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Tim Pitt is a former senior Treasury adviser to Sajid Javid and Philip Hammond. He is a partner at Flint Global, and is writing in a personal capacity.

Geoffrey Howe walked into the House of Commons in March 1981 and delivered the Budget that would become one of the defining moments of Margaret Thatcher’s premiership. Elected on a platform to cut taxes, Howe spent 91 minutes reeling off a series of tax rises: Income Tax thresholds frozen despite double-digit inflation; 4p on beer duty, 20p on petrol duty; a one-off windfall tax on bank deposits; a new 20 per cent tax on North Sea oil.

By the time he sat down, Howe had pledged to raise £4 billion a year in tax – four times that in today’s prices. Tory backbenchers fumed: some walked out of the chamber as Howe spoke, and one even crossed the floor and defected to the SDP in the ensuing Budget debate. The criticism didn’t just come from politicians: 364 economists wrote the now infamous letter to The Times urging him to change course.

Despite the storm, Thatcher backed her Chancellor and Howe held his nerve. The message was clear: the Government was willing to do unpopular things to deliver for the long-term. The 1981 Budget is now seen as the turning point for the economy under Thatcher, and Howe as the Chancellor who laid the foundations for the Thatcherite transformation of the economy.

Economic conditions are very different today. Britain no longer faces double digit inflation, interest rates and unemployment. But Howe’s decision to prioritise controlling borrowing over keeping taxes low is one successive Tory Chancellors have made. Ken Clarke’s first Budget in 1993 and George Osborne’s first in 2010 both included billions of pounds of net annual tax increases.

As he surveys his first Budget, Rishi Sunak faces the same choice as his predecessors: raise tax or let borrowing spiral. Under the fiscal rules in the Tory manifesto, a significant increase in borrowing is already on its way to fund more infrastructure investment, but the Chancellor is under pressure from some Conservatives to borrow even more, abandoning the commitment to balance the current budget to pay for further spending increases or tax cuts.

Yet focussing on the immediate issue of the fiscal rules risks losing sight of the bigger picture when it comes to the sustainability of the public finances. Although the deficit has come down significantly since 2010, the decade of persistently high deficits since the financial crisis has taken its toll on our national debt. Tories concerned about tax rises rightly point out tax as a share of GDP is at a 50-year high, and of course as Conservatives we want to keep taxes as low as possible so people can keep more of their own money. But the unfortunate reality is that, at over 80 per cent of GDP, our national debt is also close to a half-century high. And the OBR projects it to get much worse, hitting 250 per cent of GDP over the next 40 years as the spending pressures from an ageing society, rising healthcare costs and de-carbonisation mount.

We are in danger of losing sight of the simple truth which has been a favoured phrase of Tory politicians through the ages: borrowing today is simply taxation deferred. Those OBR projections should deeply concern Conservatives, as they would amount to saddling our children and grandchildren with levels of debt not seen in this country except in the aftermath of major wars. Failure to address this would be an act of selfish irresponsibility, the burden of which would fall on others – which surely amounts to one of the most un-Conservative things it is possible to do. We must remember Edmund Burke’s mantra that society is partnership between the living and those yet to be born, and have a plan to keep our debt under control.

Spending restraint must be part of the answer, but after a decade of austerity and with the long-term structural pressures described above, it cannot be all of it.

Part of the answer must be to increase the long-term growth rate of the economy, and the Chancellor’s intention to take advantage of record low interest rates to borrow to make productivity-enhancing investments is sensible – though it would be irresponsible to assume rates will stay low permanently, whatever the markets think. Targeted tax cuts should play a part, though we should dismiss those blithely claiming sweeping tax cuts will pay for themselves (those running that argument should cast their eye over the pond where the tax cuts Donald Trump claimed would pay for themselves have failed to do so, resulting in the deficit and national debt heading sharply northwards).

But part of the answer must involve raising some tax. And the Conservative Party is in danger of forgetting its history, reaching the point where tax rises are seen not only as unwise but “a moral disgrace and an economic farce”, as David Davis put it. The backlash from the Tory press around reforming pension tax relief and introducing higher bands of council tax has been as fierce as it has been unsurprising. But the question opponents of these measures need to answer is – which taxes do you want to raise instead to ensure our public finances are sustainable?

Rishi Sunak has what no Tory Chancellor has had at a Budget for 30 years – a big majority; Labour is promising such enormous tax rises, the Tories can raise tax and still be the low-tax party; and polling shows the public are willing to countenance tax rises to pay for better public services. This gives Sunak the political space to make the case for tax rises, and he should use it.

Four weeks into the job, it would be foolhardy to commit to significant revenue raisers at next week’s Budget. Difficult issues need time to breathe. And with uncertainty over the economic impact of Coronavirus, he needs to retain flexibility for a short-term stimulus. But he should use it to lay down some markers.

First, by recommitting to the fiscal rules in the manifesto and reiterating it is essential – politically and economically – that the Conservative Party remains the party that can be trusted with the public finances.

Second, by making clear that over the coming months the Conservative Party needs to have a serious conversation about how to raise the revenue needed to address the long-term pressures on public spending, while using the opportunity to reform the overall tax system to increase its efficiency and respond to people’s concerns the fruits of economic growth are not being shared fairly. Following the Budget, the Chancellor should roll the pitch for announcing significant tax rises at the autumn budget, using a series of speeches and formal and informal consultations to make the case for why we need to raise tax, the principles we should apply and the types of measures he will look at, while retaining flexibility over the timing of such rises to take account of the evolving economic impact of Coronavirus.

There is a strong, Conservative case for tax rises: we need to preserve capacity to deal with future economic shocks and we must not burden the next generation unfairly. Howe, Clarke and Osborne all understood this. Sunak should follow their example.

43 comments for: Tim Pitt: Sunak should walk in Howe’s footsteps and make the Conservative case for tax rises

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