Not even his worst enemy – or indeed his best friend – would call David Cameron an ideologue. Which makes the conclusion of one of the central chapters of his autobiography all the more arresting. And relevant to the current debate about Rishi Sunak, prospective tax rises and the Government’s future.
“My assessment now is that we probably didn’t cut enough,” he writes in “Budgets and Banks”, his account of the first years of Coalition economic policy. “We could have done more, even more quickly, as smaller countries like Ireland had done successfully, to get Britain back in the black and then get the economy moving”.
As ConservativeHome pointed out as that Parliament neared its end, the cuts to rising departmental budgets had been substantial. But they were neither very different from Labour’s original plans, nor as deep as they might have been. At the 2010 election, the difference in proposed slower spending growth between the two parties was £10 billion – just over a tiny two per cent of the total of £673 billion of public expenditure that year.
And once in government, George Osborne eased off his original plan to eliminate the deficit by 2015. This turned into a target of doing so by 2016/17. Then 2017/18. Then he dangled the prospect of a surplus by that year. Then by 2019/20. Mañana.
Exit Cameron and Osborne; enter Theresa May and Philip Hammond – plus Nick Timothy. The last wasn’t a fan of the former Chancellor, and May’s first conference speech was crafted to signal “an end to austerity”. But is “austerity” really what the Coalition delivered? If you mean cuts in rising departmental budgets, yes. If you mean actual reductions, no. If you mean an outcome very different from what Gordon Brown planned, certainly not.
Nonetheless, Jeremy Corbyn had gained the rhetorical benefit of the doubt. If the Prime Minister herself was conceding that austerity had happened and shouldn’t continue, might not his ranting denunciation of it have a point? Enter the 2017 election, exit Timothy and – eventually – May. And enter Boris Johnson.
Now the Prime Minister is not temperamentally inclined to favour cuts in spending growth, either. His economic instincts are Roman – or, more precisely, those of Maximus Decimus Meridian in Gladiator: “are you not entertained?” Bring on the charioteers and dancing girls. Or, translated into modern terms, bring on 50,000 more nurses, 50 million more GP appointments a year, 20,000 more police, and so on.
So said last December’s Conservative Manifesto. One sees the point. Its 2017 precedecessor had delivered policy hostages to fortune, especially on social care, and Johnson wasn’t going to repeat the mistake. In any event, a new Conservative Government needed maximum economic flexibility to deliver Brexit effectively.
But that was before the Coronavirus. Some of this week’s leaks about tax rises to plug consequent gaps in revenue can perhaps be discounted. After all, the deficit is big enough to look after itself for a while, with interest rates at their current low levels. Maybe Rishi Sunak, who delivered an unyielding message to the 1922 Committee yesterday, is trying to get Tory MPs thinking about the medium-term as well as the short-term.
In the Chancellor’s defence, Conservatives must tax something, if anything like a modern state is to function. And, sure, there’s a case for switching the burden of taxation from income to spending, for recasting pension saving incentives, for looking at a new top-rate council tax band, and so on.
However, there’s none at all for obsessing with tax rises as the answer to Britain’s economic problems. The bottom line is that we can’t tax ourselves back to prosperity – and that, as James Frayne wrote on this site on Tuesday, it would be electorally fatal for the Conservatives to try. Especially when, at 34.4 per cent of national income, the tax take is at its highest sustained level since the 1940s.
Which takes us back to Cameron’s assessment of his Government’s early record on public spending; to the Coalition’s successes and failures in reining in its growth; to May’s dissing of “austerity”, and to how Johnson, so different to her in so many ways, is of much the same mind as her about it.
The heart of the matter is that, Coronanirus notwithstanding, we’re spending more than we can afford. Over a third of public spending goes on healthcare and pensions. But the economy is not growing at anything like the rate it was before the financial crash. Since it erupted, we haven’t had growth of more than 2.6 per cent a year. Before it took place, the lowest rate of growth in roughly 15 years was 2.3 per cent.
This combination of high spending and low growth is neither sustainable nor just – since younger people lose twice, first from not using health and pensions spending at the same rate as older ones and, second, from not owning capital to anything like the same extent.
So whether or not the Treasury’s spending review turns out to be three-year or rolling, it should launch what Cameron hints his government should have held in 2010: namely, a real zero-based probe, in which every programme paid for by the taxpayer would have to be justified – along the lines of the review undertaken by the then Canadian government during the 1990s, which succeeded in helping turn deficits into surpluses.
A sustained programme of spending control would walk hand in hand with tax cuts as well as rises – with reductions concentrated on business, including employers’ national insurance, as recommended by Sajid Javid and the Centre for Policy Studies.
Readers will already have spotted the political problem with this strategy – namely, that the Conservative Party is unprepared for it. After May and with Johnson; in the wake of an election that promised a mass of public spending for “Red Wall” seats; with a government tempted to move to the economic left; with Number Ten focused on “levelling-up”, and with MPs who have become used to splashing the cash, what price fiscal responsibility?
“Those who were going to be opposed to austerity were going to be opposed – and pretty hysterically – to whatever we did. Given all the hype and hostility, and yes, sometimes hatred, we might as well have ripped the plaster off with more cuts early on,” writes Cameron.
So: on the one hand, there’s a need to return to slower spending growth, either in the aftermath of a “dash for growth”, or more swiftly if it fails. And on the other, we have a generation of Conservative MPs unprepared for tough decisions. We can’t solve the conundrum, but may at least help to kickstart debate.