The next recession will not be delayed indefinitely

Assuming we make it through to the summer, the prize is often thought to be ongoing Conservative hegemony. But another danger lurks for the Tory party, one that is perhaps more insidious than the party ripping itself apart over Europe.

Under Gordon Brown, we were told we had abolished boom and bust, and politics focused on quality of life. This period was brought to an abrupt halt by the 2007/8 crash and the sharpest downturn since the 1930s. In 2009/10 the UK deficit hit a record £163.5 billion, around 11 per cent of GDP. Borrowing financed around 25 per cent of Government spending.

Since then, the deficit has fallen to now stand at around £74 billion, just over 10 per cent of Government spending. But we are still just accumulating debt at a slower pace. We will only break even in 2019/20. Even this projection requires an exceptional fall of £30 billion in a single year just ahead of the general election – when there is always pressure on public finances.

You could argue that inflation will help – though in the current low inflation environment it is not clear how true this is.

This all ignores the elephant in the room – we have no more abolished future recessions than Brown did. Current projections are based on OBR/HMT forecasts of steady if unspectacular growth of around 2.1 per cent a year. But by the end of 2019 it will be 10 years from the end of the last recession. Since the 1970s, we have had a recession in every decade. Albeit with few data points, this gives mean and median gaps of about 10 years.

It is entirely possible that we will end up with a recession before 2020, simply based on luck, global events, and long standing problems with the UK economy such as excessive debt. But for the purposes of this column, even if the economy doesn’t get into difficulty over the remainder of this parliament, we will lurch back into deficit again just after 2020, with debts at around 80 per cent of GDP – nearly double the levels seen in 2007/8.

Ask not for whom the deficit cutting bell tolls – it tolls for you.

It is too easy for people to blame the current Chancellor for this state of affairs. Let us imagine that, for good or bad, George Osborne had never existed. What a parallel universe Chancellor would face is a huge number of major spending proposals, fiddly schemes, costly gimmicks and virtue signaling (child refugees spring to mind), and other expensive measures that stream forth from the conservative movement – MPs, think tanks, councillors, Ministers, commentators and so on.

By contrast, the number of proposed reductions in spending, axing schemes, restructuring of Departments and other measures is much smaller. Cases such as the leaking of Sajid Javid’s proposals to keep reducing BIS, or the Dominic Raab CPS paper of a few years ago, are much smaller than the direction of travel the other way.

Osborne is not to blame for the fact that at the Spending Review, a Tory party proud to oppose ‘big government’ often proved less keen to support in specifics what it proposes in generalities. Overall, many cuts offered to Osborne (or even reductions in the rate of increase in spending) came with a general warning to HMT they were risky, dangerous, politically unwise, threatened Government priorities etc.

Much of the Conservative Party has fallen into a collective delusion – that we have abolished boom and bust. That delusion spreads as we ring fence more and more state spending. Defence, working age welfare, pensions, overseas aid, education, the NHS, all are now largely protected, or in many cases rising faster than GDP. Of course, some of this may make sense. But it cannot continue.

Why this matters for the future of the Conservative Party

David Cameron has stabilised the economy and led us to a majority. He has earned the right to focus on his priorities of social reform – from tackling extremism to improving life chances. He has made clear he will not, in the words of Thatcher, ‘go on and on’. Much of the work of Number Ten is focused on could reduce the need for government, and moreover is important in its own right.

But alongside and complimenting the social reform agenda the Prime Minister is focusing on, we also need to focus on developing a higher growth and lower spending model of government. The Tory party will need to develop and implement further strategic spending reductions around 2017/8 to avoid emergency spending reductions (or, even worse, tax rises) at a later date. These reductions must be thought through and able to stand public scrutiny. Parts of it – expanding and deepening the Troubled Families programme for example – could fit within this social reform agenda, while other parts will not.

If we don’t develop this programme, and instead allow the debate about Cameron’s eventual successor to become a celebrity circus and auction of unfunded tax cuts and spending increases, we will find we are led by someone who will be forced into an abrupt and humiliating U-turn when reality catches up with them – quite possibly on this side of the General Election – even if we try to bring the date of the election forward.

The party needs to stop pretending we have abolished boom and bust – and all of us need to consider how to bring spending under control as an urgent priority. As a first step , I promise not to propose any new measures while writing on ConHome without setting out first how to pay for them. But what is needed is going to be a collective and sustained effort if we are to deliver the programme we need.