Whoever moves into 10 Downing Street after Boris Johnson is completely open, only one thing is already clear: he or she will lower taxes. Tax cuts are the order of the day, and all candidates for the office of Prime Minister have committed themselves to them. They promise an economic policy in the spirit of Margaret Thatcher and present themselves more or less as a kind of reincarnation of the Iron Lady. The debate about Johnson’s successor is characterized by nostalgia, the longing for the supposedly good old days is great. And so, post-Brexit, there is a renewed danger that the Tories will be guided by ideology rather than what the country really needs: pragmatism.
Pragmatism is a virtue that Tories are claiming for themselves. Some even claim that pragmatism is not only typically British, but something deeply conservative. Well, if that’s true, there hasn’t been any sign of it for a long time. The Tories have had three prime ministers since 2010. All three are responsible for the biggest economic shambles in the country’s recent history: Brexit.
The consequences of leaving the EU will determine the term of office of the next prime minister, as will the consequences of the pandemic and the Russian invasion of Ukraine. It won’t be easy. The most pressing problem is that cost of living crisis. As everywhere in Europe, the cost of living has risen sharply in Great Britain. At 9.1 percent, the inflation rate is significantly higher than in Germany or France. For the autumn, the Bank of England expects a further increase to eleven percent. In other respects, too, the kingdom is in a bad position in international comparison. The OECD expects growth to stagnate in the coming year. According to this, only one of the G-20 countries has a worse prognosis: Russia.
Johnson’s would-be successors have identified tax cuts as a recipe against the impending crash. This is politically understandable because there are few more popular among the Tories. At the core of Thatcherism is the promise of a lean state that will do whatever it takes to allow citizens and businesses to thrive. Much like US President Ronald Reagan reformed the iron lady their country in the 1980s in terms of the neoliberal school of thought. The bottom line is that the ideas of Friedrich August von Hayek and Milton Friedman led to contradictory results. It was possible to revitalize the economy, but at the cost of growing social disparities and dramatically higher government debt.
Where will the money come from when the next prime minister cuts taxes?
So the question is whether this economic policy makes sense in the current situation, especially tax cuts. Such a step is extremely questionable from an economic point of view. Because anyone who lowers the tax burden for citizens and companies must know that this will increase consumer demand. This in turn leads to an increase in prices, which would fuel inflation further.
“Dare more Thatcher” is therefore not a good idea, especially since Great Britain has developed in the spirit of the Iron Lady in the past few decades anyway. In a European comparison, the country has a rather moderate tax burden. Deregulation is also much more pronounced than in Germany, for example. Instead of pushing this further, a new prime minister should think better about the status of digitization and the expansion of climate-friendly energies – i.e. future growth.
In addition, there is what the pandemic has revealed once again: the inequality of living conditions. The ailing healthcare system is far more overburdened in the poorer northern regions than in wealthy London. It is not without reason that Johnson launched a “leveling-up” agenda to strengthen economically disadvantaged regions. There, in the former strongholds of the Labor Party, the Tories won the last election. If they don’t want to lose the next one, the state has to invest there. But where is the money supposed to come from when the next prime minister lowers taxes?