Even before the court judgement yesterday, there were strong arguments for an election next year. Many Tories think a successful Brexit requires radical action in terms of promoting growth and reforming and shrinking the public sector at home, on top of playing a strong hand in negotiations abroad. The problem is that Theresa May, unelected and with a majority of just 10 in the Commons now after Zac Goldsmith’s resignation (and none in the Lords), is weak on both fronts. Theresa May has seen recent public squabbling within the Cabinet, a public rebuke from the Governor of the Bank of England and hardcore Remain Tory MPs briefing to journalists that they would derail anything but the most negligible change in our EU status.
Brexit aside, there has been a recession every decade since the 1970s. Brexit will increase short term uncertainty even if there are long term gains. Abandoning Osborne’s deficit reduction targets will make the market nervous. The worst possible situation for a politically weak May is to find herself in 2018 with a slowing or even shrinking economy with a rising deficit again and higher borrowing costs, just as Brexit talks climax. It would cripple her negotiating hand overseas while making major cuts to spending further or higher taxes inevitable to keep the markets onside. She would probably be brought down.
May cannot deliver the reforms she needs from her current political situation. She needs to take a step back on the deficit and economy to take a post-election leap forward. Inflation is at 1% and will rise further in the months ahead, potentially outstripping wages. To counteract this, Theresa May must boost incomes – cut income tax, VAT and petrol duty. This could be explicitly done as part of a Brexit budget but would land more favourably as part of the commitment to the ‘just managing’ classes who deserve a break. Such a package is likely to cost roughly £20 billion across two years, meaning further public sector cuts and reforms post 2017. For this strategy to work the next Government must be radical domestically. But May has form – she delivered 24% reductions in spending from 2010-15 at the Home Office.
A strong elected mandate could give May and her team the self-confidence to require loyalty and spending reductions by Ministers in return for the flexibility to think creatively. The alternative is probably a weakening economic and fiscal position that leads to further political weakness and a likely bunker mentality arising within No10 over the next two years. The economic situation calls for an election next spring – but will May seize it?
This is an abridged version of Alex Morton’s Conservative Home article this week on the need for a 2017 election. The full version can be viewed here.
