The contours of the election campaign are becoming clear. Do the Conservatives deserve five more years of trying to improve Britain’s lot, despite the abject failure of the past 14? Can Labour under Keir Starmer be trusted to do better?
At the start of yet another crunch year in British politics, Rishi Sunak will be hoping the latter question resonates with voters, as the Tory election machine revs up to cast “Slippery Starmer” as an untrustworthy, high tax-and-spend Labour leader who would bankrupt Britain.
It is a familiar ploy. Ever since Labour’s 1992 defeat to John Major, the Tories have recycled versions of their “tax bombshell” attack line and more often than not it has worked, helped by the mess of the 2008 financial crisis. This time, however, talk of unexploded Labour ordnance is wearing thin.
Despite a rushed-through cut in national insurance over the weekend, most voters know the cost of living is not getting any easier. The economy has been left a smouldering wreck by 14 years of Tory rule, with the car crash Liz Truss premiership only the tip of the iceberg.
Ahead of the election Labour has come under fire over how it will fund its £28bn pledge to invest in green industry. But Tory backbenchers are pushing for billions of pounds in tax cuts with far more questionable economic benefits. Lacking in humility, Truss’s erstwhile chancellor Kwasi Kwarteng is demanding “bold tax cuts”, amid a Tory bidding war to decide the biggest electoral bung.
For all the focus on a future Labour government’s tax and spending, a reminder of the path mapped out by the Conservatives ought not to be forgotten: the Tory plan, labelled “plain implausible” by the Institute for Fiscal Studies thinktank, relies on fantasy assumptions to meet fiscal rules requiring debt to fall as a share of the economy within five years’ time.
At the autumn statement, Jeremy Hunt failed to address several major pressures on the public finances, while leaving billions of pounds worth of Tory tax and spending promises off the official record of government policy.
Top of the list is £20bn of cuts to public spending pencilled in for after the general election, representing a tougher austerity drive than George Osborne’s slash-and-burn agenda. Few economists think this would be wise when hospitals, schools and the wider public sector are on their knees.
Next is fuel duty, due to rise by 8p per litre from the end of March at a cost of about £6bn a year for motorists. Having been frozen since 2011, and ahead of an election, there is no chance this will happen: Hunt has hinted as much. But the leap is assumed in the official forecasts, providing almost half of the chancellor’s £13bn of headroom against his fiscal rules.
Elsewhere, Sunak has promised to increase defence spending from 2% of GDP to 2.5% in the long term, without saying how the numbers add up. Doing so by the late 2020s would cost more than £16bn a year. Could this be stripped from the Tory manifesto without an almighty row? Don’t bet on it.
The same goes for a “temporary” cut to overseas aid from 0.7% of GDP to 0.5%. A Sunak move during the Covid pandemic, it threatened to tear the Tories apart. Hunt, as a backbencher, voted against the government on the issue. Now, as chancellor, he says the £6bn cost of restoring the policy will not happen within five years. But it remains Tory policy to pretend the day will come.
Making sweeping tax cuts the centrepiece of his election campaign would almost certainly mean Sunak standing on a platform of deeper cuts to public spending than already planned, unless debt levels are to be ratcheted ever higher. It’s a reality Sunak is increasingly comfortable with in rightwing circles. But so far he has faced too few tough questions about the reality of his plans.
As with Truss and Kwarteng before him, Sunak could argue tax cuts help grow the economy – bringing in more revenue in future. While some targeted measures may help in the short term, this clearly is not his primary aim: winning votes is the yardstick, not economic progress.
Meanwhile, the danger is that any short-run benefits from tax cuts would be outweighed by the lasting damage caused by hacking back the state further. It is clear that record NHS waiting lists, crumbling schools, poverty and ill-health are holding back Britain’s economic potential. And as growing numbers of economists agree, beefed-up public investment can help to “crowd in” the private sector as a more powerful route to prosperity.
Taxation can be a roadblock to growth but the biggest problem facing the British economy is its lack of investment – the consequence of austerity and subdued levels of businesses investment after Brexit and years of Tory flip-flopping and psychodrama in Westminster.
Investment is viewed by economists as vital for supporting productivity growth, which would have a big benefit for the exchequer. Failure, though, would come with a serious cost.
According to the Office for Budget Responsibility, getting productivity growth back to its pre-2008 levels would cut government borrowing by £46bn a year in 2028-29, while growth falling back to the levels seen over the past 15 years would increase it by about £40bn.
Investment of the kind promoted by Labour is not the radical and dangerous economic plan it is painted out to be. Offering voters bribes on their tax bills while being dishonest about the consequences ought to get a tougher ride.
