Despite the shared small government rhetoric, the similarities between the economic policies of the Conservative party and their Republican counterparts in the United States appear limited – at least at first sight. While the Bush administration pushed through sweeping tax cuts, the Conservatives are reluctant to make any specific pledges to cut tax – for them, it is only an aspiration. They aim to reduce government spending by a modest 2 percent of GDP, less than the reduction during Labour’s first term. They even promise to increase expenditure on health and education. But is Britain really immune to a renewed rightwing assault on the size of the state?
The strategy currently being put in place by American proponents of small government is known as ‘starve-the-beast’. The objective is to reduce the size of government by denying public services the funds required to function effectively, while at the same time convincing taxpayers that those services are consuming too much of their money. For the strategy to work, voters must be convinced that public services are inherently inefficient, and that the only solution is to dramatically reduce the size of the state.
The American economist Paul Krugman has argued that the Bush administration’s tax cuts, although dressed up in the rhetoric of supply side economics, are the cornerstone of this starve-the-beast strategy. The tax cuts, which are directed primarily at the rich, have caused a massive $521 billion budget deficit to build up. But at the same time, most ordinary people rightly believe that their individual tax burden has not fallen significantly. That makes it politically difficult for Democratic politicians to campaign on policies that would correct the deficit, because Republicans would simply claim that people are still paying too much tax, and voters are likely to agree.
To complicate things further, the Bush administration, rather than simply reducing tax rates, has chosen to eliminate whole classes of tax, such as the Estate Tax. This makes the task even harder for Democrats, because it makes it significantly harder to correct the deficit simply by tweaking tax rates. The overall effect is to convince voters that the only way to correct the deficit is to slash spending on expensive programmes like social security and welfare.
In this respect, there is a crucial difference between the Tories and the Republicans. While senior Republicans like Vice President Dick Cheney contend that ‘Reagan proved that deficits don’t matter’, the Conservatives are now solemn advocates of fiscal responsibility. A new Tory poster campaign, devised by Maurice Saatchi, specifically highlights the issue of borrowing under Labour. And Shadow Chancellor Oliver Letwin, unveiling his party’s spending proposals in February, promised only to cut taxes ‘once any structural fiscal deficit has been corrected’. Far from starving the beast, the Tories seem hesitant even to put it on a diet.
But a difference in strategy should not obscure the similarities in Conservative and Republican beliefs. Mr Letwin argues, like the Republicans, that ‘the mythology of a ceaselessly and inevitably enlarging state’ is false and contends that the ‘size and nature of the state…lie within our control’. The truth is that the key difference between the Conservatives and the Republican right is one of political climate rather than ideology.
The starve-the-beast approach recognises that it is not possible to win the argument for small government by persuasion. Voter support for key government programmes is too strong for that. So the objective must instead be achieved by stealth. In America, the strategy is relatively simple – engineer high budget deficits through tax cuts directed at the rich, and use the resulting shortfall in the public finances to argue that high government spending is unsustainable.
But in Britain, the task is more complicated. First, the debate about tax has been transformed since 1997. The recent increase in National Insurance to pay for improvements to the NHS has created a strong linkage in voters’ minds between levels of taxation and investment in public services. Tax therefore has a new legitimacy and any Tory attempt to shrink the size of the state must take special account of this political sensitivity. Second, in America, deficit-financed tax cuts are feasible as long as foreign investors are content to keep piling money into the dollar. But that would not be economically viable here.
So instead, the Tories are forced to adopt a more subtle, incremental approach to reducing the size of the state. While paying lip service to investment in health and education, the ultimate aim of the Tory project is to fragment and undermine public services. Like the Republicans, the Conservatives cannot be explicit about this. So instead, they have come up with a stealth tactic they believe people will vote for, concealing their plans under the appealing banners of patient and parent choice.
Under the Tory patient passport proposals, better-off patients would be able to opt out of care within the NHS, receiving a subsidy to help pay for private treatment instead. Similarly, the pupil passport would enable parents to take taxpayers’ money outside the state sector and pay for private schooling instead. People taking advantage of the patient and pupil passports will be given greater choice and improved services as a reward. In contrast, the Tories notably have no major policies for delivering improvements within the public health and education systems – only for those who opt out.
The objective of the patient and pupil passports is to slowly encourage the middle classes to migrate out of the public health and education systems, creating a division between those who have choice and those who do not. By making no effort to deliver improvements for those remaining within the state system, the Tories are attempting to engineer a crisis of confidence in public provision. With the middle classes immunised against the pain of deteriorating services, residual public provision will be neglected and allowed to deteriorate. It will then be denounced as ‘inefficient’ and structurally incapable of delivering the services people need. This will pave the way for a comprehensive break-up of public provision. The state will have been massively rolled back.
Of course, the Conservatives will never admit that this is their objective. The apparent caution of the Tories’ new approach to spending and taxation is in many ways a tribute to how Labour has transformed the political climate. In some ways, the Conservatives are actually emulating the cautious approach of Gordon Brown prior to 1997, which laid the foundations for Labour’s latter programme of investment. But that is no cause for complacency. The intellectual links between the Conservatives and the Republican Right remains strong. And underlying the modesty of Tory proposals is the same rightwing, small government ideology which motivates the Republicans – ultimately, to ‘starve the beast’. The task for Labour is to expose this hidden agenda.