CONSERVATIVE
By Cllr Leon Graham
Britain needs to have an honest conversation about the size and role of government in our economy. Government has an essential role: providing public services, infrastructure, national security, a functioning legal system and support for those who genuinely need it. But there is a crucial difference between creating the conditions for prosperity and attempting to control the economy itself. My concern is that Britain is moving too far towards the latter.
Every additional tax, regulation and government intervention has a cost. That cost may not always be obvious, but it is ultimately paid by individuals, families and businesses. At a time when households are already dealing with high living costs and the country continues to struggle with weak economic growth, continually increasing the burden on taxpayers risks making Britain poorer rather than more prosperous.
Britain’s tax burden is now at historically high levels. The Institute for Fiscal Studies estimates that tax revenue will reach around 37.4% of national income in 2026/27. That figure should concern us because taxation is not simply about what appears on a payslip. It affects the incentives to work, save, invest and build businesses.
When people keep less of what they earn, they have less money to spend, save or invest. If someone is considering working additional hours, taking a promotion or starting a business, they naturally consider whether the potential reward is worth the effort and risk. The greater the proportion of that reward taken by government, the weaker the incentive can become.
The same applies to businesses; businesses create jobs, invest, innovate and generate tax revenue. Yet higher taxes and increasing regulation raise the cost of doing business. A company may decide against expanding, employing another person or investing in new equipment because the expected return is no longer sufficient to justify the risk.
This is not an argument for abolishing taxation or regulation. A modern economy needs both. The question is one of proportion. At what point does government stop correcting market failures and start creating economic failures of its own?
There is also a quieter way in which taxation is increasing. Frozen income tax thresholds mean that as wages rise, more people are gradually pulled into paying tax at higher rates, known as fiscal drag. This allows government to collect more revenue without necessarily increasing headline tax rates. For working people, this can be particularly frustrating: they receive a pay rise but find that taxation and rising living costs absorb much of the benefit. The result is a growing sense that people are working harder simply to stand still.
This brings us to Liz Truss’s 2022 mini-budget.
It is important to acknowledge what went wrong. The mini-budget was introduced during an exceptionally difficult economic period, without the usual Office for Budget Responsibility forecast, and the government’s failure to provide sufficient reassurance over its borrowing plans damaged market confidence.
Government borrowing costs rose sharply, and the economic turmoil ultimately contributed to the collapse of the Truss government. There is no point pretending otherwise, but we should distinguish between the execution of the mini-budget and the economic philosophy behind it.
The central idea was that Britain needed stronger economic growth and that lower taxation could improve the incentives to work, invest and take entrepreneurial risks. The government argued that allowing individuals and businesses to retain more of their money could stimulate economic activity and make Britain a more attractive place to invest. That argument should not simply be dismissed because the policy was badly timed and poorly executed.
The fundamental choice facing Britain is straightforward: do we continue increasing the amount of money government takes from the economy, or do we create conditions in which individuals and businesses can generate more wealth themselves? I believe we should choose the latter.
Economic growth matters because it expands the opportunities available to everyone. Businesses that succeed employ people and invest to increase productivity; then higher productivity can support higher wages. Entrepreneurship creates new products, services and industries. A growing economy can generate additional tax revenue without government having to continually increase tax rates. This is why the next Conservative government should pursue a modern version of the Truss approach, while learning the lessons of 2022.
Importantly, the Conservative Party already have the beginnings of such a plan. Our current economic proposals identify around £47 billion of potential government savings, including measures involving welfare reform, the Civil Service, overseas aid and asylum accommodation. We have also proposed a “Golden Economic Rule” under which at least half of identified savings would be used to reduce the deficit, with the remainder available for tax cuts and pro-growth measures.
This is an important distinction from the Truss mini-budget. Tax cuts should not simply be announced and left for future borrowing to finance. They need to be backed by credible plans to control spending and maintain confidence in Britain’s public finances. That is the lesson we have taken from Truss: do not abandon the ambition for lower taxes; improve the way you get there.
The objective should be to reduce the size and cost of government gradually and sustainably. If spending can be reduced without damaging essential services, those savings should first strengthen the public finances and then create room for tax reductions.
The Conservatives have already proposed measures such as abolishing Stamp Duty on primary residences, reducing business rates for thousands of high-street businesses and introducing a £5,000 First Job Bonus for young people entering employment. Whether every proposal will work exactly as intended is a legitimate question, but the direction is back to conservatism ideals: make work, investment and enterprise more attractive rather than continually placing additional burdens on them.
The case for lower taxation is therefore about more than putting extra money into people’s pockets. It is about freedom and incentives. A worker who keeps more of the reward from working additional hours has a greater incentive to work. An entrepreneur who can retain more of the return from a successful business has a greater incentive to take the risk of starting one. A company facing lower taxes and fewer unnecessary regulations has a greater incentive to invest. Millions of these decisions, taken independently, can make a substantial difference to the economy.
Critics will rightly argue that higher taxes help fund public services. They are correct but that cannot be the end of the debate. We must also ask how much taxation is sustainable and whether every additional pound collected by government produces more value than the economic activity that would have taken place had that money remained with taxpayers.
Government does not create wealth simply by moving money from one part of society to another. Wealth is created through work, investment, entrepreneurship, innovation and productive businesses. That is why I believe the role of government should be to enable prosperity rather than attempt to manage it.
Britain has no shortage of ambitious people. We have entrepreneurs willing to take risks, workers willing to work hard and businesses capable of competing internationally. What we need is an economic environment that rewards those efforts rather than continually increasing the costs attached to them.
The next Conservative government therefore has an opportunity to offer something different. It should aim for a smaller, more efficient state, lower taxes, sensible regulation and stronger incentives for investment. It should protect genuinely essential public services while being prepared to ask difficult questions about government spending. Most importantly, it should trust people more.
People generally know better than government how to spend their own money, save for their future and run their businesses. Government’s responsibility is to provide a stable framework in which those decisions can be made freely and responsibly.
The goal should not be to make government larger so that it can solve every economic problem. It should be to build an economy strong enough that government does not need to interfere so much in the first place. The Truss mini-budget should therefore be remembered as both a warning and an opportunity. Its implementation demonstrated the dangers of poor fiscal credibility and bad timing. But its emphasis on supply-side reform, lower taxation and stronger incentives should not be dismissed.
Conservatives are now taking those principles, combining them with credible spending reductions and presenting voters with a genuinely different economic choice. Britain does not necessarily need more government. It needs more economic freedom.
A government that lives within its means, takes less from those who earn it, removes unnecessary barriers to enterprise and allows businesses to invest could ultimately do more for Britain’s prosperity than one that continually expands its reach.
The choice is ultimately about what sort of country we want to build: one where government increasingly decides how wealth should be earned, spent and distributed, or one where government provides the foundations and trusts people to succeed. I believe a smaller government, lower taxes, greater economic freedom and stronger growth is the way forward.