Since the early 1980s, the Thatcherite orthodoxy of austerity, monetary prudence and fiscal rigor, free markets and a small state with few regulations and the lowest possible taxes, has been the ABC of British Conservatives. Such a dogma of faith that even the Labor governments of Tony Blair and Gordon Brown partially assumed it, even privatizing aspects of the sacrosanct and deteriorated public health system.
Brexit, with its idea of ??controlling immigration and borders, of breaking with the Brussels bureaucracy, was added to this commandment of the economy a couple of years ago, with the aim of developing a model inspired by the English mercantile tradition , a kind of European Singapore that would attract foreign investment with the incentive of a minimal tax burden, and sign its own tailor-made trade treaties with the United States, China, Japan, India…
But the pandemic, galloping energy prices, inflation and the looming cost-of-living crisis have shaken the two pillars of the economy according to the Tories: Thatcherism and that interpretation of Brexit. The Conservative Party, divided to the marrow, has lost its way and does not know where to go.
Despite his social ultra-conservatism on issues of culture war, flag, law and order, Boris Johnson has been forced to put aside the Thatcherite principles to which he swore unwavering loyalty, and spent 500,000 million euros during the pandemic to pay the salaries of workers of companies in danger of closing and preventing them from going bankrupt, a much more social-democratic policy than traditional Tory, explained by the exceptional circumstances and approved by the vast majority of citizens. But against which the most orthodox sector of the Party raised objections from the beginning, opposed to a large and generous State, to public debt and to giving to the money-making machine no matter how low interest rates were. They predicted, and this is turning out, that it was a sure recipe for inflation, and even more so in an economy as unproductive as Britain’s.
The dilemma between big or small state, Thacherist or Keynesian orthodoxy, has fragmented the Tories into those from the poor, depressed, de-industrialised North of England and those from the prosperous South. The former want more investment and public spending, without worrying about how to pay for it, while the latter demand prudence, and are opposed to their idyllic countryside being polluted by the construction of the hundreds of thousands of popular homes that are needed (their construction takes years paralyzed, and young people do not have access to the property market).
But what has really caused a schism between the conservatives is Johnson’s tax hike to finance all the spending of the pandemic, the aid to offset the cost of energy (a package of 20,000 million euros, covered only in part by a tax on the profits of oil and gas companies) and patches to disastrous public health, which have raised the tax burden to the highest in seventy years, since Labor Clement Atlee succeeded Churchill in Downing Street after the end of World War II. And this, when the pockets are going to be half empty due to inflation, a perfect storm.
The Johnson Administration has raised taxes more than Blair and Brown in their thirteen years in power. It has raised Social Security charges by 1.25% (from 12% to 13.5%), just the opposite of other European countries, and all to obtain only 15,000 million euros. Rishi Sunak is the first chancellor of the Exchequer in 47 years to increase corporate tax (from April it will go from 19% to 25% over five years), making it one of the highest on the continent and higher than USA. The 55,000 million euros that the Treasury expects to enter, critics point out, will be neutralized by the decline in foreign investment and in technological development.
In total, Johnson is going to raise the British tax burden by 2% of GDP, more than was proposed by former Labor leader Jeremy Corbyn, denounced by the Tories as little short of a communist. And that the manifesto with which the Party won the last elections solemnly promised not to increase taxes, and if possible lower them. The turn of the Government is such that it has adopted as its own the Labor idea of ??imposing an extra rate on the profits of energy companies, something that goes diametrically against the conservative genes. Voters often remember these things.
The Johnsonian conversion to a large state, with Scandinavian-style taxes and uncontrolled public debt but with increasingly deteriorated public services, collides head-on with what Brexit was supposed to be: fewer rates, fewer regulations and more trade. The opposite is happening. Exports and imports have plummeted, especially with the EU, more immigrants have arrived than ever (mostly Asian), but many Europeans have not returned from their countries after the pandemic and there are almost two million vacancies in the hotels and transportation, which affect hotels and restaurants, mean that there is a shortage of truckers and Uber drivers. Many Britons have decided they don’t want to go back to work, let alone go to the office. The doctors of the public only want to do it by Zoom, and the officials from their homes. Tens of thousands have withdrawn from the labor market to retire early or claim Social Security benefits, which can be higher than the minimum wage.
Thatcher’s precepts and the original Brexit idea have been shelved, while the crisis worsens and the government drifts.
