At the mausoleum that is this week’s Conservative party conference one of the bodies has just shown a slight muscular twitch. Kemi Badenoch will this morning try to reclaim the one subject on which the Tories can reasonably hope to base a revival: fiscal responsibility. Mel Stride has already proposed £47 billion worth of spending cuts. His boss will now announce a ‘golden rule’ whereby half the proceeds of those cuts will go to reducing the deficit rather than on tax cuts.
I know that for the Tories to try to make a thing of fiscal responsibility is a bit rich given that public spending was allowed to balloon out of control during the latter years of the last Conservative government. Even the supposedly small-state Liz Truss strangely shy about contemplating spending cuts to go with her tax cuts – while committing the government to underwrite the energy bills of 27 million UK households. But then who else is going to make the case for reducing Britain’s burgeoning public debts? Obviously not Labour. Rachel Reeves couldn’t even persuade her party of the need for a modest £6 billion trim from the welfare budget. But not Reform UK, either. Nigel Farage’s party is increasingly positioning itself on the centre-left economically, promising to do away with the two-child cap on child benefit and proposing to renationalise the utilities and the steel industry. While the party’s manifesto at the last election made the vague promise to cut £5 in every £100 from public budgets it also proposed an extra £17 billion for the NHS and £14 billion for defence and so on. All in all Reform’s costing proposed £150 billion of gains for the public purse (spending cuts) but also £141 billion worth of losses (through tax cuts and spending rises). What’s more, the proposed spending cuts – such as £35 billion from stopping paying interest on quantitative easing reserves – were a lot dodgier than the spending rises. The Governor of the Bank of England insists the QE trick wouldn’t save any money, and Reform UK seems to have downgraded its expected savings for the policy to £20 billion. Reform UK’s policy is an enormous fiscal black hole in the making.
It is entirely logical why Reform UK should want to tack to the left economically. The party cannot gain power by going after disaffected Tories alone. It has successfully bagged a lot of the golf club vote but it also needs to eat into the Labour vote, by going after the same Red Wall voters Boris Johnson successfully won over in his 2019 election victory. But that does leave an opportunity for the Tories. If they can apologise profusely for their fiscal record in their last years in office and make a firm plan to balance the books they will have a very distinct offering. It might not seem a very popular cause now but it will be very different when the increasingly likely full-on sovereign debt crisis arrives. International investors are already losing patience, with bond yields above the levels they were after Kwasi Kwarteng’s ill-fated mini budget. If we end up in a Greek-style crisis before the next election, with deep public sector cuts forced by the terms of an IMF bailout, it will be a very different matter.
Only thing is, why aren’t the Tories being more ambitious about repairing the public finances? If Badenoch commits half of the proceeds from £47 billion worth of public spending cuts to reducing the deficit, that is only £23.5 billion to be chopped from a deficit which last year reached £150 billion. She should think bigger and come up with a plan to eliminate the deficit altogether. She would be shouted down with cries of ‘austerity’ now, but when the fiscal crisis arrives for good she would be in the right place – and Tories and Reform very much in the wrong one.
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