Neo-Tories?

The Tories, too, seem to be on a bit of a roll. Although they have just taken a beating in a local by-election, coming in fourth in a Labour stronghold behind Tony Blair’s candidate, the antiwar and very green Liberal Democrats, and a fringe party that wants Britain to quit the European Union, the smell of dissension and defeat that characterized last year’s conference was absent. In its place was a perhaps overly optimistic appraisal by the party’s able co-chairman, Maurice Saatchi (he of advertising agency fame). Lord Saatchi, as he now is known in recognition of his creation of the advertising campaign that helped propel Margaret Thatcher into No. 10 Downing Street, thinks the party has a chance not only to whittle down Labour’s huge parliamentary majority, but to replace it with a Tory government.

That will depend on two things. As in George Bush’s America, so in Tony Blair’s Britain: A large number of voters are angry that their country is sinking into what they see as a quagmire in Iraq. Indeed, Blair’s problem is greater than Bush’s. The prime minister took his nation to war solely on the basis of a stated need to eliminate the weapons of mass destruction he believed were in Saddam’s arsenal, whereas the president offered several additional reasons, among them ending Saddam’s support of international terrorism.

Besides, Blair has to cope with an undertone of “it’s all Israel’s fault”–an argument raised by former Tory defense secretary Malcolm Rifkind less than two minutes into a debate he and I had about U.K.-U.S. relations at one of the many fringe meetings that make these conferences interesting. Rifkind not only blames much of the turmoil in the Middle East on “the excesses of Israel,” but characterizes Britain’s so-called special relationship with America as a one-way street down which America parades at its own pace and in its own direction, making Tony Blair mere putty in Bush’s powerful hands–Bush’s poodle, as Blair’s opponents put it.

Tory leader Michael Howard is somewhat more nuanced–in the good, rather than the John Kerry, sense of the word. He manages to combine his attacks on Blair, who he says deliberately lied to Parliament about weapons of mass destruction, with support for America’s decision to depose Saddam Hussein. Howard knows that his support for the war is not a vote-getter, but he is both an America-loving Mets fan, and a man who can sympathize with the horrors inflicted on Iraqis by Saddam. His parents avoided extermination in the Nazi death camps by fleeing to Britain, where he became a successful barrister. His chances of succeeding Blair are made more difficult by a poll showing that 25 percent of British voters say they will not vote for a Jew.

Nothing much Howard can do about that. But he is attempting to restore his party’s credibility by promising not to promise what he can’t deliver. What he can deliver, he says, is a successful war on crime. He would free the cops from paperwork so that they can patrol the streets and arrest the bad guys, encourage judges to put them away for a long time (repealing a Labour early release program that has seen 3,600 crimes committed in the last five years by the beneficiaries of this leniency), build more prisons, and adopt a zero-tolerance policy. Former New York mayor and future presidential candidate Rudy Giuliani has a large and enthusiastic following here in Britain, so Howard promises, “What Giuliani did in New York, . . . we’ll do for the whole of Britain.”

Predictably popular stuff. Equally well received was Howard’s attempt to begin to construct a conservative framework on which to hang individual policies. Since Thatcher was forced into retirement by disgruntled plotters in her party, conservatives in Britain have not found a consistent theme. First, they decided to change their image as fuddy-duddies and wooed the gay vote, the Muslim vote, the black vote, and the votes of other identifiable groups that consistently vote Labour. In the process they alienated their core voters, and all for naught: They were about as successful as Republicans have been in persuading America’s Jews and blacks to abandon the Democrats.

Then they lurched in the other direction, using their core voters’ antipathy to welfare scroungers–of which there are many in Britain–as the basis for what seemed to be an attack on the very foundations of Britain’s welfare state. It is one thing to be outraged at the 23-year-old pregnant mother of four who, along with her 19-year-old husband, receives almost $1,000 per week in benefits, and applies for a still-larger government-funded house to accommodate her growing family, while her husband announces that he has not and never will take a job because that would be shirking his responsibility as a father. It is quite another to seem unsympathetic to the deserving poor.

Now, Britain’s conservatives seem to have learned Irving Kristol’s lesson–“assume that the welfare state is with us, for better or worse, and that conservatives should try to make it better rather than worse.” They are calling for generous benefits to the elderly, and plan to make the pension system that Labour has converted from an assured entitlement into an underfunded and degrading means-tested system “better rather than worse.” Whether Howard’s plans will do that remains to be seen, but his statement, “If you want to know about a country, look how it cares for older people,” suggests that compassionate conservatism has replaced Tory hardline hankering after the trusty old poorhouse system.

More important, a coherent superstructure seems to be emerging from the Tory policy review. Parents should have the right to choose the school best suited to their children, and patients the right to choose the hospital that will treat them quickly and competently. This program of extending individual freedom of choice is radical stuff for a country in which voters have long been unaccustomed to such freedoms, and in which only the well-off and government ministers can beat the system by placing their children in private or superior state-run schools, and by jumping the unconscionable queues that characterize the government-run National Health Service. Similarities with George W. Bush’s plans to allow parental choice of schools and to encourage individual medical savings accounts are no coincidence: Several Tories attended the Republican convention, and are in constant touch with conservatives in America.

The Tories have also found their voice in what may prove to be the first election in a very long time in which foreign policy plays an important role. In part to offset the attraction of a get-out-of-Europe fringe party, the Tories are promising to repatriate sovereignty to Westminster from Brussels, to end their adherence to the Human Rights Act that has hampered the deportation of bogus asylum-seekers, to regain control of fishing rights in British waters, and to strike a new deal with the European Union, allowing those countries that want further integration to proceed, with Britain opting out of those arrangements it believes not to be in its national interest. From America’s point of view, the less sovereignty Britain cedes to the America-hating Franco-German axis, the better.

And then there is Iraq and the relationship with America. Smelling Blair’s blood when the inspectors failed to find weapons of mass destruction, Howard expressed buyer’s remorse at his support for the war. That opportunism unsettled many in his party, and reportedly so enraged Karl Rove and President Bush that Howard was barred from the White House. So at the party conference, Tory policy changed: It got tougher on Blair but, at the same time, more supportive of the war in Iraq. Blair, says Howard, “did not give a truthful account of the intelligence he received” on weapons of mass destruction. But that lie notwithstanding, “It was right to go to war. . . . The world is a better place without Saddam Hussein.” George Bush couldn’t have said it better (and didn’t in his first debate with John Kerry).

So far, so good. It is when it comes to tax policy that the Tories fail to reflect what conservatives in America have learned–tax cuts are a good idea, especially if they are the right tax cuts. True, the Tories–whose last sitting prime minister, John Major, imitated George Bush the elder by raising taxes despite a campaign pledge not to do so–came up with a promise to lower taxes, but only when circumstances permit. Moreover, they haven’t learned a thing about supply-side economics. Not the silly version that says that all tax cuts are self-financing, but the sensible version that teaches that tax cuts should be designed to encourage work and risk-taking.

The Tories are saddled with a shadow chancellor (think a combination of our secretary of the treasury and budget director, in-waiting) more literate than numerate. Oliver Letwin caused great unhappiness among the party faithful by failing to promise to cut taxes. Instead he used his conference speech to make “The Moral Case for Low Taxation,” while at the same time refusing to commit his party to act on that moral case, on the ground that he just can’t predict the state the British economy will be in come the general election. This left unanswered the question of how a shadow chancellor unable to see ahead a few months would be able to make the forecasts every chancellor must make when putting together a budget. It is as if Alan Greenspan told Congress that he can’t be expected to see a few months ahead when setting interest rates.

There is worse. Letwin did make one promise–to match Labour spending on health care and education and, belatedly, after much pressure from defense-minded party colleagues, to increase spending on the frontline military. Unless the Tories are prepared to run massive deficits, this spending pledge virtually rules out any significant tax cuts–unless you believe their claim that they can finance the cuts by sweating the fat out of government. Of course, as Ronald Reagan demonstrated with the famous asterisk in his budget–“other savings to be determined”–all politicians fall back on such savings when they can’t figure out how to square their spending plans with their tax-cutting pledges. Clearly, it will be difficult for Letwin to honor his pledge to spend like Labour without also taxing like Labour.

But new polls in Britain show that voters are groaning under the tax burden imposed by Labour. So the Tories have hinted–a hint is not a promise–that they are examining the possibility of reducing the inheritance tax and a tax on house sales. It seems that the value of houses, especially but not only in the southeast of the country, has risen so rapidly that many voters now have taxable estates. That, says Letwin, “has become plain unfair.”

Unfortunately, the party has chosen opportunism over coherence. Both the tax on house sales and the tax on inheritance are levies on what might be called unearned windfalls. The person selling a house, on whom the burden of the tax falls, has seen his property appreciate in value because of macroeconomic conditions beyond his control–full employment, rising wages, low interest rates. And the inheritor of an estate has been lucky in the genetic lottery. It is hard to make an equity argument for these taxes to be the first ones lowered by a low-tax, conservative government.

More important, it is impossible to make an economic argument for lowering taxes on home sales and inheritances. Tax cuts should not be mere scrambles for the votes of house sellers and heirs. Reductions should have a sounder purpose: to stimulate people to work harder and take greater entrepreneurial risks, thereby generating income and wealth, and some tax revenues to boot. That is the route to rising national prosperity. The way to encourage such added effort is to cut taxes on additional earnings–to reduce marginal tax rates. Some of the Tories with whom I spoke are well aware of this, but despair of educating their current fiscal-policy team on the need to concentrate on tax cuts that increase incentives to work.

In Britain, the lowest tax rate of 10 percent applies to earnings in excess of only about $8,500, and the highest marginal rate of 40 percent cuts in at around $50,000–no matter the size of one’s family. So taxes here bite into the incremental take-home pay of many police, teachers, secretaries, and other non-rich workers. These working people know that 40 percent of their next 1,000-pound raise (similarly situated taxpayers in America are subject to a marginal rate of 15 percent) will go to the government, making it less worthwhile to work those boss-pleasing extra hours. But lower the tax on marginal incomes, and the work-vs.-leisure calculus changes in favor of work and entrepreneurial risk-taking.

That’s what supply-side economics is all about–a policy worth promising, and a promise worth keeping. The Tories, who have sent teams to America to learn about polling and the other mechanics of politics, and who now understand that U.S.-style compassionate conservatism appeals to many British voters who want to do the right thing by their truly needy neighbors, without creating an overweening state, might consider sending over a team led by Michael Howard to learn about the electoral and economic virtues of a bit of supply-side tax cutting.

Irwin M. Stelzer is a contributing editor to The Weekly Standard, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London).