Why my father, the great Tory tax-cutter, would be backing Rishi’s cautious approach today
BEDLAM broke out in the House of Commons during the Budget Statement of 1985. I saw it for myself, as I had a privileged position in the gallery: my father, Nigel Lawson, was the Chancellor.
It was when he announced that he was slashing the top rate of income tax from 60 to 40 per cent that the place erupted, with Labour cries of ‘this is an obscenity’. Hansard also records that ‘grave disorder
having arisen in the House’, the sitting had to be suspended.
The Opposition’s fury was the Conservatives’ delight. That budget, far and away the most radical under the leadership of Margaret Thatcher, is invoked to this day by Conservatives — and especially now, at the onset of a party leadership
election in which tax seems set to be the biggest battleground.
On this score, Rishi Sunak has laid out his stall as the teller of hard truths.
In his resignation letter last week, he declared that both he and the Prime Minister wanted ‘a low-tax, high-growth economy and world-class public services, but this can only be responsibly delivered if we . . . take difficult decisions. I firmly believe the public are ready to hear that truth. Our people know that if something
is too good to be true then it’s not true.’
Aggressive
This was a defence of his strategy to bring the deficit — grotesquely swollen by the economic consequences of Covid-19 — under control, first with a manifestobreaking national insurance increase to fund the ‘social care plan’, and now with a sharp rise in corporation tax.
(It’s important to note, though, that under Sunak’s proposal to raise the levy to 25 per cent, small businesses will be exempted through a ‘profits threshold’:
about 70 per cent of enterprises will continue to pay the existing 19 per cent rate.)
Meanwhile, the rest of the almost comically numerous contenders are now in a separate competition to see who can
be the most aggressive tax-cutter. One of yesterday’s front-page headlines referred to a ‘call for massive tax cuts’ by a number of Sunak’s rivals.
These include Sajid Javid, Liz Truss, Jeremy Hunt, Grant Shapps and Tom Tugendhat. Interestingly, all these candidates campaigned for remaining in the EU during the 2016 referendum campaign. Sunak, despite great pressure exerted on him by the then Prime Minister David Cameron, joined the Leave team.
Given the overwhelming preference of the party’s membership for that side of the argument, given that they remember who was in that trench with them and given that it is their votes that will finally decide who becomes leader, it is clear why so many Conservative former Remainers
make the claim that they are truest to the party membership’s tax-cutting instincts.
And truest to the legacy of Margaret Thatcher, whose Eurosceptic rhetoric (if not her actual decisions while in office) inspired many of those who campaigned to leave the EU. In fact, as a boy, Sunak wrote an article for his school magazine, lamenting the election victory of Tony Blair in 1997, precisely on the grounds that the Labour leader was fully signed up to the ‘European project’.
But where would Mrs Thatcher stand now on the tax and spend issue? I suspect she would have been wary of those who pledge ‘massive tax cuts’ without specifying how they would cover the revenue shortfall, other than by yet more borrowing.
Indeed, a number of the candidates have been simultaneously demanding much greater public expenditure on defence (fair enough), but without remotely suggesting which budgets they would cut to find the extra countless billions proposed.
They are all ‘cakeists’ — that is, following Boris Johnson’s remark, which he always lived up to, that ‘my policy on cake is pro having it and pro eating it’. Let’s not forget that our national debt stands at more than 100 per cent of GDP, compared to 83 per cent before Covid struck, and this financial year the interest bill alone on central government debt is likely to reach £85 billion.
It is true that tax cuts can have a stimulating effect on the economy. Yet
the problem facing us is not a lack of demand, but inflationary pressures. Adding to those might not be the brightest move on the economic chessboard.
We should also not forget that when Margaret Thatcher took office, she regarded her primary duties to be suppressing inflation and bringing public
expenditure under control. My father’s tax-cutting measures followed later.
In the summer of 2020, I discussed this with Rishi Sunak. He told me that he had
re-read my father’s political memoir, The View From No. 11, and wanted him to return to that London address so that they could meet.
I told Sunak that unfortunately my father, then 88, was not physically able to make the journey from his home in Sussex.
In an instant, Sunak said that he would get on a train to see him there, which he did one evening a few days later.
Spurious
And a few months ago, this is what Sunak said in a lecture to Bayes Business School,
London: ‘ “The notion that tax cuts, without any spending cuts or substitute source of revenue, will so stimulate the economy that the Budget balance will improve, enabling further tax cuts to be made. . . is a spurious kind of virtuous circle and emphatically not part of my thinking.” ’
He then added: ‘Not my words — those of Nigel Lawson.’ From my father’s memoir, in fact.
Sunak went on to quote Margaret Thatcher’s own memoir, specifically her account of the immensely tough 1981 Budget: ‘I was horrified at the thought of reversing even some of the progress we
had made on bringing down Labour’s tax rates. Yet I knew in my heart of hearts there was only one right decision, and that it now had to be made.’
I’m fine with various would-be Conservative leaders promising instant tax cuts. But only if they simultaneously set out which budgets they would reduce and how, would I consider any of them suitable
for the job of Prime Minister.