Bim Afolami is MP for Hitchin & Harpenden.
Over the next few months, the Prime Minister and his Government will set out the key policy choices in two key areas – the spending review and planning reform. The political choices made here will tell us a great deal about the Prime Minister’s brand of conservatism, and therefore where the Party is heading.
The Spending Review that takes place this autumn will set out departmental spending for 2022/2023. The easiest option for the Prime Minister, especially bearing in mind our new political coalition (which includes many more voters of lower and middle income than under previous governments), is to plough as much cash into public services as possible to build back better after Covid.
The NHS faces a huge challenge over this winter not just with Coronavirus, but also with treatment backlogs piling up. There are challenges with education catch-up funding, as well as local government shortfalls. Any government seen to be failing on those fronts would face a major problem come election time.
However, the medium term fiscal challenge is daunting. The UK saw the fourth largest increase in government borrowing (as a percentage of GDP) among 35 advanced economies in 2020 (after Canada, Norway and Singapore). Even if our economic bounce back is stronger than originally thought (and there is evidence for this), there are real risks to the Government’s fiscal plans from the fact that the increased government spending, due to Covid, means that some departments will have less money to spend for the rest of the parliament.
Compared to the spending plans pre-pandemic, in autumn 2020 spending totals in government departments were cut by £14.5 billion a year. At the same time, overall public spending is still forecast to be higher as a share of GDP in the medium term than it was pre- pandemic.
The fundamental choice is this: is the Prime Minister going to be a Conservative who wants to continue with a high level of public spending, accepting higher borrowing and higher taxes; or will he seek to pare back the state, introduce more private sector funding where possible, and take on those who seem to want higher spending for everything at every turn?
Although the second course is one that many traditional fiscal conservatives (and the Treasury) would favour, let us not underestimate the sustained political effort that would be required to make that argument at this stage.
Not increasing government spending, or indeed at times cutting it, is not popular. During my four years in Parliament, I have seen numerous instances of Conservative governments trying to hold the line on spending and suffering real political damage (i.e: concern over school funding in 2017/18).
Yet seeking to keep higher levels of spending and borrowing not only increases the risk of inflation (which is creeping up anyway due to global macroeconomic factors), but it also cuts to the heart of why so many people vote Conservative – an understanding that we are careful stewards of the public finances and will maintain good economic conditions.
Throw in the wider commitment to increase spending in order to “level up” the North, and many traditional Conservatives will start to take flight. My view is that the only way to help square this circle is to rediscover our concern for the importance of public service reform – to work on improving the public sector so that it can produce better outcomes without huge increases in spending. Without the ability to achieve better outcomes in public services, at a time when the state is a bigger part of people’s lives than since the 1960s, we will suffer badly at the next election.
Planning reform looks no easier. Even leaving aside the Parliamentary reality that many southern MPs are yet to be persuaded of the merits of reform, the decisions made will have a huge impact on the perception of who this Conservative Party is for. Who are our people?
In many areas of the Home Counties, where the increases in housebuilding will be the most politically salient, many traditional Conservatives regard significant housebuilding nearby as an attack on their sense of place and home. Even a cursory look at the results in the last local elections and the Chesham and Amersham by-election makes it clear that housing has the power to be electorally explosive.
Ultimately, there will need to be some more house-building in the South East (there already is!) and across the country. There may be a short term political price to pay for doing so in certain areas – that is the nature of being in government and having to take tough decisions.
But how do we limit the political damage and get the houses we need? We must ensure that development happens in the right way: protecting and enhancing our environment, sympathetically extending communities or creating new ones, and with local support. Neighbourhood Plans are a good feature of our current planning system which enable residents to set out what developments in their area should look like. We must ensure that these form a key part of the new process so that residents have more control over their local environments.
Modern conservatism will always treasure our past and champion the future. We have no future as a party – or indeed, as a property-owning democracy – if younger people cannot get on the housing ladder. But even if we achieve a large increase in the number of new homes, the evidence shows that it won’t put more than a small dent into affordability. As George Osborne’s former economic adviser Rupert Harrison said last week: “a decade of effort might knock two or three per cent off prices at best, just a few months of price growth at current rates. The reality is that high house prices — and indeed high prices for all assets — are a global phenomenon, and for almost 40 years there have been much more powerful forces at work: a huge fall in the interest rates set in financial markets”.
To improve home ownership amongst the young, we need to do more than just build more houses. We also need to change the mortgage market to allow for longer term (over 20 or 25 years) fixed rate mortgages which help solve the affordability problem for young people without much of a deposit. If we can do this and genuinely show younger people we are governing to help them get on in life, this will be recognised by them and (hopefully) by their parents and grandparents. If we allow the broken system to continue as it currently stands, we many retain the support of the few but be increasingly resented by the many.
These choices are not just normal mid-term difficulties. How the Prime Minister approaches them will determine the shape of how the modern Conservative Party is perceived. What does fiscal conservatism mean in an age of the big state? How will we push all levers to ensure that younger generations will be able to afford a decent home of their own whilst retaining our existing support?