There are many myths about Margaret Thatcher and I am often amazed by the number of times her memory is called in aid of causes that she would never have endorsed. I learnt my politics at her feet and was privileged to serve in her Cabinet. She was perfectly prepared to raise taxes when it was necessary to do so.
Rishi Sunak has had many very difficult decisions to make – more difficult than those facing the governments in which I served. But he has taken a truly Conservative approach to solving them, and nowhere is this more apparent than on economic affairs.
We are now beginning to see the fruits of that necessary caution in the recent dramatic fall in inflation. We will see more positive outcomes in tomorrow’s Autumn Statement.
It was far from clear, when the Prime Minister made halving inflation one of his top priorities, that it would or could be achieved. Now that it has been, his detractors say that all the credit should go to the Bank of England. But success in taming inflation can only come if the Government’s fiscal policy and the Bank’s monetary policy are working together.
If unfunded tax cuts – such as those in last year’s mini-Budget – are introduced, they undermine the Bank’s efforts by putting more money into people’s pockets and driving up inflation. The same result would follow large pay increases. So it has been absolutely necessary for the Government to resist both to reinforce the effect of the interest rate rises.
Of course there is more to do. Inflation is still well above the Bank’s 2 per cent target and government borrowing is still too high. But it is clear that the improved performance of the economy will provide some headroom for the Chancellor to begin to reduce the tax burden tomorrow.
In the doom and gloom that is so beloved of many commentators, it is easy to lose sight of the good news about our country which is all around us, if only we care to look. If we consider the areas of economic activity which are likely to be dominant for the rest of this century, Britain is extraordinarily well-placed.
The world is getting richer, and as it does so, its demand for financial services will increase. We have one of the world’s top two financial hubs and the UK is the world’s largest exporter of financial services. And partly because of this pre-eminence, we are establishing a leading position in digital technology. We have become only the third economy in the world with a trillion dollar digital technology sector.
The world’s largest tech companies – Meta, Microsoft, Amazon, Apple and Google – all have major operations in the UK. So it’s little wonder that among the largest economies, the Global Innovation Index ranks us fourth in the world.
A richer world will have more leisure time, so the creative industries have huge opportunities. And in literature, film and music we are incredibly well-positioned. Our creative industries employ more than two million people and have grown at twice the rate of the UK economy as a whole over the past decade.
The world is also ageing. This population will need more medicines and we are the life science capital of Europe, behind only the US and China globally. At the heart of all this lies the jewel in our crown: the astonishing fact that four of the top 10 universities in the world are in England. All the others are in America with one solitary exception in Switzerland. None of the universities in the EU features.
Of course all these opportunities need to be maximised. They could easily be thrown away.
I have lost count of the number of times Keir Starmer and Rachel Reeves have talked about economic growth. They have failed to explain how Angela Rayner’s deceptively titled New Deal for Working People package would help. Labour proposes to make it easier for trade unions to strike and to put in place a number of measures which would severely restrict the ability of employers to run their businesses. It would be difficult to imagine anything more likely to undermine the ability of the economy to grow.
But if these pitfalls can be avoided, the future is indeed bright. The Prime Minister is showing the way. His determination is reaping rewards. And I am convinced that this is just the beginning.
Lord Howard is a former leader of the Conservative Party