We ended our last exciting episode of the Tory Leadership Elimination Contest with the unexciting news that the two final contenders, who will debate each other before Tory Party active members across Britain between now and the election on September 5, will be former chancellor Rishi Sunak and Foreign Secretary Liz Truss. Excitement isn’t everything, however, and the good news is that both candidates are presentable, civilized, and hard-working people who have risen in the world both by their own efforts and because each had a good start in life: Sunak went to Winchester, a first-class private school, and Oxford and then embarked on a successful career in international finance and a fortunate marriage to a billionairess; Truss, the daughter of leftish university intellectuals, went to a perfectly decent high school and Oxford, and then took a more consciously political career path that briefly deviated into the Liberal Democrats but soon corrected itself into a Tory party that wanted more successful women to stand as its candidates.
They have an unusual amount in common. Both are Oxford PPE (philosophy, politics, and economics) graduates — a degree course widely denounced as producing smooth talkers who don’t know anything in depth, unlike, say, engineers or medical doctors. Both rose to the two highest political offices in British politics, the Treasury and the Foreign Office, at relatively early ages and with only modest experience in lower official positions. Both benefited from Brexit, Sunak because he established good relations with the future Johnson regime by campaigning for Leave in the referendum, Truss because she voted Remain but made her peace with Brexit so quickly and persuasively that many now see her as the real-deal Brexiteer. Both are meritocrats of the purest kind, though Sunak is undeniably a globalist “Anywhere” while Truss has a small claim to being a more nationalist “Somewhere” (to use David Goodhart’s language for the post-1989 social division of Britain into the mobile and the rooted.)
Both, moreover, are absolutely determined to be Thatcherites. That’s not a surprise to me. Britain is currently running into a serious economic crisis as the bills for the pandemic, the lockdown, and various hugely expensive government programs, such as switching Britain’s energy from 85 percent reliance on fossil fuels to mostly “renewables” by 2050, come due. In this context, “Thatcherism” can be defined as the application of realism to economic policy, especially in conditions when such realism has been ignored for the previous one or two decades. It’s the ideal policy for the U.K.’s current situation. I congratulate both Rishi and Liz for latching onto necessity.
Unfortunately, they don’t seem to agree on what Thatcherism is. Liz thinks it’s tax cuts, Rishi that it’s tax cuts but only after getting inflation under control first. It’s both, of course, or neither, depending on the circumstances. Mrs. Thatcher and her chancellor, Geoffrey Howe, increased taxes and cut spending in order to reduce government borrowing significantly in the “notorious” 1981 budget that was denounced by 364 economists in a letter to the Times but that is now recognized as having started the U.K. economy on the road to sustained prosperity (and three more Tory election victories). On the other hand, once that recovery was in train, Thatcher and Nigel Lawson, Howe’s successor, cut and rationalized income taxes to two historically low rates (20 percent and 40 percent) in the 1984 budget that supported and entrenched the U.K.’s increased prosperity for a generation. Getting the right mixture of tax cuts (or hikes) and levels of spending, borrowing, and inflation in the right order is an extraordinarily difficult exercise — as this passage on the 1981 budget, gripping despite its complexity, from the Thatcher memoirs shows.
My amateur judgment is that both Liz and Rishi have got it partly right: Tax cuts and lower inflation are both essential to economic health, but they are easier to achieve and less risky if they rest on reduced public borrowing, which, in the absence of tax hikes, means cuts in public spending. But won’t spending cuts be the wrong deflationary medicine for an economy heading into a recession? To which my answer is: if they are combined with tax cuts, no. They then represent a shift of resources from the public to the private sector, where they’re more likely to be used productively. Unfortunately. neither Liz nor Rishi seems to be thinking along quite these lines. She’s risking further inflation with unfunded tax cuts; he risks a deepening of the recession already looming by not curbing the tax hikes he introduced quite recently. And they’re both downplaying the need to cut bloated public spending and borrowing.
In other words, they are both half-Thatcherites on macroeconomics. On the U.K. economy, Rishi is being too cautious and Liz is risking too much. If I had to choose, I would vote for Rishi’s responsibility over Liz’s radicalism on this one. But that needn’t be a choice. Thatcher was a responsible radical in economic and financial policy, as the passage from Herself’s memoirs quoted above establishes with chapter and verse beyond all doubt. What they should both learn from it is the need for leadership on the economy that is both responsible, in the style of Rishi, and radical, in the style of Liz.
So much for macroeconomics, which in the early Thatcher years was mainly about defeating inflation in order to get a stable financial framework within which people and businesses could plan their futures on everything from mortgages to factory openings. Inflation is a huge obstacle to liberating enterprise, encouraging innovation, and raising the rate of productivity — and a rise in productivity is ultimately the recipe for growth and prosperity. That’s where microeconomics comes in. During the Thatcher years, a number of policies had an important microeconomic impact — notably the reform of trade-union law that cut down the number of strikes dramatically and (together with the pressures of the 1980–81 recession) made it easier for management to install new machinery and more-efficient working practices. But Britain’s productivity has been more or less stagnant for a while now. Getting it moving upwards again will be a very difficult task. And the headline policy to achieve it is a reduction in regulations.
Both Liz and Rishi talk a good game on this. Moreover, getting the policy through is less an intellectual problem than a political-cum-bureaucratic one. Many clever people (notably civil servants and corporate lobbyists) have spent much time and effort in making this problem worse. Those likely to benefit most from reforming or cutting regulations are small enterprises or businesses that don’t even exist yet — think an entrepreneur making widgets in his garage. So a serious policy of cutting regulations that obstruct enterprise and growth means breaking a lot of china in corporate and City boardrooms long before its benefits become obvious. Whether Rishi or Liz is more likely to fight and win this battle is not a matter of brains — both are Oxford PPEs, after all — but of character. Who’s more likely to break that china?
At present the odds on that question seem to favor Liz — not because it’s a case of rich smoothie versus hard-scrabble battler. As we’ve seen, they’re not that very different. But radicalism is more appropriate to deregulation as responsibility is better suited to financial policy. And the people around Truss seem to be more passionately engaged in the fight against overregulation than those around Sunak. Among them is (Lord) David Frost, who reluctantly resigned from Boris Johnson’s cabinet last December precisely because he disagreed with the government’s “direction of travel” (i.e., static) on such questions. His recent article in the Daily Telegraph on the “condition of Britain question” sounded very much like the criticisms that Mrs. Thatcher’s own gurus — Sir Keith Joseph, John Hoskyns, and Alfred Sherman — were directing against the imploding U.K. economy in the last days of 1970s Labour government:
We have got used to slow productivity and growth, super-low interest rates, huge asset and house price inflation, and generational conflict. We are no longer a low-tax country and we have a highly complex tax system. We have a dysfunctional planning system, poor skills and training, low levels of business investment, relatively poor infrastructure, and an underperforming health system. The Heritage Index of World Economic Freedom gives us the lowest score since the index started in 1995 — and most of that decline has happened in the last two years. Germany has overtaken us.
Frost knows their records, cites their work, and believes that since Thatcher accomplished an economic counterrevolution before, Liz Truss can do so again. It’s slightly embarrassing that his own criticisms are about a sclerotic economy that’s been under the supervision of Tory governments for the last twelve years. But the Tories can’t afford to cede economic efficiency to Labour, and it’s because Frost and others are fighting on it that Truss is starting to “own” the deregulation issue.
Another reason, of course, is Brexit. Though Sunak voted Leave in 2016 and has backed Brexit ever since, the chancellor is suspected of having done little to make Britain’s theoretical freedom from the EU’s thicket of regulations a reality by making a bonfire of them.
Here’s a recent tweet from John Redwood, another Truss backer who held the (in this context) iconic position of head of the policy unit in Mrs. Thatcher’s Downing Street:
Why did Rishi Sunak in office never challenge the EU’s escalating demands for more UK money after Brexit? Why did he let the EU dictate our VAT policy? Why did he not protest about the EU’s distortion of the [Northern Ireland] Protocol? Why did he delay the Freeports?
It’s a good set of questions because it plays into the popular hostile caricature of Sunak as an establishment man who values his status as a confidant of Treasury knights over the democratic decisions of the British people. But it’s also a caricature that Sunak could easily demolish by simply announcing a list of regulations he would cut on entering Downing Street. There’s certainly no lack of quangos, sacred cows, and white elephants for the slaughter house. All that’s needed is a touch more radicalism on a topic on which most Tories are pretty radical.
For the moment, however, Liz Truss has the advantage on deregulation, as Rishi Sunak has on financial management. He has got to shed his present reputation as “Mr. Responsibility — the Continuity candidate” in the next five weeks of this campaign. Otherwise he might lose not to Liz Truss but to himself.
As for the Tory party as a whole, the leadership election is having a tonic effect on it. The first parliamentary rounds saw the emergence of a new generation of eloquent, clever, tough-minded, and patriotic ethnic-minority Tory candidates who won’t let Labour get away with normalizing critical race theory. Matt Goodwin calls it the arrival of post-racial politics in which the Left will be on the defensive. The current round of debates in front of the Tory grassroots is developing into a battle between two versions of Thatcherism.
It doesn’t get much better than that.