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WHAT does Liz Truss’s failed leadership say about where the Tories are going? Well, it says they are going to lose the next election, so you might not think it matters.
The Tories haven’t recovered from Truss’s self-destruction. The more Rishi Sunak flails around to recover from her tanked polling, the worse he does.
But if you look a bit longer term, there is the very real danger that the Tories will return soon enough, especially if the next Labour government is — as it promises to be — uninspiring.
And the latest reports from inside Team Truss says it came close to going “full Estonia.” A new Tory opposition might travel in the same direction.
Going to Estonia means travelling to the Tory outer limits of “flat tax.” If Team Truss considered it, there is a good chance that the Tories will return to flat taxes.
It’s an open question whether this would be like them going Flat Earth — making them seem like weirdos whispering from the sidelines — or whether they could ratchet Britain even further away from redistributive taxes.
The Telegraph’s Ben Riley-Smith’s new book — The Right to Rule: Thirteen Years, Five Prime Ministers and the Implosion of the Tories — reveals Truss’s business secretary, Jacob Rees-Mogg, proposed flat taxes for Truss’s first budget.
Rees-Mogg’s memo said Estonia had a 20 per cent flat tax rate, with similar rates in Hungary, Romania, Lithuania and Georgia. He said “Research suggests the Baltic states’ adoption of these in 1994-5 helped their rapid growth” and that:
“We should aim for a 20 per cent flat tax for income tax, corporation tax and capital gains tax (without changing National Insurance).”
A flat tax here means a flat tax rate — so there would be no higher rates of tax for the rich, no 40 per cent rate kicking in at earnings above £50,000, no 45 per cent kicking in on earnings over £125,000 — all workers would pay 20 per cent tax.
Rees-Mogg argued lowering taxes on the better-off would stimulate the economy. It matched Truss’s general attempt at one last headlong rush of super-Thatcherism to spur growth and rejuvenate the Tories.
Even in those heady days, chancellor Kwasi Kwarteng rejected Rees-Mogg’s plan. But I don’t think it means the idea is gone.
Even Truss now accepts she went too far, too fast. In her own words she “didn’t just try to fatten the pig on market day,” but “tried to rear the pig, fatten the pig and slaughter the pig on market day.”
Now she and her fellow Tories still want to slaughter the pig by slashing social spending and hacking away taxes, just less quickly. If, as is likely, the Tories are forced into opposition, she might become a pole of attraction for Tories trying to re-invent themselves out of power.
Some think a bitter Tory Party turfed out of office that flies off in all kinds of right-wing directions — Truss’s super-dry, but half-baked Thatcherism, Suella Braverman’s guns-blazing culture war and so on — will lock itself out of power, as Michael Howard did in 2005, and gift Labour a second term.
I think this is possible, but far from nailed down. The economy is much less buoyant than under Tony Blair, and Keir Starmer is offering even less. Blair turned many voters off Labour with his privatisation and war agenda, but the decline was slowed by increased social spending drawn from the tax receipts of a booming economy.
Starmer’s decline may be quicker because there is less spare cash to cover up his refusal to do any redistribution. Tory fragmentation will give Labour some space, but, with the support of a right-wing press and fuelled by possible disillusion in Labour, the Tories could still be back a lot sooner than we would like.
And if they come back, they might be coming back with “full Estonia” as the destination on the front of the bus — because a flat tax isn’t just an idea from the oddball wing of the Tories. It’s also on the George Osborne wing.
In 2005, as shadow chancellor, Osborne declared: “We are becoming more aware of the flat tax revolution in central and eastern Europe.”
Then in 2006 Greg Hands, current chairman of the Conservative Party, drove a bulldozer emblazoned “flatten taxes, not the economy.” It was a pro-flat tax stunt organised by Conservative Way Forward, who are seen as on the “mainstream” right of the party.
Osborne set up a “tax reform commission” to consider flat taxes. Osborne’s commission didn’t in the end back flat taxes, but did help keep up the pressure for lower taxes on the rich.
This points to a real danger: even if the disorientation, fragmentation and rightward lurches of a newly out-of-office Tory Party gifts Starmer a second term, his instinct is always to capitulate to the right. If the Tories in opposition go full flat tax, they will create a rallying cry for the Tory press, pressing Starmer to take an even less progressive attitude to taxation.
After all, that is what has already happened once: Starmer’s Labour already nervously accept much Tory framing on taxes, and won’t increase taxes on the rich. That framing was established under Osborne, who played with the flat tax idea.
Looking back to when Osborne was considering a flat tax, it is also worth knowing why he rejected it. In 2005, top Tories like Malcolm Rifkind and Ken Clarke warned it would be a “new poll tax.”
The poll tax was a very flat tax, a local government tax charging everyone the same amount, rather than the same rate. The poll tax was killed by a huge grassroots rebellion that was willing to say “break the law not the poor” and fight for non-payment.
Labour’s then-leadership was scared off, and opposed this campaign. If the poll tax had passed, we would have seen flat income taxes follow soon after.
Instead, the example of the militant rebellion against the tax dissuaded the Tories from taking the full Estonia route. If we want to stop flat taxes creeping back, we may have to rely on ourselves, not Labour’s leadership.