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Westlake Legal Group > Tax and Spending

David Gauke: Whatever briefings from Downing Street may claim, an election fought on a No Deal platform would be disastrous

David Gauke is a former Lord Chancellor and Justice Secretary, and is MP for South West Hertfordshire.

How much has the Conservative Party changed? To what extent has it moved from being a mainstream, centre-right party containing a broad range of views to being a party overwhelmingly focused on delivering an uncompromising Brexit?

It is a question I have asked myself a lot in recent months. Having fought off a deselection attempt because I opposed a No Deal Brexit, and having lost the Conservative whip because I continued to oppose a No Deal Brexit, it is hard to escape the conclusion that quite a lot of Conservatives disapprove of people who oppose a No Deal Brexit. Has the debate become so rancorous and intolerant that there is no longer a place for the likes of me in the Conservative Party?

The answer to that question is uncertain, but I took some encouragement from the Manchester Party conference.
I admit to attending with some trepidation. My position on Brexit is evidently a minority one within the Party. I have not sought to hide my criticisms of the substance and tone of the Government’s approach to Brexit. And I have not ruled out standing in my constituency as an independent if the whip is not returned. If ever I was going to get a hard time from Party activists, now would be the time.

And yet, at fringe event after fringe event, Party members were courteous and polite. Andrew Gimson generously wrote up my appearance at the ConservativeHome event, but a similar report could have been written for those I did with the Daily Telegraph and the Spectator. Don’t get me wrong: I am not claiming that I won the audiences over to my position – the occasional eye-roll, sigh and shake of the head was detectable – but nor was there anything like the hostility one might expect if, for example, you ever read the comments below one of my ConHome articles.

In truth, the Conservative Party felt – in those fringe meetings, at least – very similar to the party of which I have been a member for 29 years. Sensible, practical, well-meaning and decent.

I also take some encouragement from the apparent, new-found enthusiasm within the Government to reach a deal on Brexit. In previous columns, I have argued that seeking a deal and being willing to compromise is the right approach. That view would appear to be in the ascendant at the time of writing.

Until recently, an alternative approach appeared to be prevailing which seemed determined to crash us out on  October 31 at any cost. I have previously acknowledged the electoral case for this strategy, but in terms of the outcome for the country, it is thoroughly irresponsible. As such, it is also a huge departure from the modern traditions of the Conservative Party.

Let me give seven examples of principles that most Conservatives would support. I would happily sign up to each and every one of them but I struggle to reconcile them with those pursuing a No Deal Brexit at any cost.

  • We believe that living standards can only be raised and public services properly funded if you have a strong economy.

It is the argument that we have to fight at every election when our opponents make great promises but we respond by pointing out that we have to create the wealth in the first place if we properly want to fund the NHS, for example. Yet the overwhelming economic consensus is that No Deal Brexit would result in a sharp contraction in GDP. And before anyone rushes to claim that this is all a re-run of 2016’s ‘Project Fear’, remember our economy is 2.5-3 per cent smaller than it would have been had Remain won.

  • We believe in free trade.

Open markets benefit both our exporters but also our consumers. This has not always been the Conservative position but, thankfully, it has been for some time. And I know that there are plenty of Brexiteers who are sincere free traders and think that Brexit provides great new opportunities for bringing down trade barriers.

Unfortunately, it is simply not true. The Government’s analysis shows the benefit of getting trade deals with all the English-speaking nations and the major emerging economies will be just 0.2 to 0.6 per cent of GDP whereas the loss of access to European markets of a Canada-style free trade agreement (let alone a no deal Brexit) will be 4 to 7 per cent of GDP. The net effect of a No Deal Brexit or even a Canada style FTA will be to make our economy less open and more protectionist.

  • We believe in fiscal responsibility.

This was the battleground of British politics from 2009 to 2015 when we made the case for getting the deficit down. The contraction of the British economy will inevitably result in deteriorating public finances. Add to that a political strategy which focuses on winning the support of traditional Labour voters which has meant that we are almost certainly already breaking our fiscal rules.  Remember when we criticised Labour for more borrowing and more debt?

  • We don’t believe that the Government should bail-out unviable industries or businesses.

As a statement, this sounds like a bit of a throw-back to the 1980s when Margaret Thatcher weaned the country off supporting lame-duck businesses. But what do we think would happen when businesses no longer became viable because of the impact of No Deal? The pressure to provide support ‘in order to deal with the temporary disruption’ will be immense. The Government has already prepared for this with Operation Kingfisher but removing that support will be very difficult politically. There is a risk that our economy will become much more corporatist than any time since the 1970s.

  • We believe in our national institutions – Parliament, the monarchy and the independent judiciary.

This should go without saying but when Number Ten briefs that the next election will be people versus Parliament, that the Prime Minister will ‘dare the Queen to sack him’, that the judiciary is biased and that the Government will not comply with the law, we don’t sound very conservative (to put it mildly).

  • We believe in national security and ensuring that we do all we can to protect our citizens from terrorism.

And yet a ‘source in No 10’ says we will withhold security co-operation from those countries that fail to block an extension. Meanwhile, the former head of MI6 says that our security depends upon co-operation with the EU and that leaving without a deal means we will have to ‘start again with a blank sheet of paper’. In addition, it is hard to see how any ‘no deal’ outcome doesn’t destabilise the Good Friday Agreement one way or another. The Prime Minister, it is reported, is increasingly concerned about the risk of an upsurge in terrorist activities by dissident republican groups.

  • We believe in the United Kingdom.

It is obvious that Brexit is placing a strain on the union. A No Deal Brexit would be likely to result in a border poll in Northern Ireland, especially with Stormont not sitting and some form of direct rule being necessary. As for Scotland, the chaos of a No Deal Brexit provides plenty of ammunition for the separatists.

Not every Conservative voter will agree with every single one of those principles, or my criticisms of a No Deal Brexit. But a Conservative Party that fights a general election with No Deal at its heart must know that it will be pursuing an approach that is such a radical departure from the traditions of the Conservative Party and that it is vulnerable to losing the support of millions of our longstanding supporters.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Matthew Lesh: The radical neoliberal programme which can revitalise the Conservatives

Matthew Lesh is the Head of Research at the Adam Smith Institute.

As the flus from last week’s Conservative Party Conference slowly fade, it is worth turning our minds back to a conference that we must never forget.

It was the autumn of 1980. The country was facing economic turmoil. Decades of Keynesianism was taking its toll with high inflation and low growth.  But there was a leader, a radical neoliberal, who refused to accept the status quo or allow the doomsters to take her off course.  “You turn if you want to, the lady’s not for turning,” Margaret Thatcher told Conservative Party Conference.

Thatcher unashamedly spoke not just of policy change but creating “a new independence of spirit and zest for achievement”. She called her administration “one of the truly radical ministries of post-war Britain”.

Boris Johnson’s party conference speech last week has been lauded for its political nous: get Brexit done, and fund the NHS and other public services.

This makes a lot of political sense, particularly for the party’s ‘Go Midlands, Go North’ strategy: the plan to win northern Leave working class areas who traditionally voted Labour Party.

But Johnson’s spending is frustrating to many free marketeers, who have traditionally found their home in the Conservative Party. Boris speaks of a “dynamic enterprise culture” and the Conservative Party’s history in pioneering “free markets and privatisation”. But so far there has been little meat on the bone, while the party is giving up its reputation for fiscal conservatism by committing to big-spending plans.

Politically, this approach undermines support from economic liberals in London and the Southeast. This danger is heightened by the likes of Sam Gyimah’s defection, signalling the acceptability of the Liberal Democrats to Tory economic liberals. With the Lib Dems also winning over the likes of Chuka Umunna there’s a danger the two main parties are seen by voters to leave the centre stage to the Liberal Democrats — and leave governing alone to the scrap heap of history.

To get a strong majority, Boris needs to win both Chelsea and Fulham as well as Stoke-on-Trent. He needs to be able to hold up his economic credentials to win back Remain-voting Conservatives voters – not just give them another reason to abandon the party.

But this balancing act is nothing new. Thatcher, despite some reforms to childcare and housing subsidies, oversaw a huge increase in social spending. She declared that the NHS is “safe with us” and bragged about “enormous increases in the amount spent on social welfare to help the less fortunate”. David Cameron similarly declared that the NHS is “safe in my hands,” while cutting taxes, introducing free schools and reforming welfare.

Thatcher and Cameron balanced public spending with undertaking fundamental free market economic reform to boost the economy. To ensure the Conservative Party remains a broad coalition, it is important that Boris’ free market rhetoric is given meaning. There needs to be some meat on the bone. The Conservative Party will be much weaker if it does not have a serious economic policy offering that creates a clear distinction with Labour.

On the political left, while many may disagree with their approach and ideas, there is undeniably a radical reimagining of policy and a clear agenda: a four day work week, shutting down private schools and nationalising industry.

Some on the Right have chosen to respond to the emboldened Left by adopting parts of their agenda in the hope of placating and preventing the worst. But, as Theresa May’s premiership displays being Labour-lite and adopting policies like the energy price gap, or nanny state policies like the sugar tax, simply does not work.

The Neoliberal Manifesto, a joint project between the Adam Smith Institute and 1828 released last week at the Conservative Party Conference, presents a positive vision for Britain’s future. In the past, the word “neoliberalism” has been twisted by those seeking to manufacture a strawman on which to blame every societal ill.

But it doesn’t have to be this way. Neoliberals are champions of freedom. We want government to protect and facilitate your ability to flourish; we believe in the power and ability of each individual; we believe in doing what is most effective; we are optimistic about the future; we support market intervention to address specific issues but reject paternalism; we are cosmopolitan and outward-looking to the world.

The manifesto calls for a liberal, free market approach to trade that encompasses cutting tariffs and pursuing deals based on the principle of mutual recognition. It declares that need to reform Britain’s outdated planning laws to allow for the building of more houses to fix Britain’s housing crisis. The manifesto also calls for a simpler, fairer tax system by getting rid of stamp duty and allowing capital expenditures to be expensed in full immediately.

On migration, it calls for a liberal system that brings the most talented people to our nation. On education, it explains the need for more choice. On innovation and technology, it calls for an optimistic approach defined by permissionless innovation.  It also calls for a liberal approach to drugs and personal choices, a compassionate but cost-effective approach to welfare, and addressing climate change without sinking our economy.

Many of these ideas are radical, and today can be expected to receive a mixed reception. But we think that our politicians should lead from the front, not the back. These policies are not designed with the idea of what may or may not be popular today, but rather setting the agenda for the future.

While not every action she took was immediately popular, Thatcher’s agenda transformed the country for the better and proved a politically successful formula across three general election victories. Cameron similarly won a majority after undertaking difficult decisions.

If the Government does not have an offering for people who want lower taxes and the state to live within its means, they risk unexpected losses.  Johnson can follow in the footsteps of successful leaders with his own liberal, free market agenda.

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‘We probably didn’t cut enough’ may be the most important revelation from Cameron’s book

Understandably, most of the headlines about David Cameron’s new book have been dominated by other angles – be it his views on the EU referendum, on Boris Johnson and Michael Gove, or, thanks to the Guardian, the question of whether ‘privilege’ dulls the pain of loss – but it strikes me that when the current news agenda has subsided, some of the most lasting elements of the book are likely to be his reflections on public spending and austerity.

Here’s the crucial passage (with my emphasis):

‘Looking back over our first few months at the helm of Britain’s economy in 2010, what do I think? Did we cut too much?

My assessment now is that we probably didn’t cut enough. 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.

Those who were 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. We were taking the flak for them anyway. We should have taken advantage of the window of public support for cuts when it was open.’

It’s 2019, so the immediate reaction from various people has been to fire up the Outrage Bus about the very idea, which incidentally rather demonstrates his point about hysterical opposition regardless of the facts of an argument.

But ignore the ranters and consider the implications of Cameron’s conclusion. This was a live and controversial debate throughout his time as Leader of the Opposition, and well into the Coalition years. As Campaign Director of the TaxPayers’ Alliance between 2007 and 2010 I saw some of it first-hand.

Remember that despite the retrospective demonisation he has since been subjected to, Cameron was never desperate to reduce public spending. He didn’t see it as inherently wise or responsible to balance the books – or, at least, not sufficiently so to make it a priority.

In his 2019 account of events he writes that:

‘It doesn’t require a degree in economics to appreciate that if you keep spending faster than the economy grows, and faster than tax revenue grows, eventually you will be in trouble. Which Britain had been doing…’

but back in the first few years of his leadership he did not seem to appreciate this truth.

In 2007, George Osborne committed the Conservatives to matching Labour’s spending plans, whatever they might be, in Government. That could never have happened without Cameron’s consent, and the thinking was quite clear: they saw fiscal discipline as a reputational risk, and were keen to square it away by reusing the tactic Blair used a decade earlier to square away concerns about Labour’s fiscal irresponsibility. To reiterated: they felt that pledging to mimic Gordon Brown’s approach to fiscal policy was safer electorally than espousing the more traditional conservative view that Cameron now says was obvious.

If you doubt that, consider that it took until the second half of November 2008 before the Conservative leadership was finally willing to abandon that pledge. Then, Cameron argued that

‘The world has moved on. People are not fools… after 11 years of waste and broken promises from Labour, [voters] can see that spending more and more alone does not guarantee that things get better.’

What had ‘moved on’ most fundamentally was the start of the financial crisis, of course. By the time Cameron and Osborne changed policy, banks had started collapsing, the economy had been shrinking for months, and the crisis was well underway. Just as they had ignored the urgings of fiscal conservatives before pledging to match Labour’s spending plans, so they had resisted the growing pressure to abandon the pledge. They did so in the end, but it took months before the inherent truth of a conservative position became obvious to the point of being irresistible.

After that battle came a new disagreement about the scale and pace of fiscal restraint if and when the Conservatives got into power. Given the context above, it isn’t hard to imagine that there was still heavy reluctance to be radical in the scale or the pace of spending reductions. And yet there was a strong case to do so – in September 2009 the Institute of Directors and the TaxPayers’ Alliance produced a report proposing savings of £50 billion and explicitly arguing that the UK ought to follow the example of Canada in achieving a ‘rapid and durable fiscal consolidation’.

The political argument was precisely that which Cameron now espouses: that it is harder to go slow than to go quickly on such measures. Just as the original spending policy appeared to assume that voters and conditions would not change between 1997 and 2010, Cameron’s recognition in 2008 that ‘the world has moved on’ seemed to neglect the possibility that people might start to change their minds yet again once an austerity programme had been underway for some years.

He is correct now that there was a ‘window of public support for cuts’ that was not inevitably going to stay open forever. But there were voices telling him this at the time; they just weren’t listened to. It reflects well on him that he is willing and able to recognise – on this topic, at least – that error. (It’s notable, by the way, that George Osborne does not seem to have done so.)

The change in the former Prime Minister’s opinion has consequences today, beyond some people now having the right to say ‘I told you so’.

For a start, it’s a simple reminder that fundamental fiscal conservative principles exist for a reason, and are wise to follow. Imagine the political impact had Cameron already been arguing before the financial crisis that Brown was living beyond his means, rather than promising to do the same.

More specifically, it’s a lesson in the practical politics of doing what voters often call on the Conservatives to do: take the tough decisions after Labour mess things up. Such permission is powerful, but it can also be temporary. Fail to recognise that there is a ticking clock, and you risk failing to deliver on the mission you have been given.

Finally, it throws into relief the fact that there currently isn’t much discussion of fiscal policy in any direction on the centre right. What is the current fiscal policy, and what are the alternatives? Stian Westlake and Sam Bowman’s recent pamphlet on ‘Reviving Economic Thinking on the Right‘ is a rare example of people engaging in the necessary thought and debate which is required to answer those questions, but more should follow their lead and get stuck in. That’s the best way to avoid repeating the errors of a decade ago.

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Ryan Bourne: To help grow prosperity, let’s focus on people and not places – such as towns

Ryan Bourne is Chair in Public Understanding of Economics at the Cato Institute.

Stian Westlake describes it as the “Strange Death of Tory Economic Thinking”. Conservatives have ceased telling an economic story about why they should govern, and how. Sure, there’s still the odd infrastructure announcement, or tax change. But, since Theresa May became leader, the governing party has shirked articulating a grand economic narrative for its actions.

This is striking and problematic. From Macmillan to Thatcherism to deficit reduction, the party’s success has coincided with having clear economic agendas, gaining credibility for taking tough decisions in delivering a shared goal. But, arguably, deficit reduction masked a secular decline in interest in economics. David Cameron and George Osborne, remember, wanted to move on to social and environmental issues until the financial crisis and its aftermath slapped them in the face.

Now, with the deficit down, economics is in the back seat. Fiscal events are low key and economic advisors back room. To the extent the dismal science is discussed, it’s as a means to other ends, or a genuflect to “Karaoke Thatcherism.”

In short, I think Westlake is right: the Tories do not have an economic story and, post-Brexit, it would be desirable if they did. So we should thank both him and Sam Bowman (formerly of the Adam Smith Institute), who have attempted to fill the vacuum. In a rich and interesting new paper, the pair set out to diagnose our key economic ailments and develop a Conservative-friendly narrative and policy platform to ameliorate them, even suggesting reform of the Right’s institutions and think-tanks in pursuit of the goals.

Such an effort deserves to be taken seriously, though not everyone will agree with their starting premises. It is assumed, for example, that Conservatives believe in markets and want to maintain fiscal discipline, which bridles against recent musings from Onward or thinkers such as David Skelton.

But, again, the key economic problem they identify is incontrovertible: poor economic growth. Weak productivity improvements since the crash have been both politically and economically toxic, lowering wages, investment returns, and necessitating more austerity to get the public finances in structural order. And the nature of modern innovation, arising from clusters and intangible assets, means that growth that is experienced isn’t always broadly shared.

Their agenda’s aim then is to achieve both concurrently: maximize the potential of the economy by taking policy steps on planning, tax policy, infrastructure, and devolution, to increase investment levels, allow successful cities and towns to grow, and to connect “left behind” places to local growth spots through good infrastructure. None of their ideas are crazy. Indeed, I would support the vast majority of them.

And yet, something bothered me about their narrative. In line with the current zeitgeist, they too discuss “places” and their potential, as if towns and cities are autonomous beings. My fear is this focus – shared by those who want to regenerate “left behind” areas – creates unrealistic expectations about what policies can achieve in a way that undermines a pro-market agenda. Importantly, it warps what we should really care about: “left behind” people, not left behind places.

A people-centred narrative recognises that just as firms fail in the face of changing consumer demands and global trends, so high streets, towns, cities, and even regions will shrink too. As Tim Leunig once said, coastal
and river cities that developed and thrived in a heavy manufacturing, maritime nineteenth century world might not be best placed to flourish in a service sector era of air and rail.

A true pro-market policy agenda would admit -and that’s ok. Or at least, it should be, provided we understand that raising growth and sharing prosperity requires adaptation, not regeneration. That means removing barriers for people either to move to new opportunities or have control to adapt their situations to ever-changing circumstances. This might sound Tebbit-like (“get on your bike”), but really it’s just saying policy must work with market signals, not against them.

Today though, interventions actively work in a sort of one-two-three punch against inclusive growth and adjustment. First, we constrain the growth of flourishing cities. Tight land use planning laws around London, Oxford, and Cambridge contribute to very high rents and house prices, and prevent these places benefiting from growing to obtain thicker agglomeration effects.

This contributes to the “left behind” scandal, but not in the way people imagine. When rents and house prices are higher in London and the South East and we subsidse home ownership or council housing elsewhere, it’s low productivity workers from poor regions that find it most difficult to move given housing cost differentials. As a result, they get locked into poorer cities and towns that would otherwise shrink further. That’s why Burnley, Hull and Stoke are the most egalitarian cities in the country, whereas prosperous London, Cambridge and Oxford are the most unequal, even as inequality between regions has intensified.

Having restricted people’s mobility through bad housing policy, we then impose one-size-fits-all solutions and subsidies which dampen market signals further. National minimum wages, fiscal transfers, national pay bargaining, and more, might be designed to alleviate hardship, but they deter poorer regions from attracting new businesses and industries by trading on their market cost advantages. Then, to top that off, we compound the problem further by centralising tax and spending powers, preventing localities from prioritising their spending and revenue streams to their own economic needs.

Now, as it happens, Bowman and Westlake’s policy agenda is perfectly compatible with assisting  “people” rather than “places,” precisely because it’s market-based. They advocate planning liberalisation, a flexible right to buy, and stamp duty, all of which would improve labour mobility. They prioritise infrastructure spending based on benefit-cost ratios, making investments more profitable with sensible tax changes, and devolving more transport power to regions and localities. All, again, will help facilitate areas adapting to changed economic conditions, rather than reviving Labour’s failed top-down regeneration attempts.

But pitching this as a city and town agenda still risks creating the false impression that the net gains from “creative destruction” nevertheless can be achieved without the destruction, and that all places can thrive in the right policy environment.

One can understand why they framed it in this way. Their aim is to persuade the party and its MPs of their platform. Anti-market commentators would call them fatalistic and “abandoning” places if they acknowledged the downside, as if facilitating more free choice amounts to design.

Successful past Tory economic narratives, though, willingly acknowledged hard truths. Deficit reduction entailed tough choices to curb spending. Thatcherism entailed making the case for letting inefficient industries fail. If a new Tory vision is serious about raising productivity growth and spreading opportunity for people, it will have to confront the inevitable market-based adaptation for some places.

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Javid’s spending speech will have been uncomfortable viewing for his predecessor

It’s been a pretty rough 24 hours for Philip Hammond. After losing the Whip last night, he had to sit and watch his successor as Chancellor deliver today’s spending round.

It won’t have escaped his notice that Sajid Javid – meticulous as ever – was effectively standing up not to praise Hammond but to bury him. It wasn’t an assault, in intent, tone or rhetoric, but nonetheless the implicit effect of the statement was to sprinkle earth over the ex-Chancellor’s approach.

As a former goth, he might in the right circumstances have appreciated the funereal drama. It didn’t look like it today.

Javid informed the House that he was able and willing to do what Hammond was either unable or unwilling to do – namely increase spending across the board, delivering at least the rate of inflation for every department. Although the Chancellor has delayed the full Spending Review, and thereby maintained his predecessor’s fiscal rules, the game certainly seemed to have changed.

A shift in policy might be uncomfortable but expected. But Javid, it turned out, was changing policy to deliver something that Hammond previously said was his aim: an end to austerity.

I asked at last year’s Conservative Party Conference what the definition of such a thing might be. Now we have Javid’s answer: “No department will be cut next year…that’s what I mean by the end of austerity.”

It’s starker and simpler than the principles laid out under Hammond and May. You might almost say it is the kind of clear message you’d need going into an election.

And there’s the final reason Hammond might have found the statement somewhat aggrieving to watch. It’s no fault of Javid’s, but while the Treasury was almost absent from the 2017 election campaign, it will evidently underpin the police and hospitals message that is set to be central to General Elecfion 2019.

 

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WATCH: Javid – “No department will be cut next year…that’s what I mean by the end of austerity”

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Ryan Bourne: In America, public spending conservatism is being lost. It could happen in Britain.

Ryan Bourne is Chair in Public Understanding of Economics at the Cato Institute.

Austerity is over. Theresa May told us so after the 2017 election, and again at the Conservative Party Conference last year. Philip Hammond tried restraining her from a blitz of high-profile spending announcements. Yet Team Johnson has now picked up the baton anyway. Today’s spending review from Sajid Javid will reportedly confirm significant money injections for schools, hospitals and the police. The Prime Minister said Monday it will be “the most ambitious spending round for more than a decade.”

Restraining government spending was always said to be a temporary deficit repair tool, of course. Those “tough choices,” added to net tax hikes, have helped bring down the budget deficit to just 1.3 per cent of GDP, from a gargantuan 9.9 per cent in 2010. Once near-balance, a spending squeeze was never envisaged to continue year after year. Despite Nick Timothy’s fear of libertarians under the bed, no recent Conservative leader has been ideologically committed to shrink the size and scope of government. Absent “thinking the unthinkable,” one eventually must release the spending grip given voter demands for high-quality services.

And yet…the zeal with which the Tories have turned heel on their spending narrative is surprising. Whatever one’s view on the efficacy or composition of “cuts”, they were central to the party’s offer through 2016, including the 2015 election win. Balancing the books was said to be about unburdening the next generation from dumping more debt on top of the iceberg associated with an ageing population. Any intergenerational justice message has now gone the way of the Titanic.

For the Government is not promising gradual targeted spending increases in these areas – a natural uplift from a reset baseline after years of restraint. No, proposed hikes in education funding would virtually reverse any real schools’ spending cuts over the past decade. May’s extra money for the NHS is a big step-change too. The spending review is celebrated as the “biggest, most generous spending review since the height of Tony Blair’s New Labour,” no less – a far cry from denouncing that era’s profligacy. In one swoop, the Treasury has undercut its long-held opposition to raising borrowing and junked the idea that public service reform trumps showering public services with money.

Javid attempts to thread the needle by arguing that more spending is still consistent with keeping the debt-to-GDP ratio on a shallow downward path. That maybe true. But a stated goal of policy was always to balance the books overall, even if George Osborne and David Cameron continually pushed back the deadline. A former Treasury fiscal policy director now says that borrowing will in fact start rising again, and soon be above two per cent of GDP. Manageable, yes – but a clear change in direction.

The public discourse effects of this reversal should worry fiscal conservatives. Cameron and Osborne’s consistent messaging helped entrench two crucial contours in discussions about government spending. First, that there was no free lunch (every Labour proposal for years was met with the question “how will you pay for it?”) Second, that what you did with the money (the organisation of public services) was as important as spending levels. After years of Tony Blair’s money throwing, the public were receptive to such apparently grown-up thinking. Now, both those claims-cum-restraints that ensnared Labour have been removed.

If large, real increases in education funding are synonymous with better schools, as Tories imply, Labour can coherently ask “why did you cut real funding beforehand?” Such corrective spending hikes look an admission of a past mistake. Doubly so if funded through borrowing that was previously considered intolerable.

Couching this as “an end to austerity” brings similar peril. These particular decisions don’t imply “we are going to return to affordable spending increases consistent with a low deficit.” If large spending hikes for education are seen as reversing austerity, then obvious questions arise: what about local authority funding? Prisons? Criminal justice? Have these not suffered more from the pain you admit was damaging?

Of course, Brexit is the important context here. It is sucking oxygen from normal economic debates – one reason why the logjam needs to be broken. A slowing economy, induced in part by uncertainty, means an obsessive near-term public finance focus is probably unwise. The very process of extrication requires budget flexibility, not least because the underlying public finances could look very different when future trade relations crystallise.

But all this would be a case for relaxing or suspending fiscal targets through the choppy Brexit seas, not bold new announcements.

No, it’s difficult not to conclude there’s not something bigger happening here. Much of the party has embraced a simplistic “left behind” narrative of the Brexit vote – that it was a cry for investment in public services. They are egged on by former government advisors, armed with polling, who see an opportunity to steer the party towards a “bigger government” vision for the party they’ve always spoiled for.

Academic evidence in fact shows new Brexit voters affiliating with the Tories quickly adopt traditional Tory views on other issues. There’s no need to pander. Yet when you see John Redwood railing against austerity, you realise how strong this view about the changing party voter base has set.

Whether Johnson shares that interpretation is less clear. Perhaps he sees funding boosts now in three major non-Brexit policy areas as short-term deck clearing before an election. Polling strength from these “good news stories” might even firm up pressure on the EU and rebel MPs on his central task. If it helps finally deliver Brexit, many of us will accept fiscal jam tomorrow.

I want to believe this, but the noises aren’t encouraging. And living in the US, where Republicans have gone from a Tea Party anti-spending force to delivering unprecedented deficits for peacetime, in just a decade, I’ve observed just how easily spending conservatism is lost.

Here, it started with big spending increases on priorities too. Republicans cut taxes, yes, but huge cash increases for defence were delivered, greased by money for some Democrat priorities. Once that dam opened though, the money poured. July’s budget deal threw off the last vestiges of spending caps delivered by the Tea Party Congress. Promises of Republican spending restraint in Donald Trump’s potential second term ring as hollow as claims he’s using tariffs as a path to freer trade.

Here’s the worrying consequence. As US conservatives have learned to love deficits, or at least use them, the left’s spending demands have only gotten more extreme. With constraints stripped away, Democratic Presidential candidates feel liberated to propose mammoth programmes and spending hikes – the Green New Deal, a jobs guarantee, universal childcare and more. When asked how the country can afford this, they point out to the red ink spilled for Republican priorities. There is no answer.

UK Conservatives are far from the Republican point of no return on spending, as yet. But the mood music has changed dramatically. America shows that when conservatives abandon spending constraint, they legitimise the left’s spending wild demands, to taxpayers’ detriment.

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Ryan Bourne: In America, public spending conservatism is being lost. It could happen in Britain.

Ryan Bourne is Chair in Public Understanding of Economics at the Cato Institute.

Austerity is over. Theresa May told us so after the 2017 election, and again at the Conservative Party Conference last year. Philip Hammond tried restraining her from a blitz of high-profile spending announcements. Yet Team Johnson has now picked up the baton anyway. Today’s spending review from Sajid Javid will reportedly confirm significant money injections for schools, hospitals and the police. The Prime Minister said Monday it will be “the most ambitious spending round for more than a decade.”

Restraining government spending was always said to be a temporary deficit repair tool, of course. Those “tough choices,” added to net tax hikes, have helped bring down the budget deficit to just 1.3 per cent of GDP, from a gargantuan 9.9 per cent in 2010. Once near-balance, a spending squeeze was never envisaged to continue year after year. Despite Nick Timothy’s fear of libertarians under the bed, no recent Conservative leader has been ideologically committed to shrink the size and scope of government. Absent “thinking the unthinkable,” one eventually must release the spending grip given voter demands for high-quality services.

And yet…the zeal with which the Tories have turned heel on their spending narrative is surprising. Whatever one’s view on the efficacy or composition of “cuts”, they were central to the party’s offer through 2016, including the 2015 election win. Balancing the books was said to be about unburdening the next generation from dumping more debt on top of the iceberg associated with an ageing population. Any intergenerational justice message has now gone the way of the Titanic.

For the Government is not promising gradual targeted spending increases in these areas – a natural uplift from a reset baseline after years of restraint. No, proposed hikes in education funding would virtually reverse any real schools’ spending cuts over the past decade. May’s extra money for the NHS is a big step-change too. The spending review is celebrated as the “biggest, most generous spending review since the height of Tony Blair’s New Labour,” no less – a far cry from denouncing that era’s profligacy. In one swoop, the Treasury has undercut its long-held opposition to raising borrowing and junked the idea that public service reform trumps showering public services with money.

Javid attempts to thread the needle by arguing that more spending is still consistent with keeping the debt-to-GDP ratio on a shallow downward path. That maybe true. But a stated goal of policy was always to balance the books overall, even if George Osborne and David Cameron continually pushed back the deadline. A former Treasury fiscal policy director now says that borrowing will in fact start rising again, and soon be above two per cent of GDP. Manageable, yes – but a clear change in direction.

The public discourse effects of this reversal should worry fiscal conservatives. Cameron and Osborne’s consistent messaging helped entrench two crucial contours in discussions about government spending. First, that there was no free lunch (every Labour proposal for years was met with the question “how will you pay for it?”) Second, that what you did with the money (the organisation of public services) was as important as spending levels. After years of Tony Blair’s money throwing, the public were receptive to such apparently grown-up thinking. Now, both those claims-cum-restraints that ensnared Labour have been removed.

If large, real increases in education funding are synonymous with better schools, as Tories imply, Labour can coherently ask “why did you cut real funding beforehand?” Such corrective spending hikes look an admission of a past mistake. Doubly so if funded through borrowing that was previously considered intolerable.

Couching this as “an end to austerity” brings similar peril. These particular decisions don’t imply “we are going to return to affordable spending increases consistent with a low deficit.” If large spending hikes for education are seen as reversing austerity, then obvious questions arise: what about local authority funding? Prisons? Criminal justice? Have these not suffered more from the pain you admit was damaging?

Of course, Brexit is the important context here. It is sucking oxygen from normal economic debates – one reason why the logjam needs to be broken. A slowing economy, induced in part by uncertainty, means an obsessive near-term public finance focus is probably unwise. The very process of extrication requires budget flexibility, not least because the underlying public finances could look very different when future trade relations crystallise.

But all this would be a case for relaxing or suspending fiscal targets through the choppy Brexit seas, not bold new announcements.

No, it’s difficult not to conclude there’s not something bigger happening here. Much of the party has embraced a simplistic “left behind” narrative of the Brexit vote – that it was a cry for investment in public services. They are egged on by former government advisors, armed with polling, who see an opportunity to steer the party towards a “bigger government” vision for the party they’ve always spoiled for.

Academic evidence in fact shows new Brexit voters affiliating with the Tories quickly adopt traditional Tory views on other issues. There’s no need to pander. Yet when you see John Redwood railing against austerity, you realise how strong this view about the changing party voter base has set.

Whether Johnson shares that interpretation is less clear. Perhaps he sees funding boosts now in three major non-Brexit policy areas as short-term deck clearing before an election. Polling strength from these “good news stories” might even firm up pressure on the EU and rebel MPs on his central task. If it helps finally deliver Brexit, many of us will accept fiscal jam tomorrow.

I want to believe this, but the noises aren’t encouraging. And living in the US, where Republicans have gone from a Tea Party anti-spending force to delivering unprecedented deficits for peacetime, in just a decade, I’ve observed just how easily spending conservatism is lost.

Here, it started with big spending increases on priorities too. Republicans cut taxes, yes, but huge cash increases for defence were delivered, greased by money for some Democrat priorities. Once that dam opened though, the money poured. July’s budget deal threw off the last vestiges of spending caps delivered by the Tea Party Congress. Promises of Republican spending restraint in Donald Trump’s potential second term ring as hollow as claims he’s using tariffs as a path to freer trade.

Here’s the worrying consequence. As US conservatives have learned to love deficits, or at least use them, the left’s spending demands have only gotten more extreme. With constraints stripped away, Democratic Presidential candidates feel liberated to propose mammoth programmes and spending hikes – the Green New Deal, a jobs guarantee, universal childcare and more. When asked how the country can afford this, they point out to the red ink spilled for Republican priorities. There is no answer.

UK Conservatives are far from the Republican point of no return on spending, as yet. But the mood music has changed dramatically. America shows that when conservatives abandon spending constraint, they legitimise the left’s spending wild demands, to taxpayers’ detriment.

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How long will the snap ‘one-year’ Spending Round really last?

The speech on fiscal priorities which the Chancellor was due to deliver today was cancelled at 2.36pm yesterday. In its place, a ‘fast-tracked Spending Round’ on 4th September was announced by press release at the, ahem, unusual time of 10.42pm.

The round takes the place of the planned full Spending Review – on the basis that, as Sajid Javid’s Telegraph article (published at almost exactly the same time) explains, ‘it would be a distraction to start debating every line of government funding’ at this crucial Brexit juncture.

That can be true in a number of possible ways: it could be distracting to the Treasury in the midst of complex negotiations, and labour-intensive preparations for deal or No Deal scenarios; it could be distracting for ministers to force them to fight one another for money just when Downing Street needs them to be completely disciplined and obedient; or it could be distracting for voters when the Prime Minister wants and needs to communicate a very clear message to them, not least for the election which is inevitably on its way. Or all of the above.

In a way, this is a compromise – or at least a hiatus – in a fiscal dispute. One reason a lot of ministers in the fag-end days of Theresa May’s administration were concerned and annoyed about her attempts to make financial commitments in the search for a legacy was that they felt it was pre-empting the necessary and imminent full Spending Review planned for the Autumn.

Postponing that review restricts the new Government’s freedom of action by effectively continuing Philip Hammond’s top-line rules for fiscal policy, but, as ever, such ‘rules’ are often in practice mere guidelines. Hammond’s successor writes himself new space: ‘Thanks to the hard work of the British people over the last decade, we can afford to spend more on the people’s priorities – without breaking the rules around what the government should spend.’

That might sound a little uncomfortable, but ministers will likely be able to live with it for the good reason that it won’t last very long. Officially this Spending Round ‘will give Whitehall departments certainty over their budgets for next year’, but will it really last that long?

Consider the possible scenarios. Either the Conservatives deliver Brexit, then win an election. In which case they’d have a new mandate, potentially a real majority, and Javid would have a good basis to introduce a proper, wide-ranging Spending Review and full new Budget, setting a new agenda for himself and Boris Johnson, finally free of May and Hammond’s hangover. Neither man is likely to want to wait until next year’s official Budget date – some time in mid-to-late Autumn 2020 to do things their own way/

Or the Government collapses, and is replaced by the mish-mash of separatist/unionist/socialist/liberal/conservatives we saw yesterday parading their fragile agreement on not liking Brexit. They’d want to try to do things differently, whether they were able to reach agreement or not.

Or the Conservatives lose an election, in which case some variant of Labour, in majority or in a coalition of some sort with the Lib Dems and/or the SNP, come in – and they’d certainly want to crack on sharpish with fulfilling whatever exciting form of job-destruction and asset-seizure that John McDonnell was dreaming of for all those backbench years. Again, bye-bye one-year Spending Round.

So in practice, this change may be frustrating or restrictive to some degree, but it isn’t likely to be something ministers have to suffer for very long. For good or ill.

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So we’ve had NHS, policing and immigration plans from Johnson. Stand ready for a schools spending pledge.

So Boris Johnson has pledged 10,000 new police officers, as well as a raft of tougher-sounding anti-crime policies, an Australian-style points-based immigration system (not to mention the relaxion of migration rules for scientists), and £1.8 billion for the NHS.  It isn’t hard to see where he will go next, and soon.

The remaining element of Dominic Cummings’s favourite set of policies – tax cuts for lower-paid workers – may have to wait for a publicity push, because these would need legislation, and the Government has no working majority.  Though the Prime Minister could try them on the Commons anyway, daring Labour to vote them down, as part of an Emergency Budget in October (if there is one).

What is likely to come sooner is a Government commitment to spend at least £5,000 on every secondary school pupil.  ConservativeHome understands that this announcement is written into this summer’s campaigning grid.  But we need no special briefing to work this out for ourselves in any event – and nor does anyone else.  For why peer into the crystal of Downing Street announcements when one can read the book: i.e: Johnson’s Daily Telegraph columns?

For it was in one of these, back during the Conservative leadership election, that he pledged “significantly to improve the level of per pupil funding so that thousands of schools get much more per pupil – and to protect that funding in real terms”.  The £5000 figure was briefed out separarely.  This promise was one of the two main big ticket spending items of his campaign, the other being that undertaking to raise police spending.

“It is simply not sustainable that funding per pupil should be £6800 in parts of London and £4200 in some other parts of the country,” the former Mayor of the capital wrote.  Just as the NHS spending announcement was framed by a visit to hospitals in Lincolnshire and Nottinghamshire, expect any school spending news to be projected by a trip to schools in Leave-voting provincial England: all part of the push to squeeze the Brexit Party.

If that column is any guide, don’t be surprised to see a maths, science and IT element too – which would also be very Cummings – as well as a stress on “giving real parity of esteem to vocational training and apprenticeships”.  There is evidence that these are popular all-round, but especially among older voters.  Gavin Williamson is bound to have a supporting role, just as Priti Patel has had with the weekend’s law and order initiatives, but Johnson will lead.

Like his other spending promises, Johnson’s school pledge may not be deliverable in the event of a No Deal Brexit, and there are inevitably questions anyway about timescale anyway.  But if you want to know what more will be in his campaigning package, look no further.

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