David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the recent general election.
It is all but an inevitably that, post-Coronavirus, we will be in an era of big government. Even before anyone had heard of the virus, it was clear that public opinion had shifted decisively in favour of higher spending. The coalition of support assembled by the Government at the last general election was much more economically left-wing than traditional Conservative support. Polling during the campaign consistently showed substantial support for greater state intervention in the economy from supporters of all political parties.
Covid-19 has accelerated this process. Government spending has surged; the taxpayer is supporting vast numbers of people; the state removed our most basic liberties and, after three months, is only gradually returning them. And the public appears to thoroughly approve. Post-Covid, the political environment is likely to be egalitarian, communitarian and interventionist.
For libertarian, small state Eurosceptics, all of this must come as a bit of a disappointment. Many of my generation were drawn to Euroscepticism because the EU was seen as a force for big government. “We have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at European level, with a European super-state exercising a new dominance from Brussels,” Thatcher said in Bruges in September 1988.
Now free of “dominance from Brussels”, the frontiers of the state appear to be rolling forward at quite a rate. Indeed, on such issues as state aid, the EU was an impediment to government intervention in the economy.
It must surely now be dawning on some libertarian romantics that the reason the UK had failed to pursue a permanent Thatcherite revolution, shrinking the state and turning us into Singapore-upon-Thames, was nothing to do with EU membership, but because the British people don’t want that.
There is a reason why both the Leave campaign in 2016 and the Conservatives in last year’s general election steered clear of setting out a bold, small state, deregulatory agenda.
The public’s enthusiasm for big government appears to be shared by the Government. Much of this is right and understandable. Many parts of the public services do require higher spending. The coronavirus makes the case that we need to be better prepared for ‘black swan’ events – not only pandemics, but also other potential threats such as a collapse of our cyber network, massive power outages or climate change – whether by strengthening our resilience or investing in prevention.
As with the banking crash, Covid-19 reveals that the state will always be crucial in a crisis. The virus also highlights the dedication and expertise of so many people working in the public sector.
But before we rush in to embrace the advance of the state, it is worth remembering why the UK abandoned big government during the 1980s. Other countries have succeeded with a large state, but that has not been the UK’s experience. If big government is inevitable, how do we avoid the failures of the post-War period that was characterised by our relative decline?
Let me give four examples of how the UK’s experience of big government led to bad government.
- Producer capture. The experience of State ownership of industry in this country was not a happy one. In part, this was caused by a mentality that the interests of the producer – the state-owned industry and its employees – mattered more than the interests of the consumers. For example, by the time we got to the 1980s, the point of the National Coal Board (at least in the eyes of the NUM and its supporters) was to employ miners, not to mine coal that people wanted to buy. This might be an extreme example but involvement of the state can blur objectives, distort decision-making and deny commercial reality. ‘Protecting jobs’ is usually good politics, but too often it justifies tolerating economic inefficiency, at a cost for taxpayers and consumers. Incumbents are favoured, innovative competition is discouraged.
Economic nationalism. If the state has a big role in the economy, it is all too easy to find ourselves misallocating resources towards so-called ‘national champions’. Foreign competition is seen as a threat to jobs not an opportunity for cheaper and better goods for consumers. With talk of greater self-sufficiency in certain sectors, hostility to China and trade barriers being erected with our principal trading partner, there is a real danger that economy will be less open than any time since the 1960s and ‘70s.
- Fiscal indiscipline. It is often thought that the turning point for the UK economy was 1979 and Margaret Thatcher’s election as Prime Minister. Arguably, the process started in 1976, when the UK had to be bailed out by the IMF and a Labour Government had to cut spending. In the end, high levels of spending have to be paid for but that is a lesson that usually has to be learnt the hard way. Big government is expensive.
- Growth-destroying tax policies. If you cannot fund big government by borrowing (and, ultimately, you cannot), you have to raise taxes. Some taxes are more damaging than others, which is why the Treasury is advising the Chancellor to focus on property and consumption taxes rather than taxes on income or profits. The history of big government in this country is that this type of sensible advice is often ignored and talent and investment goes elsewhere.
The point I am making is not that big government inevitably results in all of this happening, but that there is a tendency for this to happen. Indeed, all of this did happen the last time the UK experimented with big government until it was all swept away by Thatcher.
The 1980s was a painful era for many communities – including some areas that voted Conservative for the first time last year – but the accumulation of inefficiency during the big government era contributed to the pain when economic reality could no longer be denied.
Other countries have avoided these difficulties. The Scandinavians collect high levels of tax in an economically efficient way (hands up all those in favour of VAT at 25 per cent with very limited zero rates?), have very open economies (sorry, but EU – or at least EEA – membership helps) and have a tradition of constructive trade unionism (which was not our experience when trade unions were strong).
If the UK is going to return to the days of Big Government, it is going to need to think very carefully about how it does so without returning to the mistakes of the past. Our previous experience of Big Government started with talk of the white heat of technology and embracing innovation. It ended up as a nostalgic, inward-looking, fiscally incontinent, enterprise-destroying mess. It really does not have to be this way. But it might very easily be where we end up.