A fundamental shift, abandoned?
Mr Croft and Mr Baker in happier times.
Prior to a presumed shift towards backing the right-wing of the Conservative and Unionist Party, the triumvirate of William Croft, Dylan Macmillan, and John Baker potentially planned the most fundamental shake-up of British fiscal policy in modern history. However, significant questions remain as to the depth of William Croft’s involvement and approval of the plan.
Obtained documents revealed the exact nature of Conservative spending plans from when Mr Croft sought the leadership of the party following the resignation of Mr Hague. Notably, Mr Macmillan was the primary author of the proposals, which contain specific references to being drafted in his office, alongside Mr Baker, who, until today, was a senior member of the Opposition frontbench. Mr Macmillan was believed to have been in line to serve as Shadow Chancellor of the Exchequer prior to his comments on retaining the pound.
It is now reported that, in the aftermath of the appointment of right-wing MPs Sir Tristan St John, the plan allegedly developed during the leadership campaign was fundamentally abandoned.
Among the plans put forward were a radical proposal for a negative income tax, a carbon tax and green investment package, and significant changes to corporation tax policy. Most notably missing from the documents were plans to slash the income, inheritance, or capital gains taxes, in line with Mr Croft’s leadership platform. Mr Croft stated that neither he, nor his party, plan or planned to introduce a negative income tax.
If proposed, this fiscal plan would have marked a robust departure from the Conservative free market orthodoxy, with significant intervention in energy markets and spending in support of the businesses. Mr Croft denied that he had seen the draft policy obtained by this paper.
However, the close result of the Conservative leadership election meant it was not to be. In particular, Mr Baker, the former Conservative and Unionist Party Chairman and frontbench member responsible for energy policy, was told to drop plans for the renewable energy investment package, while Mr Macmillan found himself on the backbenches. Mr Croft noted, vehemently, that green investment is a personal priority of his that is actively being pursued.
A source close to the Tory Reform Group of Conservative MPs indicated that this is another example of Mr Croft abandoning carefully crafted plans in order to appease members of the Monday Club. It was a case of trading bold economics for euro-bashing and status quo policy, noted one individual.
While firmly abandoned (Mr Croft denies that he every approved of it or saw it in the first place), the proposed fiscal plan was a mix of both traditional Conservative policy, particularly as it relates to tax, and a fundamental attempt to rebrand the Conservative Party - outflanking Labour on some issues and promising bold, if untested, reform in others. Notably, the documents abandoned the fiscal caution that characterised Gordon Brown’s tenure as Chancellor.
One expert noted that, while offering bold plans, there needed to be an effort at fundamental reform of institutions to go with it. Just throwing money at a problem doesn’t fix things, noted a researcher with the Institute for Fiscal Studies.
Overall, the spending plan put forward emphasised economic intervention and education spending, which fits hand in hand with the schools policy announced by Shadow Education Secretary Theresa May recently. Law and order also benefitted from significant investment, with dramatic plans to increase prison capacity being put into place. The law and order investments, noted one commentator, are solid Conservative policies. “If this is from William Croft, we should all be praising him right now for the scale of these investments in police and prisons.”
What remains to be seen, with the rise of the right wing in the Conservative Party, is whether the fundamental plans outlined will be carried out or whether Mr Mountstuart, the new Shadow Chancellor, will take the party in a different direction. Green investment and a negative income tax were, indeed, bold - but do they still have a place in today’s Conservative Party? And will they be carried out following the dramatic departure of Mr Baker from the Conservative frontbench? Mr Croft seems to suggest that, yes, those investments will go forward – though he noted that the Conservative Party will release a full policy in due course.
In light of the details of this spending plan, there is a likelihood that members on the right wing of the Conservative Party could demand the rejection of interventionist economic policies and a return to focusing on cutting taxes. The draft document contained no plans to cut income tax rates, in addition to backpedaling on pledges to eliminate the inheritance tax.
When asked, Mr Croft stated that it’s best “when Government stays out of the way of business, and let's job creators and hard working individuals take the lead” – seemingly a rejection of the interventionist business policy proposed, while noting that he wants to see better funded social services and infrastructure spending. “This is the basis of Tory economic policy,” said an IFS researcher, “there’s nothing radical here.”
Industry groups, however, are concerned about the unilateral introduction of a carbon tax. One insider said, particularly for manufacturers and energy producers, that we’re going to need to see a real effort to offset the potential costs of a carbon tax. Mr Croft did confirm that the Conservative Party is actively considering a carbon tax or a cap-and-trade policy for carbon emissions. One noted that a European solution would be preferred.
Despite the contents of the draft policy made available, there remains significant speculation about the direction of fiscal policy in the Conservative Party. Mr Croft is adamant that, to see his proposed fiscal policy, don’t look at these documents and the proposals they contain, but look towards his leadership platform. There is, indeed, significant overlap between the two, but also significant departure – it is possible that the budget released to this paper may just represent the dreams of the Tory Reform Group.
One thing, however, is clear. As the budget approaches, there is now a standard that any document produced by Mr Mountstuart will be held to. And it isn’t just the government’s budget.
The documents obtained by the Financial Times can be found
here.