Editorial Comment:
Britain’s public debt surged past £2trillion for the first time ever in July, making it equal to 100.5 per cent of GDP, a level not seen since the Sixties. Rishi Sunak said: “Today’s figures are a stark reminder that we must return our public finances to a sustainable footing over time.”
It is good that the Chancellor is talking frankly with the public. The choice we face is between the intolerable risk of a permanent deficit, raising taxes, or cutting spending. Will the Government tackle this challenge as Conservatives, or like a pale imitation of the Labour Party?
Elements of this crisis are long-term. Britain has an ageing population; spending on health and pensions has been rising steadily and it will be hard to cut social expenditure during a pandemic. Every country across the world has had to loosen its fiscal rules to keep society and the economy going.
On the other hand, the Tories were already committed to spending increases prior to Covid-19 and it would have taken considerable luck to implement them without some kind of tax hike. The rationale is political. The Conservatives won a historic landslide thanks to Brexit, but they worry that their new coalition cannot last unless they throw some money at it. Austerity polls badly in the Red Wall seats; if Boris Johnson is a populist, the argument goes, then he has to give the people what they want.
But satisfying the instincts of one half of this electoral coalition could jeopardise support of the other. Put bluntly, are the Tories willing to raise taxes on the middle class, on those saving for their pensions, and on other investors? Not only is that economic malpractice, it would contradict Mr Johnson’s own, long-standing support for freedom and would be the last nail in the coffin for the Thatcherite post-war conservative revolution.
The Tories have gone down that path before, notably in the Nineties, and it did not work. The voters appreciate constancy and value philosophical clarity; they also understand, as they showed when they last booted Labour out of office, that you cannot spend more than you can afford. The British have a quiet, common sense conservatism that some Tories under-appreciate.
As the Treasury and Cabinet debate the choices, Mr Johnson should be guided by the small-state instincts that won him the party leadership. The whole point of Brexit was to liberate our citizens and unleash their potential, and we are going to need a recovery based on innovation and private enterprise, savings as well as investments. The Government needs to build the practical and moral case for a new era of conservative economics.