UK: Canary in the Coalmine for Reining In Unaffordable Big Government

UK: Canary in the Coalmine for Reining In Unaffordable Big Government. By Daniel Hannan.

God, what a depressing time to be a Tory. The Conservatives have a 71-seat majority, yet baulk at a minor simplification of the tax rules — a simplification that would almost certainly raise more revenue for the Exchequer in the long run.

Rebel MPs vetoed the scrapping of the 45p top rate, not because they thought it would harm the economy — I have not heard a single one of them argue that, privately or publicly — but because they fretted about the optics.

It is now considered unacceptably Right-wing to return to the tax rates that pertained for 155 of the 156 months that Tony Blair and Gordon Brown were in office. Never mind that the total tax take is vastly higher now than then. Never mind that the rich are paying more, whether in absolute or proportionate terms: a third of all our income tax is paid by the top one per cent, and a staggering 10 per cent by the top 0.1 per cent. …

In our Twitterised age, none of that matters. Outrage trumps statistics.

If Tory MPs won’t let Liz Truss deliver lower, flatter, simpler taxes — something they kept demanding under Boris Johnson, something she promised when standing for the leadership — what are the chances that they will allow more controversial reforms?

For all pro-growth policies are controversial … Every one of Margaret Thatcher’s privatisations, for example, was unpopular; but Conservative MPs of that era understood that what matters is not the popularity of a policy, but the popularity of its consequences.

Overall taxation, as is often pointed out, is higher than at any time since 1949. What is less often pointed out is that, by 1949, Clement Attlee was rapidly bringing down spending as the consequences of demobilisation fed through. Today, by contrast, MPs seem content to treat as permanent the spending increases that were brought in on a supposedly emergency basis during the pandemic.

There is no universe in which that is feasible. Even if governments could spend their way out of trouble (they can’t) the capacity of the British state is exhausted. We cannot tax or borrow more. We have to bring spending closer to its pre-2020 level. We can do this in one of two ways: by expanding the economy, so that government expenditure shrinks in proportionate terms; or by carrying on as we are, and having harsher cuts imposed on us by the market, Greece-style. …

If equality were the issue, the rebels would have objected, not to the tiny cut in top rate tax, but to the hugely more expensive capping of energy bills. They would have campaigned, not against giving people on £160,000 incomes a £500 tax cut, but against giving them a fuel subsidy that might be worth £3,000 or even £4,000.

No, we keep coming back to the simplest and most depressing explanation: sheer funk. “It will never be known what acts of cowardice have been motivated by the fear of not looking sufficiently progressive,” wrote the French poet Charles Péguy in his essay Notre Patrie. And that was in 1905, before the rise of gotcha interviews and online snark.

For two weeks now, my phone has been buzzing with requests for TV and radio interviews — a sure sign that not a single current Tory politician is prepared to go on air. It is understandable, I suppose. Who, in this age of shrunken attention spans, wants to explain the Laffer Curve when the other panellist is calling you a heartless brute? Yet it is precisely this pusillanimity that has allowed the centre of gravity to be dragged so far Left.

MPs might, with some justice, point out that voters’ demands are contradictory. They applaud net zero, but complain about fuel bills. They defend the green belt, but moan about house prices. They dislike deregulation, but feel the economy is too sluggish. They insist that we put “people before profits”, but want a higher standard of living.

MPs might add, again with some justice, that reflecting their constituents’ inconsistencies back at them seems to work. Labour and the Lib Dems blocked both nuclear power and fracking, yet the energy crisis has somehow become a Tory problem. Keir Starmer opposed every loosening of the lockdown, yet now rails against inflation. …

Think back to when you were at school. Who were your best teachers? I’m prepared to bet that it wasn’t the ones who wanted to be in with the cool kids, and tried to buy popularity through leniency. In a similar vein, governments that slavishly follow opinion polls end up being paradoxically unpopular.

Free-market liberalism has always been a fringe creed. That was as true in the 1980s as it is today. But Thatcher won three election victories because, although her economic policies were individually disliked, the results they produced were not.

A dumber population hooked on the easy life afforded by cheap money and profligate money manufacture for the last 40 years. The bill is arriving, in the form of inflation and tax increases.

Government has grown too big on the back of newly created money, and is unsustainable. The current crop of politicians grew popular by promising benefits for no pain. Rock, meet hard place.