David Willetts: Labour is in the trap, but it awaits the Conservatives if we return to office unprepared

David Willetts is a Conservative member of the House of Lords.

October 22nd 2024

The Budget on 30 October and the result of the Conservative leadership election on Saturday 2 November are going to shape British politics over the next year. Add in the American presidential election result on Tuesday 5 November, and the political environment really will be taking shape.

Labour have to meet the challenge of getting their economic and political programme back on track. They face the eternal dilemma of British politics: voters want a big welfare state, but aren’t willing to vote for the taxes to fund it.

Both main parties try to evade this fact. Labour claim there are lots of ways of taxing rich people to raise so much money that “working families” won’t have to pay any more.

If taxes have to rise there is indeed a case for more taxes on capital rather than on work; the value of assets has shot up over the past thirty years so raising more in CGT or IHT is not of itself wrong (provided that a beady-eyed analysis of likely behavioural responses shows they raise useful revenues without damaging growth). But it is hard to see how measures meeting those tests can on their raise the revenues the chancellor needs.

So it look as if the burden will fall on national insurance. Jeremy Hunt was right to prioritise reducing employee national insurance contributions. Increases in employer national insurance contributions are going to hit working people in particular – worse even than a tax on wider incomes.

Meanwhile Conservatives face our own dilemmas. We claim that we can fund a welfare state untouched for our supporters who enjoy the triple lock on their state pensions and tax financed health care. This is supposed to be funded by cuts elsewhere, such as cutting welfare benefits for families and shrinking Whitehall; the previous Conservative government already cut the real value of benefits for families so as to fund more for pensioners.

There are gains to be made by making Whitehall more efficient. But these sources of savings are not going to fund the growth of the welfare state driven by demographic changes.

Both parties have perpetrated the comforting illusion that someone else can pay. Neither has the confidence of an Attlee or a Thatcher to explain what has to be paid for by all of us.

Conservatives are at the moment focussed on immigration as an issue. There is genuine public concern about the number of people we can possibly allow to settle here, and hat needs to be addressed. But there are several risks here.

First the current high figure for migration on the UN measure of people coming for over a year even if they are not settling here is caused in part by post-Covid inflows. Those inflows will be offset by outflows of overseas students and indeed at some point Ukrainian refugees. Net migration could fall by 250,000 over the next year.

Is it good tactics to raise the salience of an issue where the Government could appear to do well? And do we need to leave another international organisation to control immigration, after the trauma of Brexit? Ironically, it appears to be to achieve a target based on a United Nations measure of people staying over a year which bears no relationship to domestic worries about settlement here. We should liberate ourselves from the UN deciding our immigration policy.

One lesson I learnt during long years in opposition: it is easy to fight old battles left over from our time in office.

It is necessary to focus on today’s political battles with the Government. But that isn’t enough, and can get in the way of a strategy for winning next time. We were, for example, endlessly pledging to reverse Labour’s measures – until we realised that there was no going back to 1997.

The best strategy for Opposition is to do everything needed to make the Party electable at the time of the next election.

This is particularly important with the US election due. If Donald Trump wins there could be a wholesale realignment of our domestic policies. We could face serious problems on a range of issues from tariffs through to defence. Kamala Harris would not be straightforward either if we see a continuation of the subsidy race between the US, China, and the EU, with the UK caught in the middle

So we need a leader with the guts and capacity to steer the party through these changing times and offer the electorate in 2028 or 2029 a programme relevant to their concerns then. That is why I will be voting for Kemi Badenoch. She has the experience, the intellectual depth and self-confidence to do that.

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