Wanted: a small-state, low-tax Conservative leader

The Tories are split on a basic question of economic ideology

There are two separate sources of division in this leadership contest, which is one of the reasons that it is so hard to read. There is still a fund of recrimination between what were once Leave and Remain supporters. For those who were prepared to lay down their political lives for Brexit, the original sin of the adversaries who fought on the wrong side of this bloody civil war is almost impossible to expunge.

But for that section of the party

– and even larger section of the electorate as a whole – who regard the question of our membership of the EU (if not necessarily the way the exit has been handled) as finished, there is a more important split on a question of fundamental ideology: do Conservatives still stand for smallstate, low-tax government or have they become effectively a social democratic party that promotes state intervention and high taxes?

Perhaps counter-intuitively, the two sides of these disputatious areas do not coincide. Liz Truss, who supported Remain, is now regarded as the potential saviour of the Tory Right with an unambiguous commitment to small-state, low-tax policies and fairly traditional social attitudes. While Penny Mordaunt – who campaigned actively for Leave – has been, whether she likes it or not, cast as so socially liberal as to be almost unopposable by the Labour front bench (which her supporters present as an advantage).

At some point, hopefully quite soon, the party is going to have to decide which of these arguments is more important, not only to its own electability but to the future of the country. The answer to this must be obvious. Anyone with a grip on reality should see that the fight over what government is for – what are its proper responsibilities and limits – must take precedence over everything. And this may be the last possible moment in which it will be possible to have it.

So I am less shocked by the nastiness of the campaigning than many commentators profess to be. The vitriol of it may be alarming but it is not surprising. This is now a life-and-death struggle to preserve the philosophy that, within living memory, saved this country from despair and decline.

Over the past two years, perhaps because of the Covid emergency, the Conservative party in power has embraced not just state intervention – which might have been understandable in the circumstances – but increases in benefit dependency (sometimes known as “targeted help”), public sector power and forms of taxation that positively discourage inward investment (corporation tax).

Rishi Sunak, who supported Leave, led a deliberate programme of raising taxes on what he regarded as the principle of sound money and the repayment of unacceptable levels of debt. It used to be said that he had done this in the teeth of resistance from Boris Johnson, although this has now been thrown into doubt by Tom Tugendhat.

Whatever the historical truth, the fact remains that Mr Sunak, in his determination to save his credibility as a future leader, is ready to defend it to the end. He has dismissed as outrageously irresponsible the promises being made by his rivals to cut any taxes immediately. But at the same time, he insists that he is, by conviction, in favour of lower taxes. Just not yet. He implies that this is simply a disagreement about timing, not principle. He may mean this quite sincerely, but it is a delusion. Once created, the fiscal apparatus that uses high taxation to fund new forms of state intervention and encourages expectations of selective relief only for the “less well off ” is almost impossible to dismantle. It creates a permanent dynamic of poverty traps and disincentives to aspiration and innovation.

This was the most important – in fact, the only – point of real collision between the candidates in Friday night’s television debate. Only when the subject of tax cuts hit the fan did the urgency of their personal differences come into any sort of focus.

Rishi Sunak, who had begun with that air of egregious self-regard that his team appear to believe constitutes charm, was reduced to what looked like real exasperation. Defending his insistence that promises of immediate tax cuts were “fairy tales”, he may have looked desperately defensive, but at least it was possible to get a glimpse of the man behind the slick presentation. It was almost endearing.

Another revelation was the disappointing performance of Penny Mordaunt, whose famously disarming frankness seemed to leave a vacuum where economic policy recommendations should have been. She resorted to the vague assurance that she was indeed in favour of cutting taxes, but wouldn’t say how – because that kind of detail could only be addressed in a “major fiscal event” like a Budget.

But that is a glib cop-out. We are having this discussion now because it is vital to know what precisely the next prime minister believes to be feasible. Everybody on the panel agreed on the need both to deliver relief to households that were about to be hit by a devastating increase in their cost of living, and to encourage growth in the economy. Taxation policy has to be central to this project. It is imperative that we learn – at least in broad outline – what each of these prospective heads of government intends and how they justify their commitments.

The only one who did this with genuine fervour was Liz Truss. She not only stood by her original insistence that it was better to extend the debt repayment than to penalise ordinary working people by clobbering them with more tax when the price of essentials was about to rise exponentially, she also had a command of the context of those price increases – the war in Ukraine and the debt levels of other major countries. As she grew more heated, she lost that faintly robotic stiffness with which she had begun and became more convincing. This is what we need to see now: real people engaging in a real fight about what really matters.

Anyone with a grip on reality should see that the fight over what government is for must take precedence