Cut spending faster, urges Liam Fox, and make room for economy-boosting tax relief

By Tim Montgomerie
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In his most important intervention since resigning as Defence Secretary Liam Fox has issued a coded warning that the Coalition's deficit reduction strategy could be at risk if action is not taken to accelerate economic growth.

In an article for tomorrow's Financial Times Dr Fox says the Chancellor has "created enough credibility with international creditors and investors to buy time" but, he continues, "there are questions that must be answered if growth is to accompany deficit reduction". He also appears to express misgivings about the long-term effects of Quantitative Easing. "There are issues of inflation and credit expansion," he writes, "that will need to be addressed in the longer term."

He expresses concern at the capacity of UK industry to export to fast-growing emerging markets. Why, he asks, are British exports to Asia growing more slowly than countries in the Eurozone like Greece and Spain when sterling has fallen by 25%?

The meat of his article, however, concerns cutting red tape and the pace of spending cuts. On deregulation he recommends more political courage:

"Objections must be overridden. It is too difficult to hire and fire and too expensive to take on new employees. It is intellectually unsustainable to believe that workplace rights should remain untouchable while output and employment are clearly cyclical. The Left must be given an unequivocal moral challenge: it is utterly unacceptable to condemn a generation of our young to unemployment by  maintaining all the rights and privileges of those currently in work."

Amen to that. In my recent piece on the Selfish Left I argued that Conservatives must expose Labour's failure to speak up for those who, because of employments laws, have been excluded from the labour market.

But, weeks ahead of the Budget, Liam Fox's remarks about the speed of deficit reduction will be most newsworthy:

"There is a strong argument for further public spending reductions, not to fund a faster reduction in the deficit, but to reduce taxes on employment. Although the coalition agreement may require the chancellor to raise personal tax allowances (which should be paid for with spending restraint not new taxes) he should use the proceeds of spending reductions to cut employers’ national insurance contributions across the board. If that is deemed impossible, he should consider targeting such tax cuts on the employment of 16 to 24-year-olds, making them more attractive to employers."

In recommending faster cuts Dr Fox puts himself in sync with the Tory grassroots (see this ConHome poll from last October). It's also interesting to speculate as to what George Osborne thinks of Dr Fox's words. Since leaving the MoD both the PM and particularly the Chancellor have kept in touch with a man who is seen as a significant leader of the Tory Right. There'll be inevitable questions as to whether Numbers 10 and 11 are happy to see Dr Fox pull the Coalition to the Right in the same way Hughes and Farron et al pull the Coalition Leftwards. It should certainly strengthen their negotiating position.

Tune into ConservativeHome tomorrow morning when Paul Goodman will be discussing where tougher spending cuts might fall...