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Stepping stones towards the developmental market? Theresa May's conference speech
As she prepares to deliver possibly her final, but certainly her most important, speech to the annual Conservative Party conference, Theresa May must surmount the same political dilemma every Conservative leader since Margaret Thatcher has confronted: whether, in order to assemble a domestic programme for government capable of winning an outright parliamentary majority at the next General Election, the Conservative Party should offer more stepping stones on the journey to a smaller state, lower tax developmental market economy, or whether it should move away from the political common ground it has occupied for more than four decades.
It is now more than 42 years since Sir Keith Joseph first proposed that monetarism would not on its own be sufficient to reverse the relative decline of a United Kingdom which was ‘over-governed, over-spent, over-taxed, over-borrowed and over-manned’.
Then, Joseph and Margaret Thatcher’s shared thesis was that British politics had become stranded on the middle ground of the post-First World War quest for state-led industrial modernization and collectivist welfare provision.
The Conservative Party must abandon the failed ‘middle way’ of One Nation conservatism, and instead occupy the centre right territory of the political common ground, to offer the electorate a new British model of political economy, built upon Hayekian market liberalism.
As an alternative to the more consensual official Conservative Party strategy, ‘The Right Approach to The Economy’, with its advocacy of ‘some kind of forum’ for tripartite discussion of the government’s fiscal and monetary policies, in Opposition Thatcher was advised to confront the trades union and socialism, and to take a series of ‘Stepping Stones’ towards an alternative: ‘The task of the next Tory Government - national recovery - will be of a different order from that facing any other post-war government. Recovery requires a sea-change in Britain's political economy’.
Those stepping stones would enable a sea-change in political economy from a middle ground drive for a British developmental state, borne in the Edwardian quest for national efficiency, towards a British developmental market, and the restoration of an entrepreneur-led enterprise culture, built upon the policy triumvirate of privatization, liberalization and deregulation.
In government, Thatcher and Joseph offered ‘a different analysis and a different set of policies’.
As she prepares to deliver what may be her last annual conference speech as Prime Minister, Theresa May must decide to take further steps down the road towards a smaller state, lower tax developmental market economy.
The gauntlet has been well and truly thrown down by last week’s well-received speech to the Labour Party conference by Jeremy Corbyn in which he pledged to rebuild Britain by abandoning austerity and the flawed model of political economy upon which it had been founded.
Corbyn’s claim to be articulating ‘the new common sense of our time’ appears to be attuned to the mood of the electorate. During 2018 opinion surveys have shown consistent public hostility to continuing austerity, and growing support for increased levels of taxation and public spending.
For example, the most recent British Social Attitudes Survey revealed 60% of people now favour government increasing taxes and spending more on public services (compared to just 31% in 2010), including a majority of both Labour (67%) and Conservative (53%) supporters, and with health and education the top priorities. Only 4% thought that government should tax and spend less.
May’s own immediate retort was to promise an audience of business leaders in New York that ‘a post-Brexit Britain will give you the lowest rate of Corporation Tax in the G20. You will access service industries and a financial centre in London that are the envy of the world, some of the best Universities in the world, strong institutions, a sound approach to public finance and a consistent and dependable approach to high standards but intelligent regulation’.
If Theresa May’s conference speech merely returns to the familiar mantra of her British nationalist vision of a post-Brexit ‘Global Britain’, championing the virtues of the liberalism of free trade and free markets, official statistics suggest that a domestic policy agenda of more tax cuts for business and further austerity for public services is unlikely to deliver strong and stable economic prosperity.
Ten years after the 2007-08 financial crisis, private business investment is reported at now only a paltry 13.2% above its pre-downturn peak in the first quarter of 2008, a compound average growth rate of 0.2%. By contrast, the Office for Budget Responsibility has noted how ‘a decade after the 1980s and 1990s recessions, business investment was 63 and 30 per cent higher than the pre-recession peaks respectively’.
As Paul Johnson, the Director of the influential Institute for Fiscal Studies noted at the time of Chancellor of the Exchequer’s March 2018 Spring Statement, ‘The ten years of growth since 2008 have been worse than any comparable period coming out of any recession since the 1920s. The economy is 14% smaller than might reasonably have been expected in 2008 based on pre-crisis trends, while national income per person is £5,900 lower compared to the same benchmark’.
The mounting evidence confronting Theresa May is that austerity has failed, in its own terms, to rebalance the nation’s finances or to provide a strong and stable foundation for economic recovery.
From the Office for National Statistics, eight years of government has seen the United Kingdom’s net public sector debt balloon by £750 billion, from £1031.4 billion to £1781.9 billion, including a £167 billion increase during the two years of May’s premiership.
Therefore, in drawing up the most important conference speech of her political career, Theresa May must make critical decisions about the two principal stepping stones- Brexit and austerity- which have been seen by their many influential proponents within the Conservative Party as the keys to the completion of that sea-change in the British model of political economy first envisaged by Margaret Thatcher and Sir Keith Joseph.
First, May must decide whether to cut her losses and abandon the Chequers Plan. Given its wholesale rejection by European Union leaders at the Salzburg informal summit, and her leadership rival Boris Johnson’s summary dismissal of it as ‘entirely preposterous’ and ‘deranged’, pragmatically moving towards some form of Canada-style free trade agreement, founded upon World Trade Organization rules, would garner much wider support within the Conservative Party, and be a possible stepping stone towards a viable Brexit deal.
Second, in looking towards the forthcoming 29 October 2018 Budget and, even more importantly, the cross-Whitehall 2019 Spending Review, May must decide whether to loosen the national purse strings, and commit to tax increases to fund increased public spending for all major public services, beyond the additional £20.5 billion promised for the National Health Service in England by 2023-24.
While the former option will be consistent with her party’s previous stepping stones on its journey towards the developmental market economy, any departure from fiscal consolidation, however popular politically in the short run, will inevitably call into question the necessity of the past ‘lost decade’ of austerity, and the social and economic pain it has caused.
Dr Simon Lee (firstname.lastname@example.org/ Twitter: @ENGLISHFUTURES) is Senior Lecturer in the Department of Politics at the University of Hull. He is the author of two single authored books, the co-editor of seven books, and has contributed chapters to more than 30 other publications. He is currently working on the completion of The State of England: The Nation We’re In, a major research monograph which argues that Brexit is a ruinously expensive distraction from the more urgent need for a debate about the condition of England and its governance.
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