The Conservatives’ big-state mentality is crippling the nation

Lacking a coherent economic plan, the Government finds itself stuck in a high-tax rut

You can tell a government is in trouble when it starts to believe its own propaganda. Ministers answer straightforward questions in ways that have little bearing on reality. We are not there yet with this government. But there are ominous signs. A flashy little document entitled Tax Plan, which came out with the Spring Statement, states that 70% OF WORKERS PAY LESS NATIONAL INSURANCE EVEN AFTER THE NHS AND CARE LEVY. It’s as if “CAPS LOCK” might persuade the reader that the cost of living crisis is not a crisis after all.

And, for once, that word crisis is apt. Last Friday saw bills going up still further. Council tax, energy, phone, food, fuel: people and businesses are being hit by the double whammy of higher prices and higher taxes.

The result: living standards are set for a historic fall over the next year. We are going to see the sharpest drop in real average incomes since the 1970s – and public-sector pay demands, a further hike in energy prices in the autumn and inflation eroding welfare payments mean that things are going to get a lot worse.

This is enough to test any government, but it will be particularly harrowing for this one, whose economic strategy is at best confusing, at worst damaging. Ministers say the Conservatives are a tax-cutting party, but they are putting taxes up. They say they want a smaller state, but they want to spend more on levelling up. They say they are on the side of business, but are raising National Insurance on employers. They say their party is compassionate, but benefits will rise by about 3.1 per cent, while inflation is set to hit 9 per cent.

The Government’s incoherence and confusion stems from a deep-seated malaise within the Conservative Party itself. Since 1997, gradually and at times imperceptibly, many Conservatives have acquiesced to the political consensus that the steady rise in state spending and taxes is somehow inevitable, and that reversing this trend would be politically unpopular. Rather than focusing on cutting taxes, the party has extolled the virtues of government “investment”. Other Conservatives disagreed, but for years the cracks were papered over.

Then came Brexit. Some Brexiteers saw Brexit as an opportunity to scale back the state and lean into the bracing wind of global competition, with lower taxes, lower spending, less regulation. Other Brexiteers – including many former Labour supporters, who voted Conservative in 2019 – saw leaving the EU as a means to fend off globalisation, build a more interventionist state and snuggle down in a feather bed of higher spending and higher taxes. This unholy alliance delivered the Brexit result, and the Conservative victory in 2019. But now the contradictions are plain to see.

This is an attempt by so-called “Tory strategists” to dominate the middle ground of politics. But in the economic maelstrom we are about to enter, without an honest analysis of the problems we face, and without clear principles underpinning a coherent plan, that so-called middle will not hold. Things will fall apart. With public spending on track to hit its highest sustained level since the 1970s, and the tax burden to reach its highest level since the 1940s, we cannot go on spending and taxing more and more. Something has to give.

The crisis of the 1970s forced the Conservatives to ask searching questions about the post-war settlement and the role of the state.

Now, we need to do the same, and ask fundamental questions about what kind of economy we need to improve growth and productivity; and what role the state should play within it. Calls to increase welfare spending, decrease government waste, deregulate more and increase defence spending will tackle the symptoms of the problem, not its cause. The cause is a mindset that sees government, not individuals and the market, as the main solution to the problems we face: a mindset that has enabled the state to grow, fuelled by taxes, year after year. To tackle this, our economy and the state require a reset.

Our approach to the NHS is one example. Health spending has been increasing as a share of total spending for more than 70 years: in the first quarter of this century, it will have grown from 27 per cent to an estimated 44 per cent. “Temporary”, “emergency” increases in its budget have almost always become permanent. With taxes already rising to levels not seen for decades, and government spending soaring to its highest level since the 1970s, at what point are we going to ask whether radical reform of the NHS, rather than simply increased spending, might be a better course of action?

Another area is business taxation, which is too high and too complex. The Government’s attempts to address this are welcome, but insufficient. When the “super-deduction” expires, and corporation tax rises, we will go from having one of the most competitive tax regimes in the OECD to one of the least. By 2025, corporation-tax receipts will hit 3.3 per cent of GDP, back to the highest level ever recorded in 1970. It’s hardly the recipe for a dynamic, growing economy.

Most governments dislike confronting the electorate about painful decisions. But history tells us that failing to do so ends in disaster. Governments rely on trust, and trust is built on truth. And the truth is that we cannot continue as we are.

The Government’s confusion stems from a deep-seated malaise within the Conservative Party itself