Pastiche Thatcherism is not the solution to Britain’s problems

Out of the blue, and for no good reason, the Conservatives have conceded the mantle of economic competence to the Labour Party.

For years the libertarian right has talked a great game. Growth is easy, they insisted. Just slash taxes. Cut regulations. Cancel workers’ rights. Privatise public services. Build over the countryside. If only they could get their hands on the levers of power.

Now, with Liz Truss in Number Ten, the libertarians have grabbed the levers and the Government is decidedly theirs. Following the disastrous and unconservative Budget ten days ago, the Adam Smith Institute declared itself “encouraged to see so many policies … we have advocated for over many years.” The Institute for Economic Affairs was just as cockahoop, describing the package as “guided by sound economic thinking”. As a US libertarian mocked delightedly, “you say ‘trickle-down economics,’ I say ‘net positive spillovers from cultivating upper-tail human capital.’”

In other words, the Budget delivered tax cuts for the rich, funded by the deliberate establishment of a structural deficit in public spending. This is everything conservatives have argued against for years, and precisely what Rishi Sunak warned about in the leadership campaign. “I don’t think the responsible thing to do right now,” he said, “is launch into some unfunded spree of borrowing and more debt that will make inflation worse.” The Truss team called him a doomster.

But he was right. The free market ideologues found themselves immediately let down by the markets they worship. Sterling started to slide. Gilt yields started to rise. Pension funds lost capital and almost went under before the Bank of England intervened, citing “a material risk to UK financial stability.”

The cost to ordinary people and families is clear. Government borrowing costs will increase. Inflation will stay higher for longer. Mortgage rates will go up quickly, to perhaps as high as six per cent. House prices will fall. Pensions will struggle. And to stave off pressure from the markets, the Government will soon announce a new wave of austerity, cutting departmental budgets even as public services struggle with the consequences of Covid, an ageing population and rising demand.

After a Budget that promised to let people keep more of what they earn, most will be worse off. And why? Truss and Kwarteng, are not wrong to say that we desperately need economic growth. Nor are they wrong to complain about the stultifying effects of Treasury orthodoxy. But convinced by ideological libertarian dogma, they believed that tax cuts would quickly unleash growth, Tory MPs would vote for unpopular supply-side reforms, and the markets would tolerate the complete absence of a fiscal plan.

They were wrong on all three counts. Truss has accepted mistakes in the communication of the Budget, but the problems are with its substance. Partly this is a fault with the people at the top. MPs complain that Kwarteng is “intellectually flippant” and Truss “does not present an argument; she simply asserts that her ideas are right, and yours are wrong.” There seems to be little understanding that there is no mandate – from party members, MPs or the public – for the measures they propose, from the abolition of the top rate of tax to cutting workplace rights.

But the problem is also philosophical. Libertarians and more ideological liberals believe in their creeds because they put personal freedom above all other values. This is why their policies are unpopular: most of us treasure security and solidarity as much as freedom, we yearn to belong, participate and contribute rather than escape our place in society, and we know that the norms and institutions that constrain our freedoms are there for good reasons.

But this fixation with freedom is wrong in reality as well as unpopular. And deep down, beneath the brittle shell of certainty provided by her ideological templates, the PM must know it. For such template thinking is by its very nature overly simplistic. It misunderstands the deep complexity of modern society and the problems we face. It insists tax cuts can unleash sustainable growth. It claims we can “level-up” by getting government out of the way. It assumes displaced workers without opportunities to retrain can provide for their families without welfare support.

This is utter nonsense, of course. Our most serious and entrenched challenges are not simply caused by “big government”. And they will not be resolved by another aggressive burst of state-shrinking. The origins of our problems lie in the complex interconnections between social and economic failures and the steady decline in state capacity and ability to govern well.

Consider some examples. If we want lower taxes, for example, we need to reduce the bills of economic and social failure. We need stronger families, better schools, and better choices for kids who do not want to go to university. We need to cut crime, reduce immigration, and build more houses. We need a better-balanced economy, with more manufacturing, more exports, and more opportunities in the regions. We need efficiency in public services, the decentralisation of power and better government.

Equally, we will never reduce immigration as far as we must until business invests in automation and labour-saving machinery, employers – not least the NHS – play a part in educating and training the workers they will need in future, and the financial model for higher education is no longer dependent on selling long-term immigration and settlement.

We will not get to grips with policing and crime unless we cut drug use, end the failed experiment of care in the community for people with serious mental health problems, and lock up those who commit high-volume crimes for a very long time. Each solution, of course, is a serious policy challenge in its own right.

There are many more examples. But the theme running through all our problems is their interconnecting complexity. We cannot fix them with templates, nor with pastiche Thatcherism. Britain needs the restoration of community and commitment, reinvigorated markets and a return to good government. What we have instead simply will not do.