Sooner or later bringing government spending under control and paying down this new debt will have to become the Government’s top priority. But how to do it?

Unfortunately, the coalition Government combined tough rhetoric on ‘austerity’ with only very gradual implementation.

As a result, the electorate feels that it has already experienced a proper retrenchment programme, and the voters’ appetite for a return to square one will be very, very low.

Ministers therefore face a more complex challenge than when the Coalition took office in 2010. They enjoy less public goodwill, and a lot of the low-hanging fruit has already been plucked.

They shall also need to adapt to the new and extraordinary economic conditions, especially the impact of having so much of the economy directly supported by the Treasury.

Cuts in the wrong places could simply produce a waterbed effect if businesses go under, creating more demand for public money elsewhere in the system whilst depressing tax receipts.

With much less room for manoeuvre, our first step should be focusing tax cuts on SMEs and start-ups.

I’m not one to bash big business, but they are better able to stand on their own two feet and when state support is limited it should be concentrated where it will generate the biggest return.

We should also focus on policies and regulations to turbo-charge those sectors most likely to outperform the overall economy.

And if we want a dynamic and adaptable job market, we must not let the Treasury’s long-standing desire to raise taxes on the self-employed undermine the foundations of the “jobs miracle” Britain was enjoying before lockdown began.

The Government will also need to take another long look at its own structures, which managed to escape the previous austerity programme remarkably unscathed.

Plans to streamline the number of departments must go back on the table, and sacred cows, such as the overseas aid target, looked at anew. In good years give more, in poor years give less, linking contributions to annual debt GDP is a way forward.

Above all, the Tories must remember that the right policies for war-like conditions are seldom the right policies for peacetime, and the sort of state needed to harness the nation towards a common imperative is not the sort of state best equipped to allow tens of millions of people to live their own lives as they choose.

And we Conservatives, have always believed that this quiet, day-to-day freedom is what’s best for Britain and our economy. Let’s prove it again.

53 comments for: Julian Knight: Coronavirus presents a more complex economic challenge than when the Coalition took office

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