Theresa May’s speech to the CBI conference this morning, trailed in the newspapers, perfectly illustrates the economic policy bind she is in. In one breath she will say:
“In the autumn statement on Wednesday, we will commit to substantial real terms increases in government investment in R&D investing an extra £2bn a year by the end of this parliament to help put post-Brexit Britain at the cutting edge of science and tech.”
In another clip from the same speech, she will say, “my aim is not simply for the UK to have the lowest corporate tax rate in the G20, but also one that is profoundly pro-innovation.” So basically, she plans to spend more money to stimulate the economy as it goes through its current “adjustment” while at the same time cutting corporation tax. It doesn’t take an economics degree to understand that if you increase expenditure while cutting taxation, unless the economy grows at a phenomenal rate you will end up with a rather large deficit.
The problem is that May really has to do both. Members may argue that “Remoaners” are engaging in a “whinge-a-thon”, but the facts suggest that the government is definitely treating Brexit like a crisis situation, rather akin to a large stock market crash. This is the only logic for why the previous Tory insistence on deficit reduction has been seemingly jettisoned completely – we are in an emergency.
Tech and innovation investment by the government is small potatoes compared to the larger problems the government faces in this regard. In her last conference speech, May told those “barely managing” that the public finances will be aimed at them for the foreseeable future. How can she renege on this and still expect to mop up those voters she is clearly targeting, the poorer ones who voted Leave? Simultaneously, she must promise corporations lower tax so that business doesn’t flee in the face of Brexit uncertainty.
How this ends is anyone’s guess, but if you want history to tell you anything then it’s that these things tend not to end very well at all. Say whatever you want about Osbornomics, it had a clear narrative and direction. Spending a lot of public money while slashing taxation, then at the same telling everyone that Brexit is an enormous opportunity that only metropolitan liberal elites would dare do down won’t last forever. It seems Theresa May is relying on one major thing to get her through all this: luck. And for all our sakes, I really do wish her luck.