Jeremy Hunt’s bet on a cheaper reformed state won’t cut taxes soon

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Good morning from Manchester. Jeremy Hunt delivered a short speech yesterday with a big argument about how the Conservative party is best-placed to reverse the upward trajectory of the UK’s tax burden. Some thoughts on that and the party’s divides over tax-and-spend below.

State savings

The chancellor’s argument is that innovation and reform in the public services and the economy broadly can allow the government to end the increase in taxes while providing better public services.

He’s clearly right up to a point: one thing that is driving up government spending is that the UK, like every other country in the OECD, has many more people living past 90, many more people with life-long conditions surviving accidents or difficult births who require expensive care, and a whole host of other upward pressures on healthcare systems. Precisely because our current healthcare system is not designed around these demands, it could run better and cheaper if it was reconfigured, before you get into all the benefits that machine learning can bring to the public services and with it the potential for lower costs. (A few interesting examples in use were touted by health minister Neil O’Brien at the IFS and Nuffield Health fringe event, including Grail’s Galleri test, which can screen out cancers early in our blood, and Automata robots, which automates processes in cancer genomic testing – Georgina.)

The flipside of that can be seen in the three big bits of public service reform put through by this government. The first, the changes to education overseen by Michael Gove, happened with the benefit of high levels of spending even as there were cuts elsewhere. They happened essentially within David Cameron’s first term (albeit with the benefit of building on what New Labour had already done.) They’re still in place now and neither the Conservatives nor Labour propose to unpick them.

The second, the changes to policing overseen by Theresa May, similarly took place essentially over one parliament. Like Gove’s reforms, they were done and dusted by the end of Cameron’s first term. They took place alongside sharp cuts in police budgets. Many of those reforms have been unravelled or neutered since 2019.

The third, the introduction of universal credit overseen by Iain Duncan Smith, Steven Crabb, Damian Green, David Gauke, Esther McVey, Amber Rudd, Thérèse Coffey, Chloe Smith and Mel Stride, has yet to be fully implemented.

The difficulty with reforming public services and not spending more money at the same time is it takes longer and/or is harder to win and retain political support. It allows you to lower taxes in a similar way to that achieved by ending the hidden 60 per cent rate (through a “taper trap”) or reversing the withdrawal of child benefit for higher earners. These things undoubtedly do shape incentives and lead to people choosing to earn less than they do. It’s just you can’t use these things to make your tax cuts add up in the here and now.

But what Hunt’s plan might be able to do is set up an effective contrast with Labour. The question is which party has the better plan to avoid ever greater taxes simply for the public services to stand still.

Dividing lines

During party conference season, the BBC’s Politics Live programme sensibly doesn’t invite a Labour politician on to opine during Conservative party conference, or vice versa, but prefers to put across backbench and front bench opinion, to get a full view of what the whole party thinks.

I really enjoy these programmes and occasionally I’m lucky enough to be invited along, as I was yesterday to the extra-special programme to mark Jeremy Hunt’s speech. But I often find myself being pulled to the left or the right as a result. During Labour conference, I start thinking “well, someone had better point out that the Tory party doesn’t really want to privatise and eat babies”, and during Conservative conference I think “look, you know, someone should say that Labour party members don’t all want to spend money like drunks at a casino”.

I think it’s a measure of the deep divisions within the Tory party that I often found myself thinking during yesterday’s programme “well, someone should make the argument that not everything the government has done is some ghastly expediency from which the country badly needs to escape”.

Part of the reason why even MPs loyal to Rishi Sunak talk as if the 2019 to 2023 period has been one long mistake is that Sunak badly needs to make his leadership look like a breach with the past. After 13 years in government, the most powerful argument against you is simply that it is “time for a change”. Sunak is trying to do what John Major did in 1992 and Boris Johnson did in 2019 — presenting himself as a big enough change from what has gone before to keep the Tory party in office.

But another aspect is that the Conservative party is sharply divided on economic policy. One manifestation of that was the packed-out room at Liz Truss’s conference rally — Lucy Fisher and Anna Gross have an excellent report from inside the meeting — but another can be found in every argument about tax-and-spend. At the moment all the loud complaints are about the need for tax cuts, but the reality is if Jeremy Hunt was to deliver those tax cuts, he would instantly face complaints about the concomitant reductions in spending that would go with them.

Now try this

This week, I mostly listened to Lauren Mayberry’s first solo single, “Are You Awake”, while writing my column.

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