This piece was originally published by the Times Red Box.
Theresa May may have her mind on other things at the moment but assuming that she wins on June 8 she will soon have to confront what is arguably the greatest responsibility of any prime minister: ensuring that the British economy is as healthy and as competitive as possible.
At a time of great uncertainty — and of great opportunity — this is even more important than usual. Brexit will of course pose its own unique challenges. At the same time, the global economy is still, nine years on from the financial crisis, in frail shape, with all the major central banks still relying on ultra-low interest rates to keep the show on the road. Any government that wants to spend taxpayers’ money on health, security or education must ensure that it has in place the right recipe for the economy.
The preconditions for national economic success are pretty much accepted (apart from by Jeremy Corbyn, John McDonnell and their most fervent supporters): low and simple taxes; free and competitive markets; the rule of law; a skilled labour force; decent and proportionate regulation; sound money; and, over an economic cycle, balanced budgets. Then governments can let private business do what it does best and get on with innovating, competing and delivering the products that consumers want to buy. By putting these elementary conditions in place, governments can preside over economic growth, which in turn can lead to greater tax revenues to spend as the public demands. All pretty simple: if you want a bigger cake, bake a bigger cake.
It has to be said that the Conservative Party manifesto was not exactly perfect in espousing these values. It delayed setting a balanced budget until 2025 (meaning that the government will have been living beyond its means for a quarter of a century). And it proposed a number of state interventions — energy price caps, restrictions on foreign takeovers, the setting of “fair” executive pay — which, while seemingly well-intentioned, will do nothing for the international perception of the UK as a dynamic and free economy.
That said, the gap on the economy between the Conservatives and Labour is huge.
The Conservative Party plans to continue cutting corporation tax (an important factor in determining international competitiveness and in attracting investment and jobs to the UK) while Labour’s spending plans are predicated on a level of corporation tax that would be 50 per cent higher than the Conservatives have pledged.
Although they have failed to provide any detail, the Conservatives have stated that they wish to simplify the tax system whereas Labour is silent on the question. The Conservatives have made all the right noises about sound money and responsible public finances being the essential foundations of national economic success but Labour appears to think that it can spend its way to prosperity.
Labour’s plans to raise income taxes on high-earning individuals will only damage competitiveness (and would raise “nothing” in tax revenues, according to the IFS), while its nationalisation plans for rail, mail and energy firms were uncosted in its manifesto and will, in all probability, lead to poorer services for consumers, thereby damaging the economy.
When, just a couple of weeks ago, economic credibility was the focus of the campaign, that coincided with the greatest lead that a modern Conservative government has ever enjoyed in the polls. In contrast, Labour’s tax-and-spend proposals were ridiculed for their economic illiteracy and its fortunes slumped.
Yes, the future of how social care is funded is important, as are the questions of who can best remember the cost of various pledges made in their manifestos or who can best secure the best Brexit deal for the UK. But the electorate can be trusted in basing their decision on who to vote for predominantly on the question of who best can run the economy.
Surely it is time, with only a week to go before the election, for the Conservatives once again to focus on its great historic and present strength: economic credibility.