We know where Labour stands on the economy – primarily because they don’t shy away from their agenda. They plan to spend more, tax more and increase the role of the state. But with the general election only five weeks away, can we clearly define the Conservative party’s economic agenda?
A report by the Resolution Foundation set off alarm bells this week. They reported that, regardless of who wins the general election, public spending as a share of GDP is predicted to return to heights not seen since the 1970s – a period characterised by economic stagnation, rising unemployment and widespread strikes.
According to the study, the chancellor’s current pledges would see the proportion of annual government spending hit 41.3 per cent of GDP, while Labour would take it beyond a staggering 43 per cent.
The Labour party is likely to see this as no bad thing. They are ready to engage in the battle of ideas, to make the case for government overseeing such a large part of our economic activity. But many will be surprised that the Conservatives, who have hitherto prided themselves as the party of economic freedom and fiscal responsibility, are pledging such a spending boost, especially as they’re not even saying where exactly they’ll find the cash to do so.
The manifestos aren’t yet published, and who knows, free marketeers may find ourselves pleasantly surprised when they are, but it seems that we should brace for some black holes in all of the parties’ accounting books.
Yes, pledging to spend more money – or pledging to spend other people’s money – can always find some electoral appeal, but we’re going to have to pay for the spending hikes somehow, be it through more borrowing, higher taxes or a boost to economic growth. And we’re owed a grown-up conversation about the trade-offs of each.
The 2017 election proved that no good can come from pandering to the big state, big spending agenda, especially when a socialist party will always be willing to outbid you. The prime minister is in a strong position to make the case for capitalism, having done so on many occasions both in and out of Number 10, but repetitive talking points about NHS spending do not add up to a fully formed vision for the future of the economy.
Some will argue that, for now, fiscal constraint should be parked and that with Brexit on the horizon, balancing the books is far from the top priority. But the opportunities of Brexit should go hand in hand with a pro-market, pro-competition agenda.
Cutting corporation tax, for example, has been shown to increase tax revenue to the Treasury and can also allow Britain to become more competitive when attracting business to our shores. Likewise, making the case for free markets nicely compliments the free trade deals the UK hopes to strike around the world once it’s left the EU.
And regardless of Brexit, there is no excuse for the supposed party of economic prudence to rack up the very budget deficit that it’s done well to tackle over the past decade. It’s young people – our generation – that will have to pay back today’s uncosted spending. Support for fiscal irresponsibility is support for higher taxes down the road.
It’s not all doom and gloom. Considering the tax burden is at a near-fifty year high in the UK, the Conservative’s pledge to cut national insurance is more than welcome – a long overdue reform which helps reveal the actual level of tax that workers (specifically low earners) are paying – and one that the Institute of Economic Affairs has been proposing for years.
But it’s unclear where this fits in the overall offering. Is this just the starting point which will lead to more pro-enterprise policies, such as cuts to stamp duty, business rates and overall red tape? Or will this be a one-off tax cut in a sea of cash splashing around?
We can only hope it’s the former. But whatever happens, today’s ideological clash of ideas is too important for free marketeers to sit it out.