Tory economic policy must be about more than tax

Many of the Conservative Party’s electoral difficulties go back to Black Wednesday when Britain was thrown out of the EU’s Exchange Rate Mechanism. A reputation for economic competence that had provided much of the basis for the 1979, 1983, 1987 and 1992 victories was lost because of a politically-motivated commitment to do as Brussels dictated and to buck the foreign exchange markets.

Conservatives would be wrong to think that an economic downturn will automatically restore their advantage over Labour on economic issues. A recent YouGov poll for the Centre for Social Justice found that Gordon Brown was most trusted to lead Britain out of any economic recession. 39% of voters would like him in power "if the economy was in trouble". Only 5% wanted Michael Howard in power. The next election could imitate the 1992 contest. In 1992 Britain was in recession but John Major and the Tories were more trusted to get Britain going again than Neil Kinnock and the Labour Party.

As Tories think of re-establishing their reputation for economic competence they should focus on the whole range of economic issues - not just taxation. David Willetts has correctly pointed out that much of the economic success of the Thatcher years had little to do with tax cuts. Talking to the SMF he said:

“It is easy to give up on the serious work of reforming the supply side of the British economy and instead just to settle for tax cuts. The Conservative Party in the past eight years has put far more effort into arguments about which taxes should be cut and by how much than it has into supply-side reform to raise the performance of the British economy. But if you look at the Thatcher Government, it could not deliver tax cuts year after year Some years we even had to put up taxes, because of the state of the public finances. But what that Government did deliver year after year was more big measures to privatise industry, reform trade unions and extend the market. In our first six months in 1979 we abolished price controls, dividend controls, pay controls, and exchange controls. That was heroic economic reform. It clearly rolled back the state. But we also had to put up tax in the crucial Budget of 1981 which put Britain on the path to economic recovery. The public finances were in such a mess that there was indeed no alternative.”

This does not mean that tax should disappear from the Tory agenda. John Redwood has rightly warned that “If our businesses are to have any chance of rivalling the Chinese, we need lower taxes and fewer rules.” The overall tax burden doesn’t even have to be reduced to produce economic benefits. Simplification will bring important supply-side benefits. And we should also prioritise an end to the tax churning that sees money removed from one pocket of a minimum-waged worker, only to be put in the other by the benefits system. Such madness can only make sense to Sir Humphrey Appleby.

Comments

[David Sergeant]

If and when the economic down turn comes surely the blame must be laid on Gordon Brown. His "successful" economy has been based on using up Conservative government savings and ever rising debt. His "success" is done with mirrors.

[Alexander Drake]

Bucketloads of kudos to the Editor for this post. It is correct in every way and succinct in identifying what is overwhelmingly the biggest problem for the Conservative Party.

It is all very well to have the City's FT-reading, pinstriped confidence - but there is a difference between that sort of economic competence we need to have a reputation for: a voter-rich, domestic-based economic competence that makes people confident they can pay off their morgtages and get on in the world, with us on their watch.

Yet if you read other small-c conservative commentary you will think that all we need is an extra dose of Blimp-ishness. Ugggh.