Money

Next Tory leader urged to make case for capitalism


The next Conservative leader must come up with a new coherent case for defending capitalism if it is to stand any chance of taking on Labour’s radical economic prospectus, a Tory think-tank has argued.

In a series of proposals set out in a report published by Onward, the Conservative MP Neil O’Brien called for the next party leader to use the public spending review later this year to commit to a single fiscal rule that keeps public debt flat or “falling gently” as a share of national income. This would be a departure from current policy to cut debt as a share of national income.

Mr O’Brien argues this would allow for significant extra spending that would enable a new prime minister to cut taxes for those on lower incomes and spend more on public services.

In a sign of the appeal of Mr O’Brien’s proposals, several Tory leadership candidates welcomed the report, including environment secretary Michael Gove, health secretary Matt Hancock, foreign secretary Jeremy Hunt, home secretary Sajid Javid, and Esther McVey. Mr Gove said the report would “kickstart a debate the party needs to have” and Mr Hunt called it “inspiring”.

The report was published as chancellor Philip Hammond warned Tory leadership contenders against making unfunded spending promises or tax cuts, amid fears of a bidding war over public spending among ministers and MPs vying to succeed Theresa May as Tory leader and prime minister. He warned against “reckless solutions” that rely only on tax cuts and deregulation.

The extra £190bn Mr O’Brien said would be available to spend over four years, if the burden of public debt was kept roughly constant, translates into significantly smaller increases in spending each year. The report suggests that compared with 2019-20 levels of public spending, the increases would be £20bn in the first year rising to £50bn in 2023-24.

These increases in spending would keep one measure of debt — public sector net debt — at the same level, but other measures would rise. The reason for the discrepancy is the one-off repayment of loans by banks to the Bank of England, which the Office for Budget Responsibility estimates will cut public sector net debt by 2.2 per cent of national income, or about £50bn.

Onward is one of several Tory think-tanks seeking ways to reconnect with younger voters, many of whom are drawn to the policies of Labour leader Jeremy Corbyn, who has pledged to overhaul “greed is good, deregulated capitalism” and promised a new model based on massive public investment.

Mr O’Brien, who has served as an economic adviser to former chancellor George Osborne and Mrs May, said the new Tory leader needed to counter this vision with a focus on investing in public services including schools, prisons and the police.

Mr O’Brien wants to fund his plans through “looser” fiscal rules that would see debt as a share of gross domestic product staying level, whereas Mr Corbyn wants to significantly increase borrowing.

Mr O’Brien also called for an 50 per cent rise in capital allowances, which allow costs to be partly written off against taxable profits, and a “road map” to cut corporation tax to the Irish rate of 12.5 per cent.

“In this year’s spending review it’s time to turn on all the taps and make sure that poorer families and poorer areas really feel the benefit of a growing economy,” he said.



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