Kwasi Kwarteng: from ‘Britannia Unchained’ to shackling business

Damascene conversions happen all the time in politics. Winston Churchill was once a high-flying Liberal, but ended up as the mightiest Conservative Prime Minister. The Gang of Four split with the Labour party to form the SDP in the early 1980s.

But sometimes strategic or ideological u-turns can happen almost by accident. The current Government, for example, is packed with free marketeers boasting impeccable libertarian credentials that are heading the most interventionist, high-spending administration since the Second World War. How did this happen?

Partly it is the understandable result of  Covid emergency measures. But it also appears to be influencing longer-term strategy.

One of the most dramatic conversions may well be that of Kwasi Kwarteng, who was appointed as Business Secretary last month .

Once known for his trenchant economic liberalism, as a co-author of the 2012 book Britannia Unchained , the newly-elevated cabinet minister’s short tenure has been marked by a u-turn on job market deregulation, planning a new business subsidy regime and proposing tough new rules for company directors.

Business leaders recall that Alok Sharma, Kwarteng's predecessor , was keen to find examples of EU red tape to cut and appeared willing to kick new rules, including around audit, into the long grass.

Clearly that is no longer the case. So when did Britannia's liberator become her gaoler?

A new era

Those close to Kwarteng argue the world has changed. Covid, Brexit and the net zero carbon emissions goal have all altered the entire political and economic landscape since the book was published, requiring a very different Government approach.

He has retained his passionate belief in free markets, they say, and so will bring market forces to bear on policy goals. Examples include unlocking private investment in green energy, rather than simply pumping in Government cash.

The political atmosphere has changed, too.

Boris Johnson is said to have described himself as a "Brexity Hezza" , in reference to keen interventionist Michael Heseltine. And this sets the tone for the rest of the cabinet.

Mark Littlewood, at the Institute of Economic Affairs, believes there has been a long retreat by the Conservatives from their ambition to unleash the markets in the 1980s.

"The Johnson administration has been consistently libertarian in rhetoric but social-democratic in delivery," he says, noting similarities with Theresa May's approach.

"The rhetoric is more bombastically free market, with buccaneering Brexit free trade. There are some elements of that – they have pulled off a reasonably good Brexit deal, what Liz Truss is doing on the trade deals is pretty good – but it is certainly not in the DNA of the Government as it was under Margaret Thatcher."

The Government has, of course, had to expend most of its energies on Covid, giving ministers a taste for  expensive and intrusive policies and denying them time to think long-term.

"Rather than thinking about reforms to, say, employment law that would boost the labour market over two or three years, instead they think: ‘What can we do today to signal that we care about something?'” says Littlewood. “This always leads to a more interventionist approach.”

Short of a plan

It leaves the Government without a strategy, warns one Westminster insider.

"They have not worked out what their post-Brexit plan is for the 2020s,” says the source. “They lurch backwards and forwards between greater state aid, then the Singapore-on-Thames model.”

The lack of direction has ironically been exacebated by the 2019 general election result, which redrew the political map, turning swathes of traditional Labour strongholds blue, but also turning Tory heads.

"There is this misguided belief that 'red wall' voters want to hammer the rich, but I don’t think that is the case," says the insider.

"When voters judge a Government, the key point is whether they feel better off and have better quality services at the next election. We won't have that if we clobber people with higher taxes, the economy stalls and everything grinds to a halt."

John O'Connell of the Taxpayers' Alliance says his surveys backs this up.

“Taxpayers tend to want a better life for themselves and their families, and they know high taxes can get in the way," he says.

"They understand enterprise is a force for good, creating jobs and helping to improve the towns they live in. And they know it’s bad news for their communities when governments decide to punish British businesses with even higher taxes."

Risk to growth

Extra regulations, such as additional responsibilities for directors , risk having the same effect.

"If I was in Government, I wouldn't want to make businesses' lives tougher," says Douglas McWilliams at the Centre for Economics at Business Research.

A Government spokesperson said: "Strengthening our corporate governance and audit regime will help to ensure that the UK remains a world leader in corporate transparency and advance its status as a place of the highest standards in audit.

"The Government has accepted the findings of three independent reviews into audit and corporate reporting, and is committed to acting on their recommendations."

Tej Parikh, chief economist at the Institute of Directors, says companies are not opposed to tighter governance rules, if done sensitively.

"It is important to increase standards, but we are also looking at tax increases, and stories of capital gains tax increases, which add to the burden," he says.

"You have to make sure businesses are still there to play their role in innovation and hiring, while working together with the Government towards these long-term goals."

Coordinating with businesses would not mean a return to Kwarteng's free market roots, but it would certainly match traditional Tory thinking.