The downfall of Britain’s conservatives shows that governments shouldn’t embrace unfunded tax cuts, nor emulate populists to lure back supporters, writes Carla Subirana Artús.
Carla Subirana Artús is an Economist at Oxford Economics. She is writing in a personal capacity.
People everywhere have been observing the political and economic debacle in Britain during the past month with perplexity and dismay.
After only 44 days on the job, Liz Truss was forced to resign when her plan to boost economic growth by way of unfunded tax cuts backfired. However, Truss’s catastrophic premiership should serve as a cautionary tale for right-wing parties elsewhere in Europe for two reasons.
First, the toppling of Britain’s prime minister serves as a warning of the political peril that awaits those who are planning to abandon fiscal discipline. The newly elected Italian government seems dangerously close to making the same mistake, as Giorgia Meloni’s economic programme, underpinned by tax cuts to boost growth, looks much like the one unveiled by Liz Truss.
Meloni, from the far-right Brothers of Italy, was sworn in as prime minister last Friday, with a government backed by her coalition partners: Matteo Salvini’s League and former prime minister Silvio Berlusconi’s Forza Italia. Tax cuts for families and businesses, including lowering energy taxes, are at the core of Meloni’s election promises, while Salvini is in favour of widening the deficit and has pushed for extending a flat-tax regime for the self-employed.
Politicians in Spain also have worryingly similar plans. Alberto Núñez Feijóo, the leader of the centre-right Popular Party (PP), who enthusiastically embraced Truss’ tax-cutting agenda, has promised that if he wins the upcoming general election in 2023 he will introduce a reduction of the personal income tax.
There is no need to worry about fiscal sustainability because the plan will boost growth, and thus the tax take, said José María Aznar, a heavyweight of the party. Sound familiar?
With Italy and Spain’s public debt as a share of GDP almost twice as much as Britain’s, and both countries heading into a recession next year according to the IMF, running a higher deficit would most likely spook investors, and raise bond yields and interest rates. It could ultimately have grave consequences for the eurozone, too.
In a clear warning to the newly elected Italian government, Christine Lagarde, the European Central Bank (ECB) president, said that the central bank would not use its emergency bond-buying scheme to bail out countries that make “policy errors”.
A second lesson centre-right parties across Europe could learn from Britain’s conservatives is that emulating populism to lure back supporters rarely ends well for moderates. The Tories have been ripping themselves apart since they pushed out the populist anti-EU United Kingdom Independence Party (UKIP) by embracing Brexit, its flagship policy.
All over Europe, populist parties like UKIP are challenging moderate politicians. French conservatives have struggled with the rise of Marine Le Pen’s far-right Rassemblement National: Les Républicains had a dismal performance in April’s presidential poll, and lost nearly half their seats in the National Assembly in June. Valérie Pécresse, who led the party in the election, boasted in campaign rallies about the need to “stop uncontrolled immigration”, and denounced Emmanuel Macron for allowing athletes to compete while wearing the Muslim headscarf.
By adopting a nationalist tone, she alienated moderate voters, while those on the right of the party were poached by Le Pen’s more hardline policies on immigration and law and order. It has become increasingly clear that if Les Républicains don’t succeed in rebuilding a credible centre right, there is a risk that Le Pen will win power in upcoming elections.
Cosying up to populism also generates friction with the centrist sides of the party, projecting an image of fragmentation and weakness. The Tory party has become riven with disunity: on one hand, the Tory centrists, with Rishi Sunak as their leader, call for fiscal discipline, while the right of the party, led by Suella Braverman, wants to get rid of “greenery” and “wokery”, and speaks of “dreams” of seeing flights of asylum seekers being sent to Rwanda.
As an election looms in Spain, similar frictions are emerging within PP. Last year, Pablo Casado, the former PP leader, was pitted against Isabel Díaz Ayuso, the head of Madrid’s regional government due to allegations of bribes for public contracts and ultimately resigned.
The split was underpinned by a longstanding disagreement over how to deal with Vox, a newish hard-right party: Casado insisted his party would not enter a coalition with Vox, while Díaz Ayuso would favour such an arrangement. The divide shows the weakness of the PP as it fights to hold on to voters attracted by the populist message of Vox. Núñez Feijóo, the party’s new leader, belongs to the moderate, pro-European centre-right, but his centrist politics will be tested by the need to do deals with Vox.
Feijóo has vowed he will not enter a coalition with Vox at a national level, but in February Vox entered a regional government for the first time by becoming a junior partner in a coalition with the PP in Castilla-León. Moreover, if his party fails to win a majority in the 2023 election, but could do so with the support of Vox, Feijóo’s strategy would most likely be to create a coalition government and try to contain the hard-right while governing pragmatically.
Nevertheless, the examples of Britain and France should serve as a warning for PP. By moving to the right, moderates legitimise extreme parties, pushing them towards more extreme positions in a bidding war they can’t win, as in France. In turn, Britain’s example shows us that if the conservatives manage to vanquish their new rivals, this creates irreconcilable splits within the party.