That Liz Truss takes the helm during a cost-of-living crisis is well known. That she will throw money at it is obvious, even if we must wait a few days to find out how much money, in what way, and to whom. But there is a bigger crisis she faces—one she shows no signs of being aware of, let alone knowing the answer to.
It is the crisis of Conservative ideology. Specifically, it is the crisis of laissez-faire nationalism—the creed of the right wing of her party whose support has propelled her to victory.
We are all familiar with the mantras: “lower taxes” and “take back control.” Let’s deal with the two halves in turn.
“Lower taxes.” Even before Covid, which propelled taxes to their highest share of gross domestic product for seven decades, the pressure of paying for public services had been growing remorselessly since the 1950s. In round numbers, the amount we spend on health, education and welfare (including state pensions) has almost trebled as a proportion of national income, from just over 10 per cent to getting on for 30 per cent of GDP.
Around half of this increase was funded by a “peace dividend” from defence spending, which has fallen from 9 per cent during the Korean War to 2 per cent today. Cuts in government spending on research and infrastructure have helped the numbers, though not the economy. The rest is accounted for in a host of other ways, including the fact that a far higher proportion of us pay income tax than was the case for our grandparents.
The point is this. In any one or two years, governments can find ways to dodge the trend. But in the long run, if we want an NHS that works, a school system that educates our children well, and a welfare system that cherishes pensioners and keeps children out of poverty, spending on these things will rise remorselessly—even after any immediate, and hugely needed, injection of cash to repair the NHS and enable families to pay their fuel bills.
Health, education and welfare are, in economists’ parlance, “superior goods.” This is not a moral statement but an analytical one—it is the term used to describe goods which make up a greater proportion of spending as society grows richer. As life expectancy increases (even if this has stalled at the moment), new drugs and medical technology become available, and succeeding generations seek a better education for their kids, so the demand will continue to grow for more generous health, education and welfare services.
An honest low-tax right-winger would acknowledge this and propose that much of the cost should be transferred from government to private citizens. Pay to see the GP, or for the “hotel” element of hospital stays (such as food and changing sheets). Privatise pension provision, so it becomes like motor insurance: compulsory, but we arrange our own. Require means-tested payments for children attending state schools. Halve our defence budget. Workhouses for the unemployed.
OK, maybe that last one is going a bit far, even for Jacob Rees-Mogg; but you get the idea. The only serious, long-term way to cut taxes is for the government to get rid of big chunks of financial commitments, and to hand much of them to us as individuals. Our after-tax incomes would rise—but that extra money would be needed to pay for things those taxes currently provide. Many of us may even end up with less money for other things. The first crisis of laissez-faire nationalism stems from the fact that coming clean about what a low-tax society would look like is plainly a non-starter for any prime minister wanting to win an election.
The second Tory crisis flows from the nationalist, “take back control” ideology. It is becoming clearer by the month that Brexit is imposing huge economic costs on the country. The Office for Budget Responsibility reckons that the eventual damage will be a 4 per cent cut to GDP—estimated to mean an annual £100bn in lost output (which would, of course, make taxes even harder to cut). The components are all too familiar. Companies are having to apply two sets of rules, one European for their sales across the Channel, another for our own national standards. We are on the way to more red tape, not less. Then there’s the unfinished business of the Northern Ireland protocol and its knock-on consequences: the possibility of a trade war next year and the general poisoning of relations with countries that are our greatest trading partners and should be our closest allies.
Ukraine and spiralling energy prices, coming on top of issues such as climate change, terrorism and the quest of people in Africa and the Middle East to come to Europe in search of a safer, better life for their families, should have already killed off the notion that “take back control” was any way to prepare for the future; the challenges we face demand international co-operation. To add non-stop fights with Brussels, Paris and Berlin is to add gratuitous insult to already grievous injury.
In decades to come, a right-of-centre party will come to office in Britain acknowledging all this, and graduate to an ideology that makes sense. Truss’s arrival in Downing Street poses two big questions: will it be soon—and will it be the Conservatives?
