Even the most ambitious of Tory backbenchers can hardly envy the Chancellor of the Exchequer as he presents his Spring Statement to a nervous nation today.
After all, he faces the debt hangover from Covid, estimated at £2.3 Trillion in January 2022 (and four times greater than the level pre-2008 Financial Crisis), a tax burden higher than at any time since avowed socialist Clement Attlee was Prime Minister, and a cost-of-living crisis driven both by President Putin’s invasion of Ukraine and energy prices. And his job is to solve all three problems – cut the costs of living, balance the books, and do it all without raising taxes.
How the Chancellor responds to these challenges will likely define both the economic and political direction of the nation for years to come. The Government is made of self-confessed ‘free marketeers’, who claim to believe in the economic lessons of Thatcher. Yet the reality is that, even excluding the emergency measures taken to combat the pandemic, the last three years have seen more tax rises, more regulation and more and more money thrown at unreformed public services.
The Chancellor, who has in two years increased taxes more as a percentage of GDP than Gordon Brown managed in a decade at Number 11, pledges that tax reductions are coming. Yet, considering he is also refusing to consider significant spending cuts nor accept higher borrowing, it is difficult to see how significant tax cuts could be achieved before the next General Election, whether in 2023 or 2024.
If the Government wishes to be re-elected, it cannot do so simply by trying to outbid Labour on increased spending. Labour will always be able to promise more on the NHS, higher welfare and better pensions. The Government’s ability to defuse this bidding war by referring to Labour’s ‘magic money tree’ will ring hollower now that the they have ‘found’ hundreds of billions of pounds for additional spending. Instead, they should be looking for free market reforms to cut tax and regulations across the economy.
But even if the Chancellor is right that there is no money left for big tax cuts (and, one hopes, this also means we should not expect significant spending increases either), there are many areas where low-cost, reasonably uncontentious reforms could be introduced to signify the direction of travel. Announcing a full review to simplify and streamline the tax code, for example, would show the Chancellor is thinking about a freer post-Covid world. Reversing efforts to clamp down on the self-employed would indicate that the Government once again appreciates the entrepreneurial role they play in our economy.
The biggest pressure on the Chancellor will likely come from those demanding additional support to cover the costs of living increase. Instead of constantly trying to play catch up using the benefit system, the Chancellor ought to be undertaking a root-and-branch study into how government regulation increases the costs on British families and how de-regulation could reduce these costs without impacting government finances.
The Conservative Party rarely maximises its vote when it runs on an anti-free market platform. The last General Election saw voters across the country, who had never considered the party previously, develop an appetite for low taxes and sensible conservative economics. If the party really wants to help the people of Britain, not to mention re-energise them for the next election, the Chancellor should show he is prepared to deliver on this promise to the voters, rather than just continue with social democratic policies in a blue rosette.
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