Is public spending going out of fashion? There is certainly a growing sense at Westminster, particularly among Conservatives, that we might have passed the high-water mark of voters’ support for public expenditure.
Even the Tories were taken by surprise by the big swing towards them in the opinion polls that followed the shadow chancellor’s promise of tax cuts.
Up until this point, the party under David Cameron had been keen to distance itself from its old image as a tax-cutting, low public spending party. It had even gone as far as to steal Labour’s trick of promising to stick to the current government’s spending limits if elected, in an attempt to show that the Conservative Party wouldn’t slash spending on schools and hospitals as soon as it got into office.
Labour backbenchers are angry and nervous that the new prime minister and those who surround him in Number 10 might share this view. Rather than choose to stand and defend the principle of public spending and the taxation that is required to pay for it, the chancellor, presumably with Gordon Brown’s blessing, chose instead to try and match the proposed Conservative tax cuts with some of his own.
This has caused a backlash, with one centre-Left commentator referring to the Pre-Budget Report as marking the ‘death of social democracy’.
On the other side of the political fence, the poll swing has given Right-wingers the impetus to urge the Tory party to return to its core belief in tax cuts and small government. They argue that the consensus that Labour believed it had built up in favour of active, high-spending government is more illusory than real.
On this view, public pessimism about whether services are likely to improve and frequent stories about wasted public money have shaken voters’ belief in the ability of government to make a difference. The time is ripe, they argue, for a return to Thatcherite Conservatism with an emphasis on the market, rather than the state, delivering what voters need.
So should George Osborne drop his rather inelegant formula — ‘sharing the proceeds of growth’ — on the basis that he no longer needs to convince the electorate that the Conservatives will not cut spending? And should Labour backbenchers resign themselves to another two years of tax cuts?
Both would be premature, for four reasons.
First, there is little reason to suppose that the general public’s attitude towards inheritance tax applies to all taxes. Inheritance tax is widely seen as unfair largely because it invades a very private relationship — that between parent and child.
In addition, it is most usually applied to that totem of British life, the family home. However irrational it is, inheritance tax provokes unusually strong emotions.
Second, the party should not confuse disappointment with disillusionment. It is clear that some voters are disappointed that the NHS and schools have not improved to the degree that they may have hoped under this Labour government.
However, this is very different from assuming that they now believe no government can make a significant difference to children’s education or to treatment of the ill, and that they would be better off if they could buy their own education or health care.
The questions for voters remain: which party would run the health service better and which would most improve the education of our children? No party is likely to win this through promising tax cuts.
Third, although tax cuts remain a totemic issue for large parts of the Conservative Party, it is no longer seen by people as the main determinant of their wealth, as it once was. As David Willetts has so convincingly argued, voters these days are much more concerned about the impact of interest rates on their financial situation than they are about tax rates.
This causes difficulties for the Conservative Party. The memory of Black Wednesday, although fainter than it was, still lingers. Fifteen years on, the Conservatives have still not rebuilt their reputation as a safe pair of hands for the economy. This makes a strategy of cutting taxes and lowering public spending look very dangerous indeed from an electoral perspective.
Finally, it isn’t clear that the Conservatives are going to have much scope for tax cuts anyway. In a climate of tighter consumer spending and relatively slow growth, it isn’t obvious that tax receipts will be sufficient to allow for anything other than token cuts in taxation, any more than they would allow significant spending increases.
Both parties would be well advised to focus less on tax cuts, and more on their record for financial stability and low interest rates, if they are to win the hearts and minds of floating voters.
