David Gauke: Johnson’s health and social care plan. A betrayal of Conservative principles? No – because, at one level, there aren’t any.

13 Sep

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire in the 2019 general election.

The Government’s plan for increases in National Insurance (NI) contributions to fund higher health spending and increased health spending has provoked a furious response from some on the right.

It “sounded the death knell to Conservatism” and drove “a coach and horses not only through the Tory Party manifesto, but Toryism itself”  according to Camilla Tominey in the Daily Telegraph.  In the same paper, Allister Heath fumed “shame on Boris Johnson, and shame on the Conservative Party…they have disgraced themselves, lied to their voters, repudiated their principles and treated millions of their supporters with utter contempt” and that “an entire intellectual tradition now lies trashed”.

In the Times, Iain Martin declared that “at this rate, the Conservative Party might as well rename itself the Labour Party”  and in the Spectator, Fraser Nelson questioned whether the “Boris Johnson” definition of conservatism as “a protection racket, where the tools of the state are used to extract money from minimum-wage workers and pass it on to the better-off?”

Meanwhile, Dominic Cummings has argued that “if you think you’re ‘conservative’, and you give those speeches about ‘enterprise’ and ‘responsibility’, why would you support making many more dependent on state money and bureaucracy?”

It’s all jolly strong stuff. And there are elements of the criticisms with which I have sympathy. I share the scepticism about prioritising a tax-funded social care cap, in that those who will gain most are those who have the most (thanks to rising house prices) and that is the wrong priority for public money.

There is a need for risk-pooling, but I think Peter Lilley’s proposal on this site is worth close examination (I suggested something similar when in Government). I also dislike NI as the choice of tax because of the narrowness of its base – and the distortions that this causes – and the dishonesty of employers NICs (no, Prime Minister, it is not a tax on business: it is a tax on jobs and employees’ wages).

In fairness to the Government, raising taxes is difficult, NI is less unpopular than income tax (largely because much of the public misunderstand it) and, being cynical, it is not surprising that Ministers exploit that misunderstanding.

Having said all that, is it a fair criticism to state that Johnson’s Health and Social Care plan undermines everything for which the Conservative Party stands? For a number of reasons (some of which reflect better on the Party than others), I think not.

First, the Conservative Party has an honourable record of fiscal responsibility. When the public finances are in trouble, Conservative governments have been willing to raise taxes in order to put the public finances on a sound footing – not least Margaret Thatcher’s, when Geoffrey Howe raised taxes in 1979 and 1981. The advocates of Reaganomics always find this disappointing, but responsible Conservatives do not believe that lower taxes will pay for themselves (as they did not for Reagan).

In reality, even putting aside any new commitments on social care spending, the prospects for the public finances are not great. Not only do we face some immediate challenges (Covid catch up, net zero and levelling up), but demography and rising health expectations will mean a tax-funded healthcare system will require higher taxes.

Some on the Right will argue for further cuts in spending or an alternative health model, but the political feasibility of such an approach is highly dubious. If we are going to spend more (and we are), taxes will need to rise to pay for it.

Second, the idea that a Conservative government prioritising homeowners is a complete break from the past does not bear scrutiny. Look at the arguments that Thatcher made in resisting the removal of mortgage interest tax relief (although the Treasury rightly prevailed in the end), or the general dislike of inheritance tax from the wider Conservative world. The reaction to Theresa May’s social care policy in 2017 suggests that the instinct to ‘defend our people’ (and their inheritances) amongst Conservatives is a formidable one.

Third, complaints about the Conservative Party not being the party of business are (how can I put this?) a little rich from some quarters. Imposing higher taxes, whether on employment or profits, is not great for business – but making it substantially harder to trade with our largest trading partner is a bigger problem.

It is all very well complaining about the anti-business instincts of this Conservative government, but hard to do if you have been a cheerleader for anti-business policies or, for that matter, Boris “f*** business” Johnson. If your expectation is that the Conservative Party would automatically be on the pro-business side of the argument, you have not been paying much attention in recent years.

The reason why the Conservative Party moved in the direction of an anti-business Brexit is that was where the votes were. And this brings me to the fourth and most important observation about the Conservative Party.

It has one purpose: to be in power. At one level, it is not possible for it to repudiate its principles because it does not have any. This can give it a tremendous advantage in a democracy because the public, as a whole, does not have political principles either – opinions and political alignments shift over time.

The Conservatives have been protectionists and free traders, the party of Empire and the party that facilitated the retreat from Empire, Keynesians and monetarists, the party of price controls and wages policies and the party of market economics, the party of Europe and the party of Brexit. It never stays on the wrong side of public opinion for long.

What is happening to our politics at the moment is that party support is realigning along cultural lines and, as a consequence, much more along generational lines. This has worked to the advantage of the Conservatives, so it is no surprise that it pursues policies that prioritises health spending over lower taxes for people of working age.

Polling suggests that the new, Red Wall voters who switched to the Conservatives at the last election are notably more left-wing on economic issues than traditional Conservative voters who are, in turn, to the left of Conservative MPs. The decision was made to pursue those voters and, if the Conservative Party wants to keep them, it cannot risk the NHS collapsing under financial pressure – which means higher spending and, ultimately, higher taxes.

Johnson’s critics are right to think that this will not be the end of it. Last week’s package was supposed to be an answer to how we fund social care. The reality is that it was a package to boost spending on the NHS. As Damian Green has argued on ConHome, it is hard to see how resources will be taken out of the NHS and switched to social care in three years’ time – and that, at that point, some expensive social care commitments will come into effect.

here will another funding gap and, on the basis of last week’s revealed preference, a further increase in the Health and Social Care Levy. Those who see the purpose of the Conservative Party as delivering low taxes are right to be glum.

The Universal Credit Uplift. Easy in, but not easy out.

8 Feb

We can’t speak for other enthusiasts for the free market economy – including Allister Heath, our columnist Ryan Bourne, and John Redwood – who urged unprecedented state intervention when the pandemic broke.  (As we did: the economy was undergoing the equivalent of a heart attack, and needed emergency surgery urgently.)

But we believe that they also knew well that, when it comes to the expansion of government, it’s easy in, but not easy out.  Of which the Universal Credit uplift is providing a classic illustration.

The Benefits Uprating Order is being considered in the Commons this week, but a decision on the uplift’s future has been postponed.  Ministers are telling Conservative MPs that “a decision regarding its future will be made in due course…it is only right that we wait for more clarity on the national economic and social picture before assessing the best way to support low-income families moving forward”.

On the one hand, that is not a principle that has been applied to other benefits.  On the other, Universal Credit, though paid to some people who don’t as well as to some who do, is becoming the main employment-related benefit.

In the summer of 2019, 33 per cent of those receiving Universal Credit were in employment, and 41 per cent were in the Searching for Work conditionality regime.  That snapshot from before the arrival of Covid-19 gives a sense of what the payment does and where it was going.

But pandemic has exploded figures like those.  At the start of the pandemic, about three million people were claiming it; now, that figure has all but doubled.  Unemployment has already hit five per cent, or 1.7 million people.

However, this uncertainty isn’t the main reason for the delayed decision on uprating.  The driver of the pause is an institutional clash between the Treasury, the guardian of the public finances, and the Department of Work and Pensions, the steward of what goverments used to call the social security system.

Rishi Sunak has floated one-off payments to keep down costs to the taxpayer (or such has been the briefing); Therese Coffey has said that these are not her “preferred approach” (no briefing here: she said so publicly last week to the Work and Pensions Select Committee).

She can point to Universal Credit as one of the government’s pandemic success stories – the main one, arguably, before the vaccines came along.  As Iain Duncan Smith wrote on this site, “on the old system, these claimants would have to be processed physically ,and the queues and chaos at job centres would have dwarfed anything we have seen so far, as well as increasing infection rates”.

It can be argued that the payment does not target our poorest people.  Philippa Stroud, formerly Duncan Smith’s adviser when he was Work and Pensions Secretary, has put that case.

“The Government could decide to focus on those who are moving in and out of poverty and close to the labour market (the top seven million). That is in effect what the £20 uplift has done in Universal Credit. Or, it could decide to focus energy and resources on those in deep poverty – those who are 50 per cent below the poverty line (bottom 4.5 million),” she wrote on ConservativeHome.

“This is the most vulnerable group and where I would put my energy and effort at a time of national crisis.”  However, the poorest are not necessarily those who have been hit hardest by Covid.

Stroud is now at the Legatum Institute, and a recent report from the think tank found that “poverty has reduced among some groups…this is because many non-working families have seen their benefits increase, meaning that they are less likely to be in poverty than would have been the case in the absence of the Covid-19 pandemic.”

The story of the Coronavirus continues and all judgements must be provisional.  But our take on the virus so far is that manual workers, younger people, women, and a section of the self-employed have been disproportionately affected in economic terms.

A substantial slice of these are the battlers, strivers and just-about managings of electoral legend.  And the number of them on Universal Credit has soared – as we have seen.  They will be well represented in the Red Wall and other former Labour seats in England’s provinces in which the Conservatives did so startling well at the last election.

The debate that Stroud wants about anti-poverty policy is made harder, she argues, by the absence of an offical measure of poverty – abolished in 2016.

“We are allowing others to create a narrative for us, and in the absence of an agreed poverty measure and subsequent strategy, we always will,” she says.  She champions a new measure from the Social Metrics Commission which she has helped to drive; the Centre for Social Justice disagrees, arguing for a focus on outcomes that reduce family breakdown, addiction, worklessness and poor schools instead.

We wrote yesterday that if Boris Johnson wants to take healthcare policy left (which Ministers are denying), Parliament will probably let him do so.  It may be a different matter with the Universal Credit decision.

Our sense is that Conservative backbenchers, as so often, will be driven by their constituents’ immediate needs, first and foremost.  Maybe there is some one-off compromise – the Prime Minister’s reflex will be to hunt for one – that involves some new scheme, such as that floated by the Centre for Policy Studies.

But it is hard to see how the Government can avoid running the uplift for another year: the alternative of doing so for a few months, which would do little if anything to abate the political pressure on Ministers, doesn’t look appealing.

We end where we began.  Once benefit payments have been raised, it is difficult to cut them.  The conventional means of establishing control is either to freeze their value, or replace them altogether – while getting more people into work.  That’s part of the recent story of benefits, through Peter Lilley’s reform of incapacity benefit under John Major to the Employment Support Allowance of the Labour years.

So much for the short term.  What about the medium?  Is the divided backbench reaction to Marcus Rashford’s campaigning the shape of things to come, with Tory MPs taking a less stringent view of welfare than during the years of much higher employment?