02/10/2011 16:11 BST | Updated 01/12/2011 05:12 GMT

New Wets and Faltering Thatcherites

If Thatcherites want a smaller state, then they surely want a smaller deficit, and the best way to get that could be (as our Thatcherite-inspired Chancellor argues) for taxes to remain uncut.

The Tory MP Andrew Tyrie is in the news for suggesting that the Government does not have a "coherent and credible" plan for long-term economic growth. He knows far more about economics than I do, so I shall not debate the details of what he is saying, although I am myself a supporter of what the Coalition is doing. What interests me more is: do his remarks signal the arrival of a new generation of Tory wet? And what do Thatcherites think about the case for tax cuts versus the case for cutting the deficit first?

The wets, under Thatcher in the 1980s, were those Tory MPs who advocated a more expansionary economic growth strategy, in a bid to stem rising unemployment and ease the impact of the recession on the country's poorest people. Their return, as a new breed of quasi-Keynesian Conservative (which Mr Tyrie arguably is not, or least, not really), would be an interesting political development. As a Liberal Democrat, would I have more in common with those wet One Nation Conservatives with whom I most agree on social issues (and maybe also on Europe), or with those decidedly 'dry' economic liberals (note that word) who are most in tune with the Lib Dems' own free-market policies?

Mr Tyrie, of course, does not fall neatly into either camp, which is a reminder of what a very complicated beast the Tory Party always is. His active chairing of the All-Party Parliamentary Group on Extraordinary Rendition marks him out as something other a conventional right-winger, but I do not suggest for a moment that he is an 80s-style wet pure and simple. After all, he is not advocating higher public spending or a change to the deficit reduction strategy - he's advocating a boost to economic growth, which is a different thing. Indeed, he's actually calling for some items of public spending to be cut back, which is the opposite of the 80s wets' opposition to Thatcher's cuts (real or alleged) to spending on public services - hence John Redwood's support for what Mr Tyrie is saying.

Surely this is a reminder of how difficult it is to define Thatcherism? At a time of austerity, is it Thatcherite to cut taxes in a bid to boost growth? Or to put off tax cuts until the bloated deficit is well on the way to elimination? With a third option, of course, being to cut projected spending by more than it is already being cut by, so creating 'spare money' that can come off our taxes. I wonder if it is not that third, very un-wet option that lurks behind the thinking of Mr Redwood and his friends, with the rhetoric of "we need measures to boost growth - oh, and maybe those measures could include tax cuts" being used to sweeten the bitter pill of "we need more spending cuts so that we can cut taxes".

If forced to choose between a well-run economy and a smaller tax bill, I know which I'd choose, although I know that is a false choice when expressed so simplistically. In the economic good times, it is possible to cut taxes without cutting spending, as the tax take can rise despite the actual taxes being lower. But that is not how the public perceives it; if you say you want tax cuts worth £5 billion, then your opponents will ask you where you are going to find the £5 billion, and will accuse you of wanting to rip it from the hard-pressed budget for schools and hospitals - a line of argument that won Labour the General Elections of 2001 and 2005. Plus, these are not yet good times economically, as we continue to recover from a very deep slowdown.

Thatcherite Conservatives are therefore confused not only about how to answer these questions, but about what the questions should be in the first place. Was Harold Macmillan a traditional Tory and Margaret Thatcher a right-wing deviation, or was Macmillan a One Nation deviation from a right-wing conservatism that Thatcher was not inventing, but returning to? As Daniel Finkelstein wrote brilliantly in 2008:

Tories can save money, they can cut taxes, they can reform services, they can reduce government. But to believe that they can do these things all at the same time and all in the first years of a Parliament is like believing that the international banking crisis is sexist.

If Thatcherites want a smaller state, then they surely want a smaller deficit, and the best way to get that could be (as our Thatcherite-inspired Chancellor argues) for taxes to remain uncut. Normally, it would be a cliche to say that tax cuts are holy writ for Tories and especially for Thatcherites. That this is no longer certain is another sign of the devastation that the economic storm has wrought upon the landscape of conventional political thinking.