Anand Menon is Director of UK in a Changing Europe. Sophie Stowers is a researcher at UK in a Changing Europe.
Faced with a tsunami of claims and counterclaims, one cannot but feel sympathy for those Conservative Party members charged with electing our new prime minister.
That is why Full Fact and UK in a Changing Europe have partnered to produce a series of evidence led, research-based assessments of the key issues in this leadership contest. The findings reveal the degree to which some of the real issues confronting the country are being overlooked.
Consider, for instance, our analyses of the economic challenges we face.
In macroeconomic terms, woeful productivity performance and demographic change are the key problems confronting us. The latter in particular will have major implications for the sustainability of public finances. The costs of caring for an older population mean the tax burden needs to rise, not fall, over the longer term.
Surely the raging debate between the candidates about tax cuts should have taken place in this broader context?
Meanwhile, in the short term, tax cuts would give people more money in their pockets, possibly helping to bring the economy out of recession (though it is unlikely they would increase growth enough to pay for themselves). But increased spending would likely increase inflationary pressures, leading the Bank of England to raise interest rates – meaning more expensive mortgages and loans. Again, the devil is in the detail.
And although the large packet of support announced in May will go some way to offsetting the cost of living crisis facing the country’s poorest households – and may even bring income inequality down in the long term – the poorest pay little or no income tax. Tax cuts will simply not help them in the face of rocketing energy prices.
This is on top of other challenges and fiendishly difficult choices that will confront the new prime minister. Unexpectedly high inflation risks imposing de facto austerity. Predicted increases in public service spending averaging 3.3 per cent above inflation each year now look substantially lower. By March of this year, higher inflation forecasts had wiped out at least ten per cent of the real-terms budget increases pencilled in last autumn.
And yet a rapidly aging population, and a rise in complex health needs, means that investment in emergency care and the social care sector is increasingly urgent. Pay is also likely to remain a real concern as workforce retention rates within the sector continue to fall.
The Health and Social Care levy will go some way to covering costs, but consistent growth in GDP will be vital to cover health spending and deliver systematic improvements to healthcare.
Meanwhile, when it comes to education, the prime minister will inherit an ambitious agenda which aims to transform the post-16 educational landscape, close attainment gaps, and tackle teacher retention, with plans to increase teacher pay by five per cent.
However, schools are expected to deliver increased pay and a widened curriculum without any additional funding. This will add to the budgetary pressures schools already face, particularly alongside increased energy prices.
One of the first major decisions to be taken in September will be whether or not to proceed with the Northern Ireland Protocol Bill. Devised by Liz Truss as a means of ‘resolving’ the dispute over the Protocol, its adoption as law could trigger a trade war with the EU. This will merely add to the economic pressures under which a new government will need to operate.
And even though both candidates are enthusiastic about the chance to seize on the opportunities of Brexit, any government will need sufficient resources to allow the UK to carry out the regulatory functions previously under the EU’s purview. This might make any cuts to the size of the Civil Service, and consequent savings for the public purse, much more difficult to justify.
More widely, Sunak or Truss will also have to juggle short term imperatives with longer-term priorities. Immediate action to tackle rising oil and gas prices must be considered alongside the long-term transition to renewable energy sources.
Significant investment is needed to address the backlog in asylum claims and allow people to work, but decisions must also be taken about how to best tackle illegal immigration: should safe and legal routes be expanded, or should the Government pursue an enforcement-heavy approach?
Difficult choices lie ahead for the incoming premier. That also means an important decision for the Conservative members who must assess the rival claims of the two candidates to be the UK’s next prime minister.
We hope our report will allow them to make this decision with knowledge of the broader public policy context, and the trade-offs implied by the policy choices of the two contenders.
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