As the country finds out who its next Prime Minister will be, James Seabridge suggests why Thatcherite policies will not solve the current cost-of-living crisis.
If the Conservative Party leadership election has shown us anything, it is the enormous influence Margaret Thatcher still has over the party. Both candidates are arguing they are the true Thatcherite and Liz Truss has even taken to cosplaying as Thatcher to try and win over the membership.
We’ve also seen, especially from Prime Minister-presumptive Truss, how utterly unprepared Thatcherism as an ideology is to deal with the cost-of-living crisis. She declared in August that she would look at what can be done to tackle the energy crisis, but that ‘the way I would do things is in a Conservative way of lowering the tax burden, not giving out handouts’.
She also rather bizarrely labelled directly helping people pay their bills as ‘Gordon Brown economics’ and called windfall taxes on energy giants a ‘Labour idea’. I’m not sure crediting Labour with two very popular policies (that she may have to turn to) is exactly smart politics but it does give us an insight into the mind of the likely next PM.
Her solution so far seems to be granting more drilling licences, removing green levies from energy bills, and a series of tax cuts. I won’t go into it too much here but the idea that granting more drilling licences to increase supply is a simplistic solution that just won’t work. Across the globe there are thousands of approved drilling licences that have yet to produce anything and oil and gas giants aren’t showing signs of dramatically increasing production.
Similarly, scrapping green levies that make up around 8% (not the 25% figure some Tories claim) of energy bills at the moment pales in comparison to the wholesale increase of energy. Whether Truss wants to admit it or not, renewables are the answer to volatile fossil fuel markets and green levies help progress that.
She sees the tax cuts approach as preferable to giving ‘handouts’ to people to help them pay their bills. Funnily enough this approach has been debated a lot, with both Truss and Sunak’s camps arguing whether Thatcher would cut taxes in the current context.
Tax cuts will help people pay their bills, but not the people that need help paying them. Cutting taxes benefits those who pay more in tax to begin with, the more well off in society. But there are millions of people who pay little or no tax and they simply won’t benefit from tax cuts.
She is also reportedly considering a 5% reduction in VAT to help alleviate the cost-of-living crisis. While a VAT cut will help people, again, it isn’t enough to help the poorer people who are already having to cut back on spending and will benefit those who can continue to spend throughout the crisis. Those who are spending less will benefit less from VAT cuts.
The wider problem with a tax cut-based solution in the current context is that any savings people make from tax cuts can be wiped out by ever increasing inflation. There is also significant concern amongst economists that Truss’ tax cuts will go on to increase inflation further and intensify the cost-of-living crisis.
Truss has committed to scrapping Sunak’s planned corporation tax rise, which would see £19bn brought into the Treasury. The major flaw with this is that corporation tax is only paid on profits, many SMEs (small and medium-sized enterprises) will be struggling to make a profit as the cost-of-living crisis deepens and energy bills skyrocket so will not benefit from this tax cut.
The drastic rise in energy bills is an existential threat to the UK’s SMEs that have so often been labelled as the backbone of the economy. There is no energy bill price cap for businesses and there are already examples of bills for businesses rising at incredible levels. Lower corporation tax will disproportionately benefit big business and not the SMEs that are going to desperately need to help in the coming months.
Thatcherism, and its staunch opposition to state intervention, is completely unprepared and incapable of solving the problem of rampant energy bills. People simply won’t be able to pay their bills and thousands of SMEs will collapse without direct Government help.
Truss will be forced into a screeching U-turn once the extent of the crisis becomes clear (or sees the Government’s polling figures tanking as the crisis worsens) and it demonstrates how insufficient her current approach is. She is going to have to turn to the state and once again show how flawed Thatcherism is.
James Seabridge works in environmental campaigning, specifically focusing on energy policy. He is an active member of Labour and tweets at @jmseabs.
Images for cover photo:
Rishi Sunak, Simon Walker / HM Treasury, accessed via Wikimedia Commons
Liz Truss, UK Government, accessed via Wikimedia Commons
Margaret Thatcher, Margaret Thatcher Foundation, accessed via Wikimedia Commons