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4 July 2023

The price of the Tories’ cynical economics

The Conservatives’ governing philosophy is that the consequences don’t matter so long as there is a line to take.

By Jeevun Sandher

“Do ministers want us to change the chart so the public won’t be able to see how much the cuts hurt them?” That was the rhetorical question I asked my boss as a young economist working in the Treasury in 2015. The Conservatives had just won a majority and, being an Ed Miliband fan, I was nursing a broken heart.

George Osborne’s first act as chancellor after the 2015 general election would turn out to be massive social security cuts for working parents. The “chart” part of my job was distributional analysis, showing the public how much people would gain (or more likely lose) from the taxation and social security cuts in that summer’s Budget. Had we produced the chart, which we never did, it would have shown the poorest losing over £1,000 a year.

Osborne claimed the cuts would turn out fine, because he was also raising the minimum wage so “work would pay”. But he surely knew that wasn’t true: the proposed minimum wage increase couldn’t make up for the social security cuts, as low-income workers would only keep around 25p of every £1 that the minimum wage rose (because of tax and the loss of entitlement to benefits and tax credits). Low-income families were about to lose a huge amount of income, and hunger would rise dramatically. That is exactly what happened. In 2015 the Trussell Trust handed out a million food parcels, in 2019 almost two million, and this year three million.

That’s why we were told to change the chart. This was Cynical Economics – and cynicism has been the heart of Conservative economic policy since the party came to power in 2010. The consequences don’t matter so long as there is a line to take. The spending and investment cuts of the last 13 years were all part of a “long-term economic plan”.

Well, now the long term has arrived – and look where we are. Wages are lower than they were almost 20 years ago. The economy is still smaller than it was before Covid. We have the highest inflation of any G7 nation – in reality not because of the invasion of Ukraine, but because of David Cameron’s desire to “cut the green crap”. That “green crap” was home insulation grants and onshore wind. Cutting those grants means the UK has the worst home insulation in western Europe, a massive reliance on natural gas, and higher energy bills for families and businesses. Over the last decade Cameron’s 2006 line “Vote Blue, Go Green” has sounded increasingly risible.

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[See also: Can Bim Afolami solve the Tories’ millennial problem?]

The only constant for the past 13 years, the lodestar for this government, has been tax cuts for the rich, big business and oil-and-gas giants. But tax cuts for the rich don’t make us more prosperous. They don’t educate children or help people get to work. And, as researchers have found, including my old PhD supervisor, nor do they make economies grow. For a nation to get economic growth – which is just a fancy way of saying “producing more” – governments need to invest just like businesses do. Public services are a core foundation on which our common prosperity rests, not an optional extra.

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This government has, however, cut the foundations of our prosperity away, which has left us not only poorer, but producing less. Sure Start cuts mean children start school with fewer skills. Bus services are down by half in Leicestershire, where I live, so people can’t get to work in the first place. Public health cuts mean that preventable diseases thrive. The UK is now the only nation in the Organisation for Economic Co-operation and Development with more people leaving work than before the pandemic.

Add all those cuts together and we have ended up with a population that is poorer because people are less educated, more isolated and sicker. A population that is finding it harder to get by doesn’t get better at making things (what economists like to call our “productivity problem”). That’s why our wages have not grown for two decades. Our economic story for the last decade has been investment cuts leading to stagnation and then decline.

Beyond that, there are the cuts that will damage our prosperity for decades to come. Rishi Sunak likes to talk about cutting taxes, but in effect he raised taxes on young graduates by over £200 a year when he was chancellor, by lowering the student loan repayment threshold. As Prime Minister he has blocked housebuilding at a time when young people already can’t afford to buy homes, and the number of homes being built will plummet as a result.

[See also: Why the Conservative Party is broken]

Put together a decade where wages haven’t grown, where graduates face a punitive tax rate of 41 per cent on everything they earn over £27,295 (and 51 per cent on everything they earn over £50,270), where house prices have increased dramatically faster than incomes – and you have a nation where a generation can’t afford to put down roots and have kids. Is it any wonder that birth rates have fallen by over 15 per cent over the past five years?

Preaching from the gospel of Friedrich Hayek while simultaneously punishing this nation with higher taxes and bills is cynicism at its worst. And we have lost a decade to this cynicism when we should have been building a new economy to meet the existential threats we face.

The deindustrialisation that began in the 1980s has created dramatic divides between major cities and everywhere else, and it culminated in the populist movements of Brexit and Trump. Instead of the transformational investment left-behind areas needed, we got slogans that came with nowhere near enough cash. The Levelling Up Fund, meant to address decades of widening divides, makes up for less than half of the cuts local government has endured since 2010.

There is no plan to overcome the greatest threat we face – a burning planet. Climate change is already making us poorer. The UK spends £1bn on flood damage a year. We would need to spend tens of billions now to successfully decarbonise electricity, transport and housing. But there has been nowhere near enough investment from this government to get us there. To give one example, the government acknowledges that the country needs to install 600,000 heat pumps a year by 2028 to reach net zero. Yet a lack of funding for grants means only around 70,000 were installed in 2022.

The latest report from the Climate Change Committee, which advises the government, shows the UK is off track in meeting our carbon targets. Zac Goldsmith, an environment minister, has resigned, saying that Sunak is “simply uninterested” in the environment. Sunak’s response? We are a “world-leader on net zero”.

The bill for a decade and a half of cynicism is growing with each passing day. Both we and future generations will end up paying for it. If, as looks increasingly likely, a new government comes to power next year, it will face the worst inheritance of any government since 1945.

That government did, however, overcome the devastation of the Second World War to build the foundations of prosperity – the NHS, universal education, houses for all – that still endure today. If they could do it, then so can the next government. And that should leave us hopeful.

[See also: If the Tories are the party for hard-working people, why are they so spectacularly lazy?]

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