At 10pm on 7th May, the exit polls stunned the nation, reminding misguided commentators (myself included) that Britain is a fundamentally conservative country, as indeed it has been for centuries past. Two months later on 8th July, George Osborne presented the first fully Conservative budget of the 21st century and we learned what this means for the decade ahead. The message was even more surprising than May’s election result.
While the early reaction to the Budget focused, as usual, on economic bean-counting—the changes in deficit and debt projections, the upgrades or downgrades to growth forecasts, the timing of social spending cuts, the precise meaning of the new balanced budget law and all the other largely meaningless numbers which will be revised out of recognition by the next Budget and completely forgotten by the one after—the political and social implications were what really mattered. For Osborne’s speech was unabashedly modelled on Disraeli’s Budgets, in trying to present a comprehensive Tory vision of Britain in the century ahead, as the repeated use of Disraeli’s “One Nation” slogan made clear.
If viewed in this perspective—as a socio-political manifesto and not just an exercise in economics or accounting—the 21st century’s first Conservative Budget conveyed a message significantly different from the expectations that followed the Tory election triumph and also from the early reactions.
Osborne has been denounced by the Labour Left—and correspondingly praised by the Tory Right—as a throwback to the Thatcher era’s social Darwinism and obsession with small government. But on closer inspection, Osborne’s policies are very different from the market fundamentalism of his putative intellectual hero Nigel Lawson, for whom “less government and more market” was the obvious solution to every problem. The new Tory vision, by contrast, seems to recognise an important and growing role for government intervention not only in the politically sacrosanct public services—health, pensions and education—but also in stimulating economic growth, raising productivity, setting wages and even in influencing the most intimate personal decisions on family size.
This eagerness to micro-manage business and personal decisions (for good or for ill depending on one’s ideological standpoint and position in society) looks like becoming a more distinctive feature of the new Tory vision than the fiscal austerity that politicians and the media endlessly debate. While the deficit reductions now planned by Osborne will be larger than those of the pre-election years, they will be considerably less abrupt than they were in the first half of the Tory-Liberal coalition. Most of the fiscal consolidation in the new parliament, if it happens according to plan, will be achieved through economic growth rather than savage public spending cuts—and if the expected growth does not materialise, the chances are that deficit reduction will simply be delayed, since there is unlikely to be any pressure, either from financial markets or from Tory backbenchers, to hit debt and deficit targets that are completely arbitrary and have no economic significance. For example, the Chancellor claims that his plan to reduce public debt from 80 per cent of GDP this year to 68 per cent by 2020 is necessary to avert future financial crises and he contrasts this Tory prudence with the Labour Party’s failure “to fix the roof while the sun is shining”. But the fact is that public debt in 2007/08 was only 37 per cent of GDP, yet this very low level of public debt under Gordon Brown (in fact the second lowest among the G7 economies) did not prevent Britain suffering the worst financial crisis in living memory.
The real significance of the new Tory approach lies in the detailed implementation of micro-economic policies that influence labour markets, income inequality, business planning and the relative fortunes of Britain’s regions, rather than the headlines about macro-economic numbers such as public deficits and budget cuts. A distinctly un-Thatcherite acceptance of government’s role in shaping economic and social decisions is the intellectual theme uniting many of the seemingly disparate and incoherent policies announced by the new government since the election and especially in in the Budget.
How else could one explain the extraordinary complications introduced into the tax system by Osborne’s endless tinkering with the treatment of pensions, dividends, corporate profits, banks and inheritance or the many new tests and criteria for welfare that he has designed not only to reduce costs, but also to influence personal decisions on work, housing, workplace training and even family size? Most of these reforms would have been anathema to Nigel Lawson, whose passion was simplifying the tax and social security systems so as to minimize government influence over the planning of business and personal lives.
Read more on the budget:
Osborne has learned the lessons of power
Verdict from the Prospect panel
A true blue triumph for Osborne?
For neo-liberal true believers in the primacy of market forces, Osborne’s most important tax reform—the effective elimination of inheritance tax on estates of up to £1m and the special preferences provided for inherited houses—was pure heresy. From a strictly economic standpoint inheritance tax, is the best way of raising government revenue, since taxing the dead does not distort work incentives for the living, at least in theory. Even more importantly, reducing inheritance is the best way to promote equality of opportunity and thereby legitimize the inevitable inequality of outcomes produced by market forces.
In the new Tory vision, by contrast, inequality of outcomes is a problem that government should address directly—and Osborne did this in the most sensational manner with his unexpected announcement of a 34 per cent increase in minimum wages from £6.70 an hour this year to at least £9 by 2020. By comparison, minimum wages are currently $7.25 (£4.71) in the US, €9.53 (£6.84) in France and AUS $17.29 (£8.35) in Australia, which has the world’s highest level. Thus Britain could well have the highest minimum wage in the world by the end of this decade—a stark contrast to the hysterical opposition of Thatcher-era Tories to the idea of minimum wages and indeed to any government interference in labour markets (such as the compulsory levies for apprenticeship training that the Thatcher government abolished and Osborne has now reintroduced).
Osborne’s embrace of minimum wages suggests a major transformation in conservative thinking about the nature of capitalism and the appropriate relationship between the market and the state. This was to be expected after the 2008 financial crisis revealed that market forces could not always be relied on to produce socially acceptable outcomes, whether in financial stability, or income distribution or environmental sustainability. Whatever may turn out to be the true nature of 21st-century conservatism, a return to the Thatcherite market fundamentalism of the 1980s, it clearly is not.
