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Tax Take

“Tories plan to help struggling families as David Cameron hints at 40p tax cut” says The Express. The Guardian’s treatment of exactly the same story is a little different; presenting the idea of lifting people out of the 40p income tax band as a “giveaway for higher-rate taxpayers”. I want to come back to the question of which tax cuts should be prioritised in any Tory manifesto but we should pause for a moment before playing that game.

The deficit hasn’t gone away. The deficit hasn’t gone away. THE DEFICIT HASN’T GONE AWAY.

It’s still nearly £100 billion this year. And I apologise if I’m boring you but we haven’t even enacted half of the necessary spending cuts yet. Peter Warburton calculates about 35% are done and 65% are still to be made. The lowest hanging fruit has been plucked – the hardest cuts are to come. Britain is borrowing twice as much as France and France is supposedly one of Europe’s economic basket cases (it actually isn’t).

While it may be true that our level of borrowing isn’t huge by historical standards the much more interesting comparison is an international one. We are not, after all, competing with the past – we are competing with emerging nations, with Australia, Canada and other countries who won’t be spending £77 billion every year just paying the interest on a £1.6 trillion national debt (as we will be doing by 2018/19). If we were debt free we could either be enacting huge tax cuts or we could be financing the equivalent of two HS2 rail links nearly every year. We won’t be able to afford to. We will instead be walking into the future weighed down by terrible debts.

If the Conservatives go into the next election with too much tax cut talk it will risk the party’s reputation for fiscal responsibility. Moreover, the party doesn’t need to promise tax cuts to ensure the issue of tax is at the heart of the election campaign. Warnings about higher NI, a new death tax and new taxes on property if Ed Miliband was to win office will be more than enough to reboot 1992’s tax bombshell campaign.

Can I suggest, therefore, that any tax cuts in the next Tory manifesto (if such pledges are deemed necessary) should not make the job of deficit reduction any harder? That means economy-boosting, revenue-generating tax reliefs should be the priority. Here, of course, we get into controversial territory. Some argue – John Redwood, for example – that the reduction in the top rate of income tax has increased tax revenues. Others believe that the Chancellor’s repeated reductions in corporation tax may be paying for themselves as they bring new taxpaying, job creating businesses to Britain. But we know what Labour will say if these are the Tories’ tax priorities: “The Tories are cutting taxes for millionaires and the big businesses who donate money to David Cameron’s war machine”.

Ministers haven’t used the apparatus of government – including the Office of Budget Responsibility – to change the public understanding of tax cuts. Much more effort should have gone into arguing that while few tax cuts pay for themselves there are some tax cuts that are relatively cheap. The freeze in petrol duty, for example, may have boosted the economy by 0.5%. An HMRC analysis found that about half of the revenue lost by Robert Halfon MP’s successful campaign for motorists will be recovered because revenues from other economy-related taxes will be higher.

A higher 40p threshold will certainly appeal to the Tory heartlands but it might be more sensible for any Tory tax pledge to help those on average or below average earnings who Ed Balls has been talking so much about. Some sort of change to National Insurance thresholds would do more to help the very lowest paid than the Liberal Democrats’ pledge to lift the income tax threshold even higher or Mr Balls’ own plan to reintroduce the 10p tax band. It would be quite something if the Tory manifesto contained a tax promise that was more pro-poor than either of the other two parties. If the Tory manifesto also includes roadmaps to full employment, ending illiteracy and balancing the nation’s books it really will be a one nation manifesto to be proud of.

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By way of postscript I suspect if George Osborne has any spare money he will throw it at the NHS. It will, of course, be a sticking plaster solution to a creaking system but the biggest single threat to Conservative chances at the next election is a winter hospitals crisis. If Mr Osborne can avoid that by sending even more money in the NHS’ direction he will do so – and probably should.

80 comments for: Before promising tax cuts, repeat after me: The deficit hasn’t gone away

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