David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the recent general election.
The Government’s objective for the first 50 days of this Parliament is easily identified – passing the Withdrawal Agreement Bill and leaving the EU. In many senses, the nature of the next Government will only become clear once we move beyond that, but we are getting some indications as to where it is going.
It may not come as a total surprise to you that I have one or two concerns. After all, I had the Conservative whip withdrawn, I resigned my party membership, stood as an Independent and argued that the country should not return a Tory majority. And my concerns? That this Government might not be Conservative enough.
The Prime Minister described himself as ‘a Brexity Hezza’. However oxymoronic that phrase may be, it is an interesting insight.
Michael Heseltine is a great man. He served with great distinction in a number of Cabinet roles and his commitment to ensuring that the entire country can prosper is something that the Government is right to try to emulate.
I also owe him a particular debt – he kindly endorsed me in the general election and spoke on my behalf. At the age of 86, he remains one of the best public speakers in the country. When he speaks, people should listen. (I would argue that a few more people listening to him in South West Hertfordshire in December would have been particularly desirable.)
But just as the views and actions of Margaret Thatcher have often been over-simplified and misunderstood, claiming the mantle of ‘Hezza’ does not justify the abandonment of all Conservative orthodoxy.
Let us take four characteristics that ran through the approaches of the Governments in which Thatcher and Heseltine served. In each case, there is at least a doubt that Johnson Government will observe the same approach.
First, fiscal conservatism. Thatcher’s Government placed greater emphasis on reducing borrowing than cutting taxes or increasing spending. The tax burden rose in the years after 1979 and public spending was tightly controlled.
The current Government’s commitment is, as yet, less clear. Sajid Javid won an important battle to ensure that there were fiscal rules within the manifesto, but there were also plenty of spending and tax commitments. Given the expensive demographic pressures on the public finances that the country faces, plus the significant short term risks for the economy because of Brexit, a fiscally prudent Budget on March 11 would be sensible. It doesn’t look inevitable.
Second, as well as ensuring that we only spend what we can afford, we should also spend it wisely. The taxpayer is entitled to expect that a Conservative government, in particular, extracts good value for money. That should mean focusing on outputs not inputs and, where there are areas of significant increases in public spending, these should be matched by significant public sector reforms. During the campaign, we heard more about extra spending or extra people but, in delivering on those pledges, it is essential that additional resources are deployed as effectively and efficiently as possible. We need to hear more about this.
As for changing the rules on infrastructure expenditure so that more is spent in the north of England, there is a good case for it. But those rules shouldn’t be replaced by a free-for-all whereby multi-billion projects are determined on the basis of ministerial whim. Rigour and the need for value-for-money must remain at the heart of all these decisions.
Third, be wary of supporting uneconomic businesses. Of course, there was a divergence between the Thatcher and Heseltine approaches to intervening in the economy but let us not forget that it was Heseltine who was prepared to close loss-making pits.
As a former Chief Secretary to the Treasury, I am uneasy about the bail-out of Flybe. Yes, it is not unheard of for a business to be given ‘time-to-pay’ their tax liabilities and, yes, regional connectivity is a legitimate policy objective. But every time a private business is bailed out by the taxpayer, the pressure grows the next time there is a potential insolvency. There is a case to be made for an interventionist industrial policy, even if that means ‘picking winners’ but the political imperative is very often on government to ‘pick losers’ – in other words, preserve loss-making ‘zombie’ businesses.
This issue may become particularly acute as the year goes on. Even if we get a deal with the EU, the Government clearly wants the ability to diverge from the EU, and there is no more talk of ‘frictionless trade’ with the EU – merely ‘zero tariffs and zero quotas’, which is a very different thing. This will mean that those businesses with complex supply chains face very considerable problems. It would be naïve to assume that this won’t threaten the viability of many businesses.
And, by the way, the risk of a WTO Brexit at the end of 2020 is, in my view, significantly under-priced. I will return to that issue in greater detail in future.
I mention this not just to antagonise those ConservativeHome readers who continue to question why I am allowed to write on this website. It is to make the point that there could be quite a lot of businesses for whom the adjustment to our glorious post-Brexit future will be painful. Some of them won’t be able to make it, not without some taxpayer support. Some of them might be able to make it but quite fancy a piece of the action if the Government is in the habit of providing financial support.
Of course, they will all say it is temporary and as long as the Government is sufficiently far-sighted, there will be no need to lay-off thousands of workers located in newly marginal seats. Nice little Conservative constituency you’ve got there, Prime Minister, we wouldn’t want anything nasty to happen here, would we?
So for the sake of the taxpayer, the Government should tread warily in bailing out businesses. The more you do it, the harder it is to stop. And the pressures in the next year or so may be immense.
There is a fourth attribute common to both Margaret Thatcher and Michael Heseltine – a belief in free trade. As with every major Conservative figure for generations, they recognised that removing trade barriers is of enormous benefit to businesses who are able to export and consumers who can better access imports. The increased competition brought by reducing trade barriers helps economies become more efficient and drives up productivity. We saw this in the 1980s when the consequences of membership of the Common Market played through and inefficient UK companies were driven out of business by European competitors, and efficient UK businesses were able to expand because of access to European markets.
Evidently, this country is about to go in the opposite direction. Departure from the Single Market and the Customs Union will inevitably result in increased trade barriers with the EU. Regulatory divergence will increase those barriers yet further. Pretending that this can be fully compensated for by entering into trade deals with other countries is, sadly, delusional.
Margaret Thatcher once said that the facts of life are conservative. I might no longer be a member of the Conservative Party, but I think this is broadly right. The public finances have to be sustainable. Taxpayers’ money should be spent wisely. By and large, the market and not government should determine which businesses survive. Free trade is a driver for prosperity.
The Conservative Party has changed. It is a change that has enabled it to win a large majority. But the economic facts of life remain the same. I hope the Government will remember that.