Tom Hoctor: Fourteen years of Conservative political economy. Where did it all go wrong?
Dr Tom Hoctor
The first in a two-part series looking at how the way the Conservatives approached the economy contributed to last month's defeat - and what they could do to rebuild.
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Dr Tom Hoctor is a Senior Lecturer in Social Sciences at the University of Bedfordshire. He has published and lectured extensively on the ideological direction of the Conservative Party, the relationship between political theory and the economy, and the sociology of work.

At the 2010 Conservative Party conference, George Osborne insisted that: “the foundations of a strong economy don’t rest alone on the decisions of Chancellors or the spending programmes of government.”

This is indisputably true – but as with so much in political economy, the devil is in the details. Osborne and David Cameron built their economic prospectus from 2009-2016 on “expansionary austerity” an idea which was rubbished as early as 2011 by the famously socialist International Monetary Fund.

Fast forward to May 2024: Jeremy Hunt stated his ambition to see a £1 trillion ‘British Microsoft’ on the FTSE 500. Certainly, after fourteen years in government and twenty points behind in the polls, there is a sense in which one can say whatever one wants. But this bit of magical thinking is illustrative because it is so utterly divorced from the realities of the Conservative economic prospectus for the preceding fourteen years.

Expansionary austerity argues that as public investment contracts, private investment will expand. There are two main problems with this thesis. The first is that it doesn’t work.

The second is that when applied to the UK it exacerbates a peculiarly British problem which has become particularly acute since 2008, namely that compared to most OECD countries, Britain has extremely low rates of private (and public) investment and has done for much of the post-War period.

The central dilemma of British economic policymaking is therefore not really about the appropriate size of the state or whether its tax system conforms to the (discredited) Laffer Curve, but about why UK productivity is so low. The answer is likely a mixture of chronic lack of investment and the relative weakness of “owners” of British companies, which tend to lack majority shareholders.

To return to Osborne and Cameron, it would be unfair to judge a government taking over after a major financial crisis on its ability solve a problem that has bedeviled Britain since the 1950s. But it would be fair to expect them to not make it worse.

But by hacking and slashing their way through Britain’s already-modest outlay on capital infrastructure, they further choked off weak private investment and made life more difficult for new and existing businesses. The conditions for the creation of Hunt’s British Microsoft, this ain’t.

Between 2010 and 2016, fiscal retrenchment was presented as a necessity. Notwithstanding the damage caused to the country (which is ultimately a lot more important), by turning a bad idea into a political virtue, Cameron and Osborne put the Conservative Party, and by extension the Government, in a straitjacket.

We watched as their successors failed to wriggle out of it. Theresa May and Boris Johnson both tried to rip themselves free of their inherited fiscal constraints, and neither of them succeeded. The thorniness of the dilemma is neatly captured by May’s attempt first to signal an end to austerity before being forced to disappoint a nurse on Question Time by declaring that “there is no magic money tree”.

Johnson’s Levelling Up funds were always fairly paltry – poorly administered and not really a solution to the fundamental problem – but their failure is nonetheless significant. It signalled that the legacy of Osborne’s austerity programme and its vicelike grip on economic policymaking was not something that could be easily abandoned, even by a government with an 80-seat majority.

Other decisions are just baffling but reflect a Party that had little concrete understanding of how the state steps in to stimulate economic growth. For example during Covid-19, in contrast to many other OECD countries (including the US and EU funds for this purpose), the UK handed out many of its business relief packages as loans rather than grants.

Sure, keeping the show on the road was expensive, but saddling small and medium-sized businesses with loans rather than just absorbing the loss to the Treasury is robbing Peter to pay Paul.

Immediate takes on the Conservative’s huge slump in the vote have focused on the issue of competence, and undoubtedly there is truth to this. The political gridlock created by four years of paralysis over Britain’s new relationship with the European Union, followed by the Johnson hype train rapidly coming off the rails, was unhelpful to Conservative prospects in 2024.

The problem with the competence argument, though, is that it sidesteps the real issue. Cameron and Osborne were pretty competent – but they were competent at doing something that ultimately trapped the Conservative Party into a low-growth economy with stagnant wages and private and public concerns which have proven unable to withstand external shocks.

Moreover, failure to stimulate investment and productivity growth has had a ripple effect on much else the Conservatives have attempted in the last fourteen years. With overall growth comes wage growth; without it comes acute demand for low-wage labour and increasing reliance on migrant workers to fill labour shortages.

When combined with the Conservatives’ appalling record on (public and private) housebuilding and spotty management of health and social care, utilities, and transport, this produced a situation where the Party was attacked from the right by Reform UK on immigration and from the left by Labour and the Liberal Democrats on growth, housing, the NHS, and the environment.

During the Brexit campaign, Johnson famously responded to an awkward question with “f*ck business”. Arguably, this was a very succinct summation of the effects of Conservative economic policy since 2010.

To stand any chance of rebuilding, the Conservatives need to seriously reflect on what they think the British economy ought to look like, and how a programme for government might sustain it. A lot of this work will be extremely tedious and not of direct interest to voters, but the results of it will be critical.

To win on the economic competence issue in 2029 or the early 2030s, a Tory prime-ministerial hopeful will have to make an offer that does not rest on the comforting platitudes of expansionary austerity or magical thinking about a British Microsoft. If this is to happen, the hour draws near for the leadership contenders to turn the halls of their local associations red with the blood of sacred cows.

This is the first in a two-part series, the second will be published tomorrow.