Austerity has become the defining feature of Tory economics. It long outlived the Osborne era at the Treasury, and now Britain faces tax rises on top of an economy crippled by covid. The Biden Administration, meanwhile, plans a $1.4 trillion stimulus bill, on top of two vast stimulus bills already passed under Trump (not to mention Trump’s 2017 tax cuts). The Anglo-American dual national, if resident in the UK, gets the bizarre experience of Uncle Sam mailing her stimulus checks, while the UK government gears up for fiscal tightening.
Tory austerity has become an almost entirely political phenomenon. It is not really about economics. The Chancellor, Rishi Sunak, admitted as much in a recent Telegraph interview where he pointed out that austerity functions as a key point of differentiation between the Tories and Labour. The result is a Tory Chancellor hiking taxes on business while the left-wing opposition protests that this is economic madness (as indeed it is).
I won’t get into the economics of this here, because if you think that tax hikes in Britain’s current economic situation are in any way justified you’re beyond my help. But I will argue the politics. I do not think that spending cuts and - in particular tax hikes - are as much of a vote-winner as the Tory party thinks they are. I agree that they poll well at the moment, and in focus groups older Northern voters will often spontaneously bring up the importance of paying back the debt accumulated during the pandemic.
Nonetheless, come elections, people tend to vote on their pockets, and how well-off they’re feeling relative to the last election. Trump, despite a tumultuous term and a bungled covid response, almost got re-elected simply on the strength of the pre-covid economy under his tenure, which saw strong economic growth and, for the first time since the Great Recession, meaningful wage growth for people at the bottom end of the income distribution. Pay rises for the low-paid were larger than for those at the top. His surprising strength with Hispanic and black voters was probably, in part, because they’d seen some meaningful progress relative to more affluent whites.
Even in the UK, recent electoral history does not indicate an unavowedly pro-austerity electorate. The Tory Party fought the 2010 election on a pro-austerity platform, vowing to “fix the roof while the sun was shining”, against an exhausted Labour party, battered from the financial crisis and the accumulated wear and tear of 13 years in government. It failed to win a majority. Come 2019, Boris Johnson won a huge majority, on the promise of getting Brexit done - but also on the promise of letting the good times roll.
The 2015 election is the special case that defenders of austerity point to as evidence of its electoral strength. Clearly it is true that Labour’s anti-austerity message failed to land. But there were many other factors that played into the Conservative win in 2015. The threat to the country of a Labour-SNP coalition weighed heavy on voters’ minds - remember all the banners of a tiny Ed Miliband in a grinning Alex Salmond’s pocket. The Labour leader himself was stiff, awkward, and generally not well liked. His party still bore the stigma of its time in office during the financial crisis and recession.
There was also one important economic factor that made a lot of people feel richer in 2015. House price growth accelerated rapidly 2013-2015, turbocharged by Osborne’s launch of the Help to Buy scheme. Help to Buy did not, in fact, help young people to buy property as a group, but it certainly did deliver an impressive bump to the wealth of existing homeowners. This is the sort of trick you can’t pull too many times, but it very likely worked this once.
UK house prices, 2007-2019
The 2015, election, therefore, is something the Tory party have overlearned the wrong lessons from. Austerity did not win the election. It was something that other factors allowed them to overcome. The bottom line still matters. You will struggle to win elections going on about fiscal responsibility when everyone feels poor and miserable. Corporate tax hikes in 2021 may poll well. But corporations are legal fictions, and cannot really be taxed. The incidence ultimately falls on employees and shareholders, usually in roughly equal measure. Ultimately these tax hikes will feed through to stagnant living standards.
Naturally, much of the Tory voting coalition is of retirement age, and so insulated from whatever damage the party inflicts on the economy. Nevertheless, many of the key swing voters the party needs to retain are of working age, especially younger men who did not attend university, but who nonetheless very much want to make something of themselves and enjoy the finer things in life. The marginal voter is very different from the core voter and the marginal voter matters more. The Tories need badly Mr Deano to vote for them, and at least a few Mrs Fiat 500s.
Meet the most important man in the country.
Furthermore, voting coalitions are not fixed. There is no reason why the Tories cannot win more younger voters, and more Southern voters. They should aim to fight a campaign with broad appeal in 2024, and not aim just to recreate the 2019 electoral map. Who knows if that map even can be recreated, now that Corbyn is gone?
Deano, ultimately, doesn’t care as much as fiscal responsibility as he does about how big his bonus is going to be this year and whether or not he can afford to pay for some childcare to help out Mrs Fiat 500 with the third kid. Deano doesn’t know it, but he really wants you to cut taxes, print money, build more houses, and hit 3% growth a year. Make Deano happy and nothing Keir Starmer says or does will matter.
Faster growth will in short order make the debt/GDP ratio look much rosier even without any tax hikes or spending cuts. Grow the economy fast enough for long enough and all sorts of political problems about resource distribution have a magical way of solving themselves.