Will Britain's next Tory leader be able to keep up with the 'Johnson Doctrine'?

Johnson's economic policy is an odd hodgepodge of tax-cutting and interventionism - a tough act to follow

Johnson has unveiled a vast plan aimed to 'level up' the disadvantaged regions of Britain. AFP
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Boris Johnson greeted the news last week that his chancellor Rishi Sunak resigned with a jibe to other MPs that an impediment to cutting taxes had been removed. The Prime Minister fell to the ferocious campaign to topple him a few days later, but that comment looks set to haunt the party for years to come.

The trouble for the faction-ridden governing elite is only just beginning. Economic issues are a far bigger and moreenduring dividing line that the merits and morals of the outgoing leader.

Mr Johnson liked to straddle these divisions. He once described himself as a “Brexity Hezza”, British code for a sovereigntist who favoured, like the former deputy prime minister Michael Heseltine, government intervention “before breakfast, lunch and dinner”.

In fact, Mr Johnson was also pretty radically right-wing. Yes, Mr Sunak did restrain his budget busting impulses. He was also ready to blaze bold trails with policies like defying the European Court of Human Rights in order to deport asylum seekers to Rwanda. At the same time, he was fond of imposing protectionist tariffs in Donald Trump-lite gestures to key constituencies.

According to John Kampfner of Chatham House, British foreign policy is likely to survive the transition to a new leader relatively intact. “On many ‘red letter issues’, expect little change. Johnson’s strong military and political support for Ukraine – seen as courageous and sensible, and domestically popular – will continue. Expect the new UK prime minister to make an early visit to Kyiv,” he wrote.

“Similarly, the harder line on China and the so-called ‘Indo-Pacific tilt’ should be seen as longer-term strategies while many of the biggest challenges – climate, energy prices and shortages, immigration and demography, public health – are operating at a global level and deeply embedded in the Whitehall system.”

Everything else is up for grabs and the bitter nature of the battles will test the “world’s most successful democratic movement”, possibly to its destruction.

Economics – or, at least, the economy – is the fulcrum of this debate. Chris Sanger from EY, an accountancy, believes Mr Sunak, who declared on Friday as a candidate to replace Mr Johnson, held the line against tax reductions in the face of increasing inflation.

Johnson quipped that Rishi Sunak has stood in the way of his tax-cutting ambitions Reuters
He once described himself as a 'Brexity Hezza'

Stand-in chancellor Nadhim Zahawi was poised to deliver a tax-cutting and a “nothing-is-off-the-table” approach to spending in an announcement this week, before Mr Johnson’s decision to depart pulled the plug. With the independent Bank of England growing increasingly concerned over such talk of loosening, the prospect of 5 per cent interest rates would not be far away under Mr Zahawi.

Between those two rivals for the crown, there are many shades of Conservative opinion. Some are supply-siders who want to engineer lower inflation by loosening up regulations and tariffs. Others want to complete the so-called levelling up agenda of Mr Johnson, which requires things like funds spent on assisting struggling towns and infrastructure.

There are certainly plenty of MPs who are frustrated that the UK burden of taxation is going up, not down, after 12 years in government. But some academic research recently found that Conservative MPs are to the right of the party’s own activists on economics and certainly to the right of the electorate as a whole.

When the internal party contest switches from the first stage among MPs to a final stage run-off among party members, positioning on the economy will be a decisive factor in the winning and losing. Contenders face the obvious temptation to tack to the right when the parliamentary party must be wooed with the prospect of tax cuts. And then the rank and file must be incentivised with promises of exact cash for services and rebuilding.

The Bank of England will have reason to be onguard if Mr Zahawi fails in his ambitions. The backdrop to the race could scarcely be worse in terms of the economy. The financial campaigner Martin Lewis fears the party is not being straight with the people about the enormous cost of living shock moving through the economy in 2022.

Having a contractionary fiscal policy at the same time as a tightening monetary policy risks recession. Even Mr Sunak had pushed through a lowering of taxes that can into effect just last week.

Others question how effective tax cuts are. A 2.5 per cent cut in the VAT on spending would, for example, lower inflation by just a single percentage point.

There is also the matter that in the wake of the Russian war in Ukraine defence spending is bound to rise sharply. TheWatchdog Office of Budgetary Responsibility said last week that just to remain the second-biggest military budget in Nato, the UK government would have to find an extra £20 billion ($24bn).

A weak pound and a further tightening of the supplies of global gas or food is the poisoned chalice that the winner of the vote will take from Mr Johnson’s hands. A sharp change in the ideological direction of management of the economy seems bound to split the party in new ways.

Published: July 11, 2022, 4:00 AM