David Frost is right. On Monday November 22, the de facto government secretary for Brexit gave an intriguing speech in which he warned that the UK would not prosper post-Brexit if it simply tried to operate the way it did as a Member of the European Union: The UK’s current economic model presupposes membership of the European Economic Area and the Customs Union, and that won’t work very well now that we’ve given up on those two things.
But he is almost certainly wrong in his preferred answer: lower taxes and a smaller state. I’m not saying these things can’t work in theory: I really don’t think it’s worth giving much space to this question, because in practice you run up against the very real political constraints that have made more difficult for conservatives to continue shrinking the state since 2015.
[see also: Treasury grandee Nick Macpherson: “The idea that Brexit has liberalised trade is just nonsense”]
While the 2015 general election was a political victory for the Conservative party, which won its first parliamentary majority since 1992, the ruling parties together lost seats and vote shares. A year later, defeat in the Brexit referendum brought the careers and political agendas of many key players in that government to a screeching halt. In 2017, when the Conservatives returned home pledging to continue the cuts, they lost their parliamentary majority. The 2019 election result was down to a lot of things – the unpopularity of Jeremy Corbyn, the desire to put Brexit behind the country, and more – but it also helped the Tories do a good job of make it seem, at least, that the era of deeper, deeper cuts was over.
If you want to be radical on tax cuts, you must also be radical on spending cuts. Whether you believe, as Rishi Sunak and Rachel Reeves do, that spending should ultimately be paid for by taxes, or believe that the only real constraint on government spending is inflation, you need ‘some degree of relationship between what you do on the expense side and on the tax side.
A hard truth for Brexiteers who think the way for the UK to thrive after Brexit is to abandon the “European model” is that the passion of the British electorate for what one might call “the European way of life” -– a certain level of public services, a largely social-democratic approach, a mixed economy, etc. – predates our accession to the EU. In many ways, balancing the expectations of British voters and managing the economy well was one of the reasons British politicians decided to pursue membership in the fledgling European Union in the 1960s and 1970s. When it comes to weaning the British electorate from aspects of the European model, the most successful period for the British right since the advent of universal suffrage occurred when we joined the EU in the 1980s and 1990s.
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There is no convincing evidence to suggest that the British electorate is ready or willing to support the levels of spending cuts needed to seriously change the amount taxed in the UK, unless you make some pretty heroic assumptions about the growth and tax revenue. So while Frost is right that the UK will struggle if it wants to keep the European model out of the European project, it is far from clear that a low-tax alternative is even deliverable.
[see also: Kevin Rudd: “China views the UK as weaker after Brexit”]