As chancellor of the exchequer and potential prime minister, Rishi Sunak is an important figure in British public life. This makes his Mais lecture worthy of close attention. It represents his credo. It is also lucid and intelligent. Yet it falls far short of what is needed. Crucially, it fails to confront the failures of Margaret Thatcher’s legacy.
It is almost 43 years since Thatcher became prime minister. The Conservatives have been in power for 30 of those years and Labour for 13. But New Labour largely adopted Thatcher’s legacy on economic policy and the size of the state. So, what has happened?
Sunak rightly notes the stagnation of productivity and asks “how do we accelerate growth and rejuvenate productivity?” The answer, he continues, is “a new culture of enterprise”. But have we not had a culture of enterprise for four decades? So what has gone wrong and why? And how is it going to be any different this time? It is disappointing that he did not address these obvious questions.
The painful reality is that the long-term record remains mediocre. Compare the UK’s performance with those of our European neighbours Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden and Switzerland. In 1980, output per hour in the UK was fifth from the bottom in this group. By 2019, it had fallen to fourth from the bottom (ahead only of Greece, Portugal and Spain). Again, in 1980, the UK’s gross domestic product per head was fifth from the bottom. By 2019, it had risen to sixth from the bottom, ahead of Greece, Portugal, Spain, Italy and France (the latter only just).
Given this poor record, Sunak’s bromides about the wisdom of Adam Smith are empty. All these high-income countries understand that open economies, the rule of law and private enterprise drive growth. The UK, which has substantially increased its barriers to trade with its most important partners (with Sunak’s enthusiastic support), may understand this least among them. The Heritage Foundation, a conservative US think-tank, even ranks the UK behind Ireland, the Netherlands, Finland, Denmark, Sweden, Norway, Germany and Austria in its index of economic freedom. Clearly, coming closer to Adam Smith hardly required Brexit.
Politicians with Thatcherite leanings need to dig deeper to understand why performance has been so mediocre. Many of them emphasise the need for a “lower tax economy”, Sunak among them. But the evidence suggests this is quite unimportant, however much the self-interested wealthy insist upon the opposite. According to the IMF, among these 15 countries, the UK’s tax burden is third from the lowest. If high taxes crippled prosperity, the UK should be among the richest. It is not. Finland, Belgium, Austria, Sweden, Germany, the Netherlands, Denmark and Norway all have substantially higher tax burdens and higher GDP per head. So, when Sunak states that “I firmly believe in lower taxes”, he is just uttering ideology.
That ideology has costs. The UK’s distribution of household disposable income is much the most unequal of these 15 countries, according to the OECD. Moreover, this was also the result of the shifts in the 1980s, which have never been reversed. In assessing the record, one also cannot ignore the financial crisis and subsequent austerity, both of which were outcomes of the Thatcherite ideology.
These changes have also had significant implications for the absolute and relative standards of living for those at the bottom of the pile. It is hardly surprising that the years since 2010 saw first stagnation and then falls in life expectancy. This matches US experience. It is not surprising either that politics shifted towards identity issues, notably Brexit, and away from a focus on prosperity.
Sunak is right to argue that tax cuts do not pay for themselves. He is right, too, to assert that current spending should be paid out of current revenue. In this, he is restating the view of his predecessors of the 1980s that the public finances should not be sacrificed on the altar of supply-side tax cuts: the UK is not the US. Yet elementary common sense is insufficient. If Sunak is going to be convincing as a thinker on the present, he must deal more honestly with the past. He needs to show which parts of the Thatcher ideology worked and which must be scrapped. He does not need to tell us that the private sector matters; we know that. He needs to tell us how it can become better, as well as how public and private sectors can work together more fruitfully in future.
It would be unfair to say that Sunak, like the Bourbons, has learnt nothing and forgotten nothing. But it would not be all that unfair. He must think harder.
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