Kemi Badenoch’s conference speech: the return of low-tax Conservatives?
What happened yesterday?
“There is a fight coming in British politics,” Kemi Badenoch told Conservative Party delegates in Birmingham yesterday. “A fight that we have not seen in this country for more than half a century.”
Andy Burnham used his Labour conference last week to argue that Britain needs a larger, more interventionist state. Badenoch put forward the opposite proposition but did so with less passion, storytelling and personal story than was seen the week before from Burnham.
The next election, she said, would be a “battle for the soul of this nation”: higher spending and greater state control under Labour versus lower taxes, lower spending and a smaller state under the Conservatives (although the 14 previous years of Tory-rule saw a significant expansion of course!).
The headline announcement was on inheritance tax (reminiscent of George Osborne in 2007 - remember him?). A Conservative government would exempt the ‘family home’ from IHT altogether, while couples would be able to pass on an additional £1m of other assets tax-free. Badenoch said the reforms would more than halve the number of families paying the tax. She ultimately wants to abolish inheritance tax entirely, but said doing so immediately would be unaffordable.
It completes a deliberate Conservative offer around home ownership and the more prosperous ‘south of England’. Last year Badenoch promised to abolish stamp duty on primary residences; today she added a pledge to reject any “mansion tax” and remove inheritance tax from the family home. Her message was simple: “No stamp duty when you buy your home, no mansion tax when you live in your home and no inheritance tax on your home when you pass it to your children or grandchildren.”
The IHT measure would cost about £6bn, according to Conservative figures. The party says it has identified £70bn of spending reductions, roughly half from welfare, which would then finance tax cuts while also reducing borrowing (the ‘golden rule’).
There were other tax cuts suggested too.
Employer National Insurance would be halved for workers aged 21 to 24, at an estimated cost of £2.3bn, in an attempt to tackle the NEETs crisis. The Conservatives would also remove the childcare “cliff edge” affecting parents whose incomes cross £100,000.
Welfare would be substantially cut. Badenoch said everyone capable of working would be expected to work, criticised a system in which people with mild anxiety could be deemed unable to do so, and proposed restrictions on using benefits for gambling and alcohol. Savings from welfare would also help fund higher defence spending because “the era of peace is over”.
That security message was reinforced by a proposed £10bn “Britannia Shield” (a suitably patriotic sounding name) air-defence system.
Taken together, the economic proposition was unapologetically Thatcherite: government cannot indefinitely tax and borrow (we do have £3trn of debt already) its way to prosperity; a smaller state creates room for lower taxes; lower taxes and deregulation encourage investment and growth; and government must make choices about what it can afford.
Perhaps the most politically interesting passages were aimed not at Labour, but at Nigel Farage and Reform UK as Kemi seeks to re-unite the right.
The Conservative leader argued that her party had finally put its internal turmoil behind it, joking that it had enjoyed an “export boom of drama queens…going to Reform”.
More substantially, she sought to draw a moral and cultural distinction between the two parties. Responding to Suella Braverman’s comments about whether people from minority backgrounds could be considered English, was the closest Kemi Badenoch came to the emotion of Burnham’s speech.
“I am black. I am British. I’m proud of my country,” she said.
Badenoch is making an appeal to some of the voters lost to Reform. Instead of competing with Reform principally on migration and culture wars, she sought to move the political battleground back towards territory on which Conservatives have traditionally been more comfortable: economic competence.
How did the media react?
The Times pointed out how much more secure Kemi was. A year ago her leadership appeared vulnerable; today she looked much more secure, with Robert Jenrick gone and internal plotting diminished. The paper described a leader with a new “swagger”, now more popular than her party and increasingly its best electoral asset.
The Financial Times saw the same underlying strategy: Badenoch is trying to reconstruct the Conservatives as the party of lower taxes, sound money and a smaller state, while presenting Burnham's Labour as a return to expensive state intervention of the 1970s. But it pointed to an uncomfortable truth of 14 years: that taxes and debt both rose substantially during the Conservatives.
Bloomberg focused on the attempt to re-establish the Conservatives' tax-cutting credentials after the 2024 defeat. But the shadow of Liz Truss remains important. Business leaders and investors may welcome lower taxes, it said, but are looking for evidence that the numbers add up and that the party has a credible programme for government (Andrew Griffith, a former CFO at BSkyB, as Shadow Chancellor may help).
However, there is already criticism of the flagship IHT policy.
Paul Johnson, the former director of the Institute for Fiscal Studies, called exempting family homes from inheritance tax a “very, very bad policy”, warning that it could encourage older homeowners to remain in large properties rather than downsizing, potentially working against the benefits of abolishing stamp duty and gumming up the housing market even more.
Others have attacked the distributional effect. Only around one in 20 estates currently pays inheritance tax, according to IFS director Helen Miller, while critics argue that exempting homes therefore directs substantial tax relief towards wealthier households (which is also a benefit from Burnham’s National Social Care plans but much less commented on).
What about business?
Badenoch made a clear appeal to business (compared to Burnham who didn’t really mention it).
Her argument is that Britain does not have a problem that can be solved by more spending. It has a growth problem that requires lower taxes, cheaper energy, less regulation and a state that is more disciplined about what it can afford.
That is a message many businesses will recognise. The problem is that they have heard much of this many many times before. Badenoch has to persuade them that this is not simply a return to familiar Conservative rhetoric, but a different approach to governing and will actually happen.
Borrowing costs are still increasing in the UK, spurred on by global bond sell-offs, inflation concerns, and energy shocks related to the war in Iran (heightened by the UK’s reliance on imported energy). These factors may still be in play come the next general election, emphasising the importance of a fiscally responsible policy platform.
This makes the £70bn of proposed spending reductions particularly important, to reassure markets that tax cuts will not be unfunded and avoid a reminder of mini-budget ‘issues’.
Last week Burnham offered an argument that Britain's economic model has failed because the state has become too weak: privatisation, deregulation and centralisation have left the government unable to shape the economy or provide essential services effectively.
Badenoch offered almost the mirror image. Britain's problem, in her telling, is that the state has become too large: spending, borrowing, taxation, welfare and regulation are suppressing growth and leaving the country less able to meet its core responsibilities.
On Heathrow, Badenoch and Griffiths firmly backed a third runway.
On planning and infrastructure delivery, she wants new nuclear power stations, lower energy costs and reduced building regulation as elements of what she called a “plan to get Britain growing again”.
Andrew Griffiths, the Shadow Chancellor, promised to:
Abolish Natural England and the Environment Agency, transferring their necessary functions directly into Defra.
Reduce environmental and planning regulation that they argue delays housing and infrastructure projects.
Scrap the Future Homes Standard, which requires new homes to meet higher energy-efficiency standards.
Replace Section 106 agreements and the Community Infrastructure Levy with a single developer levy.
Leave the Aarhus Convention, which is a route for many judicial reviews to be levied at big infrastructure schemes (this is a UN agreement).
What’s coming next?
Will the announcements result in a poll bounce and put the Conservatives ahead of Reform UK? The Conservatives remain behind both Labour and Reform in the FT's current polling average, although Reform's earlier lead over the Conservatives has narrowed. Badenoch's strategy is not to merge with Farage but to persuade former Conservative voters that they can have tougher policies without Reform's politics or personnel.
Are the £70bn of proposed savings actually deliverable?. Half is expected to come from welfare, meaning the detail of those reductions, who loses, how quickly they can be delivered and whether the savings are independently credible, will receive considerable scrutiny.
Badenoch's answer was to revive an old Conservative formula: sound money first, lower spending, then lower taxes and growth.
A week after Burnham used Liverpool to argue that Britain's economic settlement needs to be remade, Badenoch has set out the alternative - but will the public even notice?
In opposition it is hard to command the public’s attention and even harder when you have a very slick Prime Minister and Nigel Farage who is an expert in grabbing the headlines (sometimes not for his preferred reasons of course).