The myth of “Thatcherite” tax cuts

Thatcher’s Tory admirers such as Jake Berry should remember that she didn’t merely shrink the state: she re-shaped it.

As the fight for the future of the Tory party continues, the inevitable claims by MPs to be the one true Thatcherite have begun. “We call ourselves the party of low tax,” wrote Jake Berry in Conservative Home. “However, after 13 years, we are the government of the highest taxes in history.” Berry, a former chairman of the party, claims more than 30 MPs have signed his pledge to vote against any Autumn Statement that includes tax rises. But he has been rather quiet for the past few weeks, and the government’s majority is 56, so if there are tax cuts, they might have more to do with favourable economic forecasts and the upcoming election.

This pledge is about more than the Autumn Statement though: it’s positioning for the future of the party. Berry’s manifesto is straightforward: we promised not to raise taxes, it says, so we shouldn’t. Berry claims this is Thatcherite. Writing in the Times he said that Thatcher spread wealth and put “the autonomy of the individual at the heart of government”, succeeding because she “believed in the true Conservative principles of low taxes and an understanding that no money is government money, but taxpayers’ money”. He said something similar on Twitter in July: “It’s time to behave like Conservatives, cut taxes and, as Margaret Thatcher said, allow people to help themselves.”

I have just finished writing a book (Second Act, about talent and late bloomers) in which Margaret Thatcher gets a whole chapter – and Berry’s pledge isn’t Thatcherism. Though Thatcher’s name has long been a shibboleth for the Tory right, what Berry fails to grasp is that Thatcher didn’t merely shrink the state: she re-shaped it. She made it work more efficiently. It wasn’t just reduction – it was reform.

Berry claims in Conservative Home that, until 1997, the Conservatives believed their job was to keep the tax burden low. Put aside that the 2002 and 2005 manifestos complained about high taxes (and “until 1997” covers some decidedly un-Thatcherite governments), the important question is how to keep the tax burden low. What the Conservative Party has always believed in is pragmatism. Thatcher cut taxes when it was sensible, with accompanying restrictions on spending and supply-side reforms. Her initial income-tax cuts came with an increase in VAT. When Nigel Lawson started abolishing a tax in every Budget, he had the benefit of years of fiscal discipline and high economic growth. Those conditions do not exist today. (Berry, moreover, is happy for the government to spend money in his constituency.)

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Britain is fiscally constrained. This, along with the fact that the average rate of economic growth has halved since 2008, is the central fact of modern British politics. We have no more money. This cuts both ways. Britain is stuck, with spending commitments that will take careful work to untangle, and problems with housing and infrastructure that need fixing. A tax pledge won’t change that. Berry’s ally Liz Truss has wanted a tax-cutting caucus at Westminster for some time. But Truss’s own growth commission has recognised that the route to tax cuts is economic growth. Its alternative pro-growth budget combines tax cuts with supply-side reform: it’s not a simple pledge, but an integrated whole. As they say, one policy cannot be picked off as if from a menu.

Thatcherism was based not on a belief in mere tax policy but on a whole moral vision. “Economics are the method: the object is to change the soul,” said Thatcher. Berry has no such vision for the country. Britain is short of houses. Rents are unaffordable and young people cannot live in the most productive cities. Inadequate road and rail links outside London are placing hard limits on regional growth. We have such convoluted, restrictive planning approval processes that you cannot build a data centre next to the M25. It takes seven years to hook up a new wind farm to the National Grid because the system is so incapable of processing new input. The number of pages required for permission on new energy infrastructure has doubled since 2014. There is a congested stretch of the A1 that the Conservatives have promised to turn into a dual carriageway since 2010. They still haven’t. Last year Britain electrified just 2km of railway track.

We could go on. Truss’s growth commission prioritises these issues; Berry’s tax pledge does not. Though it is admirable to want to limit further increases – especially when we have the highest tax burden since the Second World War – this pledge will not build any houses, free up any seats at rush-hour, or change any souls.

In true Thatcher spirit, we need reform. The marginal rates of income tax are senseless. Economic growth would benefit from making the full-expensing policy on corporation tax permanent, rather than temporary. There are many good proposals for replacing current taxes – such as swapping council tax for a property tax and stamp duty for a landowner levy, modelling corporation tax and VAT on the Estonian regime, and altering income tax thresholds. This would make the system more favourable to growth without lowering revenue. Alternatively, it is possible to apply VAT to everything that is currently zero-rated, compensate every household to make them no worse off and to have £3bn left over – which could be used for tax cuts, or the NHS, or for dualling the A1.

But no, there’s none of that in this pledge. The simplicity of calling for “Thatcherite” tax cuts exposes the problem that has plagued the Tory party ever since David Cameron stepped down as prime minister: many Tory MPs are more interested in signing pledges and blocking infrastructure than in making hard choices. Berry claims to be opposing the blob, but really he’s part of a flurry of rhetoric and petition play that won’t solve the problems Britain faces, and won’t get the Tory party any further towards enacting reforms. With reports that Jeremy Hunt will both cut inheritance and business taxes and increase council tax, is Berry going to be obliged to vote against a tax cut? This exposes that his tax pledge is a press release, not a plan.

And that is the opposite of Thatcherism.