Dominic Raab is the Member of Parliament for Esher & Walton.
Today, the Chancellor delivers his autumn statement. For all the talk of sweeteners and giveaways, my major concern is tax rises. The Institute for Fiscal Studies reckons any government will hike taxes after 2015, because of the deficit. What can we do about it?
To date, the Coalition has (rightly) targeted tax breaks for the lowest paid, but that has come at the price of extra pressure on many middle income and middle class homes. Overall, the tax burden is the highest since 1989/90. Because of Labour’s legacy, we have become a relatively high tax country (15th highest out of the 34 OECD countries), as well as a high debt one. Both threaten UK competitiveness, which is also – let’s not forget – the driver of the jobs and revenue to help the unemployed and low-paid.
Earlier this week, on ConHome, Paul Goodman made the case for the “affordable state”. I agree we lack an honest and up front debate about stubbornly high levels of government spending – still at 48.5 per cent of GDP – and how to reduce it.
Equally, some of the current Westminster debate feels microscopic against the overarching challenges that loom – including rising public debt, high household debt (against the likelihood of interest rates rising), ongoing exposure to the Eurozone, and intense competition from what David Cameron aptly defines as the ‘global economic race’.
The Chancellor may well be cautious today. There certainly shouldn’t be unfunded tax giveaways. But, I hope we can use the recent spate of economic good news to illuminate a path towards a more sustainable economic future. And that means accepting that high government spending and taxes threaten our prosperity – and talking about how to address them in stages.
In a report for the Centre for Policy Studies this week, I offered one idea of what that road-map might look like. First, we should identify £17.6 billion of savings to allow us to make responsible tax cuts now and fund others after the election. This should be followed by a broader debate about spending sustainability – perhaps through the Commission on Public Spending Paul has in mind. Some will argue the timing is wrong or doubt the political wisdom. But, it is worth remembering that sensitivities about criticising the leap in public spending under Labour made the job of selling deficit reduction harder later. If we want to avoid higher taxes, further cuts are coming. Better to be ahead of the game. The return of growth is the right time to talk about fundamentals, and identifying savings will give us some leeway to address them.
The second priority should be focusing what scope we have for tax cuts on the recovery and competitiveness. Personally, I would target cutting the cost of hiring – by raising the employer national insurance threshold – and freeze business rates. This should be backed up by a renewed assault on business red-tape, although we can expect Vince Cable to veto further meaningful reform.
Third, if we are going to engage in electoral sweeteners – and I think it is too early – we should at least do so as part of a strategy. Yes, to cutting tax for the lowest paid – although, if that’s your aim, raising the national insurance threshold makes far more sense than extending the personal allowance. Equally, this shouldn’t be done at the expense of middle-income and middle class families – many of whom have felt the tax pinch in recent years, on top of pressure on the cost of living.
For the longer-term, we should be committed to simpler and lower taxes to boost UK competitiveness, as cogently argued by the 2020 Tax Commission. And, if we are serious about making hard-work pay, we need to cut marginal rates. A ‘doable’ mid-term objective would be to merge national insurance and income tax, consolidating the rates into two at 15 per cent and 35 per cent. We could make concrete steps towards that goal as the savings are realised – starting with cutting national insurance for the lowest paid, taking a penny off the basic and higher rates of income tax, and making a manifesto commitment to cut the overall tax burden by 2015.
The Conservatives are the party that reward enterprise and hard-work, or we are nothing. Rather than mimicking Labour with the odd dash of progressive lipstick, as some seem to advocate, we need an honest long-term plan that spells out how to encourage business to grow and give Britain’s many grafters – low paid and middle class – more of their hard-earned money back. Today, above all, we need clarity of vision.