Lord Frost’s resignation has reignited the internal Tory battle for the party’s economic soul. In his resignation letter, Frost spoke of his concerns about the ‘current direction of travel’ and his hope that the Government would ‘move as fast as possible’ to ‘a lightly regulated, low-tax, entrepreneurial economy’.
Conservative opinion is, to put it mildly, divided on the wisdom of this approach. ‘Clean Brexit’ Tory Whatsapp types support Frost, with one MP (Marcus Fysh) claiming that Brexit was always about ‘radical supply-side reform’. Will Tanner, director of communitarian thinktank Onward, contends instead that a small state agenda would collapse the Tory 2019 coalition by losing working-class Brexiteer votes.
What is ‘radical supply-side reform’ anyway? Supply-side economics often gets conflated with an aggressive US marginal tax rate cutting agenda that has, it’s true, promised too much where economic growth is concerned. But, broadly understood, supply-side economics is just recognition that more production is the essential foundation for higher living standards.
As a policy agenda, supply-side economics is about shaping regulatory, competition, trade, tax, and welfare policies to the aim of improving longer term incentives for more productive work and investment.
In practical terms, a supply-side platform would unpick barriers to trade or to the efficient allocation of workers, capital, and entrepreneurial endeavour, all as a means of creating more market-led output. These changes usually require careful, detailed, and sometimes controversial reforms of product and labour markets, often bringing short-term costs for longer term gains. But if done well, supply-side economics promises the double-dividend of higher output and lower prices.
Who could object to that? Higher output, after all, makes most other economic challenges easier, including pressure on the public finances. By definition, if supply-side economics represents a strategy for the politics of more – be that more abundant housing, more childcare pluralism, more abundant, cheap energy, cheaper food and more consumption generally – then its opponents are those content with the politics of less.
And, yes, its biggest critics in the Conservative party tend to be people who are willing to trade-off efficiency for other objectives (say, protecting the way a community feels) or those who think we should just redistribute the output we have. Its biggest opponents, in fact, are invariably local or national protectionists – typically vested interests who would stand to lose out if regulatory or trade reform encouraged competition.
If that all seems esoteric, a good example of a supply-side policy might be planning liberalisation. The gains to aggregate economic welfare from a system that allowed more homes to be built in areas people want to live would be huge. GDP would rise as people were better matched to jobs and more people would see their true housing preferences met. Yet many existing homeowners would be worse off, while other intellectuals object to reform because they think keeping London from growing larger or denser is desirable for less tangible reasons, such as national cohesion.
The infuriating aspect of the debate over the desirability of supply-side economics is that Tories in different camps talk past each other. Supply-siders think their ideas would be good for the economy. Anti-supply siders instead tend to focus on electoral politics, masking their own views by standing behind the shield of voter opinion, declaring ‘this is not the sort of thing new Tory voters want’.
We should be suspicious of such blanket psephological declarations. Sure, Red Wall voters (or any voters for that matter) don’t tend to sit around longing for reform of the regulation of transfers of undertakings, or even height limits of buildings in cities. They might recoil if they hear these ideas with no discussion of the benefits and trade-offs.
But research from James Frayne of Public First shows blue collar Red Wall Tory voters aren’t instinctively champions of a large, intrusive regulatory state. In fact, they tend to favour lower taxes more than professionals do, believe much government spending is wasted, and tend to personally benefit more than most from cheaper goods and services that result from free trade.
While it’s true many Brexit voters might say in the abstract that they don’t want, say, EU employment law reform or agricultural deregulation, Margaret Thatcher was convinced that it was the results of policies that mattered where electoral politics was concerned. If successful supply-side ideas helped fulfil a broad Red Wall voter goal of ‘creating more local jobs and encouraging business investment’, or even just delivered cheaper food and energy, who knows what the electoral dividend might be?
But suppose it were true that many Brexiteers in Red Wall seats were philosophically predisposed to hate market economics, whatever the consequences. Does that mean the Tories should just give up entirely on the idea of economic efficiency?
At the moment, the discussion of where the Conservative party should go on economics is too driven by people trying to interpret what the referendum really meant about voter’s wishes, rather than what Conservatives think objectively is best for the country. But Brexit wasn’t a policy platform. It was a constitutional decision to leave a supranational governance structure and to repatriate a bunch of powers to our Parliament.
That act of repatriation means how we use all those levers, and how they fit into a broader economic policy, is now up for grabs. Supply-siders are within their rights to campaign for liberal economic policies, just as any Red Tories are to argue for interventions. But whether one agrees or not with Lord Frost about precisely how those newly minted powers should be used, it would be fruitful to at least debate the ideas on their economic merits every now and then, rather than just constantly appeal to the authority of push opinion polling and a referendum held five years ago.
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