Rishi Sunak can’t please Conservative MPs and the ‘blue wall’ voters

Many new Tory voters want higher spending to fix underfunded public services – but the party old guard are playing a familar tax-cutting tune, writes Ben Chapman

Tuesday 18 February 2020 18:10 GMT
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The chancellor himself would face a big bill if a form of mansion tax was introduced
The chancellor himself would face a big bill if a form of mansion tax was introduced (Getty)

New chancellor Rishi Sunak faces a number of dilemmas in his first Budget on 11 March. Chief among them is how to square his previously professed faith in low taxes and free markets with the demands of the Conservative Party’s new voters in what was once Labour’s red wall – which has since turned blue in December’s election.

Research published this week by Tax Justice UK found that many of those voters strongly favour increased public spending, they want it delivered quickly, and they are not averse to higher taxes on wealth in order to pay for it.

The campaign group polled and carried out focus groups in parts of the north of England, Wales and the midlands that had previously been Labour strongholds.

It found widespread support for an idea that Boris Johnson knows to be true: that many Tory votes in these seats are effectively borrowed. They are conditional on the government not just “getting Brexit done”, but delivering tangible improvements to services, living standards and a more equitable distribution of opportunity.

One voter in Blyth, Northumberland, summed things up bluntly for researchers: “Austerity has shafted the northeast. Public services are falling apart on a massive scale.”

Very few, if any, participants in the study wanted to see lower taxes, and not a single one explicitly called for tax cuts.

While most people were found to be against “bash the rich” narratives, they were also conscious that wealthy individuals frequently use the current tax system to pay lower tax rates than the rest.

“Levelling up” capital gains tax, so that those who make money from rising asset values pay the same rate as working people do on their wages, was very popular. Closing loopholes that allow companies to avoid tax also appears to be a vote winner.

Cutting the 40 per cent tax relief given to high earners on their pension contributions also found support, while some participants called for reform to inheritance tax.

But word from the “blue wall” doesn’t seem to have reached some of the Tory old guard strolling the corridors of the Palace of Westminster.

Many high-profile backbenchers remain wedded to low-tax, small-state conservatism. Ardent Brexit supporter and MP for Wokingham, John Redwood, said this week that the government should be looking at cutting not taxes rather than raising them.

“You cannot tax people into prosperity. You do not make the less well off rich by taxing entrepreneurs to take fewer risks and run fewer businesses,” he told the Evening Standard.

To be fair, Redwood has been saying exactly the same thing for the past 40 years, whatever the political weather. But the implications are now somewhat different.

Tax Justice’s research suggests the default Conservative position is deeply unpopular with an important group of voters: those who shifted allegiance to the party chiefly because of Brexit and disaffection with Corbyn’s Labour.

Sunak, himself a former Goldman Sachs analyst and no fan of big government, has reportedly been called to report to the 1922 Committee of backbench Tory MPs to explain himself before the Budget. It will be a tricky meeting.

Within the government’s fiscal rules, which were only relaxed in November, there is very little room for extra spending. So any tax cuts would mean corresponding spending cuts.

Even leaving spending at its current level would mean keeping many services desperately underfunded, making it all but impossible to begin delivering on the promise of levelling up the UK.

So will Sunak change tack and introduce higher wealth taxes? Well it appears that he got the job because he was more willing than his predecessor, Sajid Javid, to put ideology to one side and show some flexibility on spending.

There are rumours that the government had been flirting with the idea of a so-called mansion tax on expensive properties, although it has caused a severe backlash within the party.

It would be a tricky policy to sell for a party that portrayed Ed Milliband as being to the left of Stalin for suggesting much the same policy few years ago.

It would also land the chancellor himself with a hefty bill for his own palatial Georgian country pile in North Yorkshire and his £7m Kensington mews house. On the plus side, however, there could hardly be a better way to demonstrate that the Tory party really has changed.

If higher taxes are simply too unpalatable for too many traditional Tory voters and MPs, the alternative is to fund higher spending with more borrowing. There are a number of sensible reasons to do this. Bond markets are falling over themselves to give the government money, meaning borrowing costs are extremely low.

The government can borrow over 10 years at an annual rate of 0.6 per cent, well below inflation.

The overall debt pile is not especially high by historic standards and, more importantly, the amount we are spending on debt repayments is relatively low at just 3.5 per cent of GDP (lower than they were for most of Margaret Thatcher’s time in office).

More borrowing would eventually mean ditching the Conservative manifesto pledge to fund current budget spending solely through tax receipts over a rolling three-year period.

But it appears that Boris Johnson may be willing to do just that, even if many others in his party – including his former chancellor – are not.

It will fall to Sunak to square the circle.

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