The road to credibility

Think tank: Onward

Author(s): Tim Pitt

November 7, 2022

This report from UK think tank Onward rejects the idea that Treasury orthodoxy must be completely overhauled, arguing that evolution, not revolution, is required.

Conservatives must consign half-baked version of Thatcherism to history for the party to restore its economic reputation. The failed experiment with Trussonomics presents an opportunity for the Prime Minister and Chancellor to set out a renewed economic philosophy based on longstanding Conservative principles, rather than a half-baked version of Thatcherism. This new economic blueprint says that since 2016 Conservatism has “become unmoored from its economic foundations” resulting in it “veering one way then another on economic policy”. This has been driven by a failure to understand the underlying causes of the challenges facing the UK economy and a reliance on a narrow view of true Conservative economic thinking. In particular, while boosting growth should be a priority, true Conservatism must be grounded in realism.

As the UK economy faces long-term structural challenges like an ageing population and the shift to lower productivity services, Conservatives must acknowledge that even the most perfectly executed growth plan will produce slower growth than before the financial crisis. The pursuit of growth cannot therefore be used to dodge difficult decisions on the two other major challenges facing the UK economy in the coming years: tackling historically and internationally high levels of economic inequality and confronting the unsustainable long-term fiscal position.

To recover their reputation for economic responsibility, the Conservatives must replace the ideological approach of Trussonomics that has been so strongly rejected by the markets with a principles-based approach that draws on a broader tradition of Conservative economic thinking stretching from Thatcher to Macmillan, Disraeli and Peel. Across two centuries of Conservative economic thinking, four principles endure: pragmatism, stewardship, One Nation, and empowerment.

The paper rejects the idea that the orthodoxy must be completely overhauled, arguing that evolution, not revolution is required. There are, however, a range of areas where significant departures are needed: (1) Loosening the interpretation of fiscal rules so investment in human capital is given the same priority as investments in infrastructure and R&D, (2) Devolving tax powers to England’s cities, towns and communities. (3) Re-introducing a contributory element to the welfare system as originally envisaged by Beveridge to ensure a stronger safety net. (4) Reforming the tax system, including by abolishing inheritance tax reliefs, introducing higher council tax bands and raising capital gains tax rates.