It seems extraordinary to many Conservative MPs that a debate over their party’s economic direction rages on almost one year after Liz Truss was forced out of office.
On the fringes of the conference in Manchester, Truss and her supporters maintain she was right to promote tax cuts over public service spending, while those who want levelling up to be measured in multiple billions of pounds have campaigned vigorously for a more statist approach.
In the battle for ideas, Keir Starmer’s jibe that Rishi Sunak is “inaction man” has a ring of truth. Not much has happened in the last six months and its debatable whether much more will be done, even after Sunak’s speech today.
It’s a government that wants to prolong its attraction to the electorate with “tweakments” rather than tackling the more fundamental problems associated with creaking infrastructure, a manufacturing sector on its knees and an ageing population.
Jeremy Hunt has struggled to persuade Tory members that presiding over a fall in inflation is an economic strategy that will secure victory at the next election.
Hunt and Sunak have repeated the phrase “a reduction in inflation is like a tax cut” wherever they face criticism from anxious MPs who believe it will take a real tax cut or big spending plan to beat Labour and the Liberal Democrats at the polls.
The chancellor knows the funds for a noticeable cut in the tax burden are severely limited. A campaign to scrap inheritance tax at a cost of £7bn, seriously considered by No 10 last month, would be a costly blow to the budget and prevent the government from making planned reductions in the annual spending deficit.
Truss and her supporters have preferred to campaign for a cut in corporation tax to rescue one of the main policies put forward during her brief time as prime minister. At a series of fringe events, she has demanded Sunak reverse a rise to 25% in the main tax on business profits that he put in place while chancellor.
“I’m calling upon the chancellor at the autumn statement to put corporation tax back down to 19%,” she said, adding: “And frankly, if we can get it lower, the better.”
Hunt has also popped up on the fringes of the conference, telling Tory members that he wasn’t kidding in his main conference speech that modest changes to labour market rules, minor adjustments to skills training and a cap on civil servants to save £1bn are the limit of his current ambition.
One senior Conservative MP said he was bewildered that after “steadying the ship” following Truss’s disastrous term in office, Sunak had resolved to do so little.
“It is a mystery to me what No 10 has been up to for the last six months. I understand wanting to spend a short period calming the financial markets, but why have we not said how we plan to go forward?” he said. “They’ve had since the spring but have nothing to show for it, so far.”
This MP was concerned that HS2 was an example of projects being scrapped or curtailed without an alternative to show how the government planned to move forward, especially on net zero.
Treasury officials stress that the autumn statement in November will be constrained by forecasts from the Office for Budget Responsibility (OBR), narrowing the chancellor’s options as the election approaches.
Plans to compete with the vast subsidies for manufacturers in Joe Biden’s Inflation Reduction Act or the rival spending across the EU are so far absent, and the hint is that will still be the case this time next year.
Yes, inflation is on the way down. And food prices are even falling according to the latest surveys of high street retailers.
However, the consumer prices index (CPI) only dropped to 6.7% in August, which is higher than the OBR estimated in March, and will mean the Treasury’s independent forecaster must raise the amount it expects the government to spend over the next year on pensions and welfare, while reducing its growth forecast, both denting Hunt’s financial room for manoeuvre.
Sunak will probably meet his inflation pledge to halve CPI from an average in the three months to the end of last year of 10.7%. Unfortunately for him, it’s a pledge banked by many of the Tory conference attendees who say they want meatier pre-election commitments.
With little meat on the bone of announcements at this conference, and the likelihood of only small morsels in the autumn statement, Tory members must wait until the spring for Hunt to offer something fresh. Even then they might be disappointed.
