David Gauke is a former justice secretary and an independent candidate in South West Hertfordshire in the 2019 general election.
It is an uncomfortable fact that after 13 years of Conservative-ed governments we have a record tax burden. Some of Tory’s usual supporters are clearly disappointed. Poor poll ratings, some would argue, are a result of taxation. If, as it turns out, the party moves into opposition after the next general election, we can assume that many within it will argue that re-establishing the Conservatives’ tax-cutting credentials should be a priority.
It is perhaps in anticipation of that debate that last week Liz Truss set out her defense of the “mini-budget” of 23 September 2022. One of the reasons it ended badly, in his view, was that “large sections of the media and the public at large became unfamiliar with the core arguments about taxes and economic policy” and that “sentiment shifted to the left over time”, as conservatives had “considered these arguments substantially since 2010. failed to do – triangulated with Labor policy instead” He also noted that there was “a broad consensus in favor of raising taxes”.
One can see how this view could become increasingly dominant if both strong economic growth and political popularity remain elusive. As it happens, I sympathize with concerns about high corporation tax rates but pointless tax cuts are not a viable political position, especially after the events of last fall. If the overall amount of taxes is to be reduced, then the question of whether spending as a proportion of GDP can be reduced really needs to be addressed.
This is a much harder problem. Truss and Quasi Quarteng docked it on a mini-budget. Even in that Sunday Telegraph Article, Truss makes only a passing reference to the cost principle. “We have agreed not to reopen the settlement of the recent expenditure review, which will only lead to further claims for expenditure,” he said. “Instead, we will look at specific measures that will reduce costs over time, such as raising the pension age and reforming the benefits system.” “Showing” measures – either indefinite or not delivering any savings over decades – will not be sufficient to demonstrate financial credibility.
To hear some of the contributions to this debate, there is some disconnect between what has happened to government spending over the past 13 years. To characterize the last few years as a time of great spending is simply wrong.
After the global financial crisis, we found ourselves poorer than we thought. If the public finances were sustainable we could not continue as we are. This requires a combination of real terms spending cuts and tax increases. By far the largest share, 80 per cent, was obtained through expenditure. Hardly a drift to the left.
Incidentally, not all cost cutting has proven to be sustainable. For example, as Chief Secretary to the Treasury I remember the then Justice Secretary arguing that we needed to make some cuts in the number of prison officers. On this occasion, the Trust has made a persuasive case and we have increased the expenditure accordingly.
When it comes to public services, often the government’s commitment is measured by inputs, not outputs. In particular, there may be too much focus on numbers of nurses, doctors, police officers and soldiers, and so when there may be new ways of working that require fewer people. But even if the point is conceded, much of what government services do is relatively labor intensive. We need people to do them. Cost pressures will be greater here than in areas of the economy where automation can play a larger role.
Of course, some parts of the public sector have done better than others, most notably the health service which now has a much larger share of spending than it did in 2010. However, this reflects population pressures as a growing proportion of the population ages as they require more healthcare. However, this is a group on which the Conservative Party is heavily dependent.
There is certainly a case for spending money more effectively in the NHS, but it is not politically credible to argue that there is scope for spending cuts. The reality is, the question is how much additional expenditure will be incurred in the coming years.
There has been criticism that the government was willing to turn on the tap too much in the wake of Covid support and to deal with energy price spikes due to Russia’s attack on Ukraine. It is certainly true that the response to Covid added to our debt but the intention was to avoid lasting economic scars, which it essentially did. The energy assistance package would, ideally, be better targeted, but this has proven to be less expensive than initially thought.
However, the point is that these were one-off costs and what really matters, in terms of the financial condition of the people and the long-term need for tax revenue, is the size of the economy and the lasting effect on both. cost
When it comes to spending as a percentage of the economy, we need to look at both sides of the equation. The financial crisis, Brexit, Covid and Ukraine have all had a detrimental effect on GDP growth. As I argued on this site a few weeks ago, we can take measures to improve growth (and especially reduce losses caused by one of these factors) but they are politically difficult. We cannot anticipate a return to high growth, in which case our focus must return to spending.
The post-2010 period was indeed a period of extremely tight spending controls which – aside from one-off Covid interventions – largely remained in place until the October 2021 Comprehensive Spending Review. But the more generous cash settlement announced at the time was based on an assessment of inflation that remained at two percent, not reaching double figures.
Inflationary pressures are such that even Truss and Kwarteng dared not reopen settlements for fear that it would end up costing more, not less. As for public opinion, the latest British Public Attitudes Survey shows that 52 percent favor higher taxes and higher spending, 40 percent favor the status quo and 6 percent favor tax and spending cuts.
To make a convincing case for lower taxes overall, one has to make a convincing case for lower spending overall. It’s not enough to point to a relatively small segment of spending (“diversity and inclusion officers!”) and claim that gives you an answer.