By Paul Goodman
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Margaret Thatcher inherited economic ruin and high taxes, and the two were intimately connected to each other. The top rate of income tax was 83% and the basic rate was 33%. She believed that such rates thwarted enterprise, slowed growth, depressed revenues as avoidance thrived, and thus ultimately deprived the public services of the funds they needed as well as citizens of money that should rightfully be theirs. By the time she left office, that top rate had been slashed to 40% and the basic rate to 25% – and revenues had come rolling in to the Treasury to fund schools, hospitals, roads, railways and all the rest of it.
She eventually lost patience with her first Chancellor, Geoffrey Howe, over Europe (very broadly, because he was a fervent Euro-enthusiast) and her second lost patience with her over the same matter (though more narrowly, because although he was suspicious of the Euro-project he was a supporter of the exchange rate mechanism, having given up on monetary targets). It is therefore easy to forget how close this tiny band of believers were, personally and ideologically, when they first came into Government together, and how isolated, too – and to fail to honour them all for shaping a tax settlement that dominated British politics for a generation.
Not all personal taxes went down: Lawson taxed capital gains, as his memoirs put it, "as if they were income…that is, at either 25% or 40% as the case may be" (a rate of 30% had existed since 1965). None the less, the overall shape and success of the settlement was unmistakable, a fact proven by the unwillingness of Thatcher's successors to challenge it. They tinkered around with a new lower rate of tax at the bottom. But the top rate was left untampered with by New Labour, and the standard rate actually cut further. It was not until the departure of Tony Blair and the arrival of banking degringolade that the top rate rose again.
…Is being challenged from within government by Clegg and Cable…
In other words, events from the collapse of Lehman Brothers to the crisis in the eurozone have provided cover for the reactionaries who would roll Britain's tax settlement back to the 1970s – at a time when our competitors are following the example of the 1980s. The great and unavoidable debate about top pay, pensions, Fred Goodwin's knighthood and Stephen Hester's bonus – swollen and exacerbated by the biggest squeeze on middle-class incomes in a generation – is being exploited by our partners in government to rescue them from reputational damage, wreak it on us instead, and roll back the clock to the dismal years before the Thatcher tax revolution.
Nick Clegg seems to have resolved to repair his trashed brand by setting himself up as a spokesman for his party regardless of his duty to his Tory colleagues. His speech this week on tax was made almost as though he had no Ministerial responsibilities at all. It cast him as an independent politician, speaking for his party, and both David Cameron and George Osborne as Government Ministers, unable to do the same – or anything much other than respond to his pleas for more people to be taken out of tax. If this happens, the Liberal Democrats are thus now poised to take the credit. And if it doesn't, the Conservatives are set to take the blame.
This imbalance should be corrected for reasons better than party advantage. Taking people out of tax is a good thing – though it's worth remembering that there can be too much a good thing: since there must be death and taxes, the latter are best met by a lot of people paying a little tax rather than a smaller number shouldering a disproportionate burden. But new wealth taxes, as recommended by Vince Cable, would be a thoroughly bad one – the thin end of a very thick wedge. I agree that the scale of the deficit leaves little room for further tax cuts without a new spending scaleback, and understand that discussion about rebalancing the tax system follows.
…A Conservative counter-challenge is urgently required…
It could indeed be that part of any rebalancing includes taking people out of tax near one end of the income scale at plunging more people deeper in at the other – through Cable's beloved mansion tax or a new wealth tax. But voters should be left under no illusion about what this woud mean. There is simply not enough money from Russian football club owners or Libyan Mayfair property dwellers to go round. The twofold consequence of new wealth taxes would be, first, the departure of sometimes displeasing visitors (together with the rather pleasing taxes that they pay) and, second, the extension of these taxes down the income scale to raise revenue.
In short, wealth taxes are like a drug: once a country gets them into its system, it is very hard to get them out again. Nor can it be assumed that the doctor of the Coalition, or a majority Conservative Government, will always be on hand to limit the damage. Imagine new wealth taxes. Now imagine them being inherited by a Miliband Government, or by a Lab/Lib coalition. I rest my case. But Clegg is unlikely to rest his. From now on until budget day and beyond, he, Cable, Tim Farron and all the rest of them – perhaps barring, for obvious reasons, Chris Huhne – will be urging Cameron and Osborne to further dent the settlement that the Iron Lady left.
We know how she would have responded. Not, I suspect, by cutting income taxes and risking a higher deficit, at least for the short-term – though that is arguable either way. But certainly by doing what she did from her earliest days in opposition to her last ones in government: by striving to set the terms of debate. She would have argued that the solution to Britain's problems isn't higher taxes. That lower ones, in the medium-term, raise revenues and reward enterprise. And that without enterprise we won't be able to pay for public services in the first place – let alone meet the challenge of China and India and the rising economies.
Which senior Conservative is matching the Deputy Prime Minister by making this argument now? Who is taking the initiative for the Tories? Who is arguing openly that wealth taxes are a road to ruin – rather than stiffly insisting that "budget decisions are a matter for the Chancellor"? We know the answer. If Clegg is to be allowed to stretch the rules of collective responsibility, someone must step forward to match him. Who could this be? Iain Duncan Smith is preoccupied with welfare reform. Michael Gove would make an elegant case for enterprise, but is busy improving the nation's schools. Owen Paterson is not senior enough in Government.
Nick Herbert and Chris Grayling and Theresa Villiers and other senior Ministers from the party's centre-right tradition do not even sit around the Cabinet table. The person who does, who is not restrained by running a department and who has official licence to speak for the Party is of course its Chairman. It may seem counter-intuitive to recommend thrusting into Sayeeda Warsi's hands part of the giant mantle once worn by Margaret Thatcher – the role of the champion of lower taxes and the enemy of higher ones. But there is a marvellous political opening here as well as an opportunity for public service.