John O’Connell is the Chief Executive of the Taxpayers’ Alliance.
Boris Johnson is an admirer of Winston Churchill, to put it mildly. Churchill has a wartime legacy that Johnson knows he can’t match, but it’s hardly a secret the Prime Minister himself wishes to be remembered through the ages. He’s now tackling a once-in-a-generation crisis. But there is a little-known achievement of Churchill’s post-war administration which Johnson should try harder to emulate.
New research from the TaxPayers’ Alliance finds that the tax burden now stands at its highest sustained level – based on a five-year average – since 1951, when the UK was still demilitarising after the second world war. This was a level which Churchill was determined to cut, explaining in his election manifesto of that year that “British taxation is higher than in any country outside the Communist world.”
These are different times, but presiding over the biggest tax burden in 70 years is surely a legacy Johnson must be keen to avoid. The tax burden next year will be an estimated 34.2 per cent as a share of GDP. That will be the highest single year score since 1969-70, when a rise in consumption taxes to discourage imports at a time of foreign exchange difficulties saw a one-off spike during the last full year of the second premiership of Harold Wilson. In the first year free of the European Union, we are paying as much tax as we did in the years just before we joined.
Repairing the public finances after the hammerblow of Covid doesn’t have to mean tax increases. The objective for Johnson – and Rishi Sunak, of course – should be to create the conditions for a boom in growth. That means giving the private sector – currently on its knees – the room to stand tall. With that will come investment, growth and jobs.
But official forecasts say that the Prime Minister will be levying taxes at levels likely to be higher than they have been since Clement Attlee. Any tax rises in the March Budget will put that figure even higher.
Traditionally, increasing taxes is the hallmark of Labour prime ministers and this is then countered by their Tory successors. Churchill’s encore administration shaved off 4.5 percentage points from the tax burden following the Attlee years, before Heath arrived in the shadow of Wilson and reduced taxes by another 3.9 percentage points. Margaret Thatcher sliced off another 0.8.
These assumptions can no longer be taken for granted. Since Thatcher departed, when the tax burden was at left at 30.4 per cent, Tory tax cuts have been negligible and the burden has ratcheted up. During Churchill’s post-war government, taxes were lower than they have been under each of the last three Conservative prime ministers. Gordon Brown cut the tax burden more in his three years than they’ve managed in eleven.
Some might now be thinking that the British public, like the oblivious lobster, is unperturbed by continuous tax increases. But we know that Jeremy Corbyn, with his manifesto delivering an extraordinary estimated tax burden of 37.3 per cent, pushed too hard and was rejected by the electorate – twice. And he wouldn’t be the first Labour leader denied office by the prospect of tax rises. Conservatives have almost always bent over backwards to promise that taxes wouldn’t go up under them.
Is it different this time, because of the Conservatives’ new base of voters? This argument can misunderstand the working class: tax cuts can be popular.
Polling from just before the 2019 election told us the new blue collar Conservatives want to see their taxes go down. A cap on council tax rises was supported by more than three quarters of those polled; around six in 10 C2DE voters strongly favoured cutting the basic rate of income tax down to 15p in the pound. About the same number wanted to see employers’ PAYE taxes reduced to encourage businesses to hire more people, with even more (seven in 10) wanting to abolish the BBC licence fee. All of these were compatible with the 2019 Conservative manifesto, and what’s more, were more popular with C2DE voters than their ABC1 counterparts.
With tax bills at around £24,500 per household, and data from the ONS showing the poorest families pay almost half their income in tax, cuts like this wouldn’t go unnoticed. They will certainly be critical to a post-pandemic Britain trying to restore growth and prosperity, as Churchill noted when he said “for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”. With their commitment to opposing tax rises in March, and a renewed focus on fighting council tax rises, the Labour frontbench now understands that taxpayer value could hold the keys to Number 10.
Very soon, there will be a fork in the road out of the pandemic – which way would Churchill go? Johnson should choose that same route.