Alex Morton was a member of David Cameron’s Downing Street Policy Unit.

Spring statement consultations on VAT and cash go against Tory values and voters

Last year, the Spring Budget blew up into a row over raising the national insurance rate for self-employed workers. Fortunately this year, the Spring Statement was so dull it largely passed without comment (and even contained a few good jokes).

Sadly, it had some nasty surprises for small businesses hidden in consultations announced. Most worrying were ones on the future of cash and changing (effectively lowering), the VAT threshold. This would obviously have a major impact on most small businesses, who are already hit hard by business rates before a single pound of profit has been made.

Asking the half of small businesses currently exempt to pay VAT would be a further burden. The Government is right that we have a higher VAT threshold than most countries. But this is something to celebrate, not denigrate. Particularly given business rates and other burdens, the last thing a Conservative government should do is hit small businesses by adding an additional tax to their costs.

Treasury antagonism to cash must be resisted by Conservatives

On cash, the Treasury argued that the Government should abolish the 1p and 2p coins because inflation had eroded their value. But contradicting itself, it also hinted at abolishing the £50 note because it was too large, despite inflation having eroded the £50 note’s value from £175 when it was created in 1981 to £50 now.

Many in the Treasury and Bank of England increasingly dislike the fact that cash continues to be a major part of the economy for a variety of reasons. Most alarming is the fact that cash is a barrier to seriously negative interest rates. Negative rates are already a reality in Denmark, Sweden, Japan and Switzerland, but are close to zero in all – as, if they were seriously punitive (e.g. -2 per cent or even -5 per cent), people could store more of their wealth in the form of cash outside the banking system. Reducing this ability to bypass negative interest rates and hold cash by abolishing £50 is thus key.

This is deeply unconservative, since low interest rates are crippling home ownership and savers. Equally unconservative is the argument that cash is somehow illegitimate because it cannot be tracked. The statist Left has always tried to argue that if you have nothing to hide, you have nothing to fear. Conservatives and genuine liberals have always recognised that individuals have a right to privacy. And if the idea of no privacy with Theresa May and Philip Hammond in government doesn’t worry you, imagine Jeremy Corbyn and John McDonnell in charge.

The fact that these were not removed from the final budget package is depressing. The nearest David Cameron came to a domestic disaster was during the 2015 Conference, when there was a push by some to try to phase out cash by 2020. I am told by others much closer than I to David Cameron’s thinking that while this was briefly an option, it was not seriously considered – and I hope not.

Abolishing cash would have had a major impact on small businesses, older people, those in rural areas – in other words, our people. On top of that it would have crippled those on lower incomes who often find that holding cash is a way of budgeting that they can easily understand. Politically toxic for our voters and socially unjust is quite a combination. Of course, cash is likely to decline – which is fine – but deliberately trying to make it harder and harder to use it, or even abolishing it outright is not.

To understand the willingness to turn the UK into some gigantic lab-rat you must grasp the power of a group of affluent vested interests based largely in London, whose high incomes, lack of need to budget, and technological understanding meant they could not understand why this might be unpopular. Crudely speaking it is also in their interest, meaning greater powers for the Treasury in London, boosting a group of fintech and payment companies, destroying a competitor, and the interest of a City of London which would find it easier to push the greater levels of debt it benefits from if money and credit became even less tangible.

All this which shows why the current Conservative Party is such a mess and why Corbyn managed to surge last year. We have lost touch with our voters, and many people feel that whoever they vote for, nothing changes, with politicians beholden to a small economically and politically powerful clique based in London.

The Conservative Chairman should be given a watching brief on the November Budget

Both the consultation on £50 and the lowering of the VAT threshold should be quietly ditched. It cannot be the case that everyone at the Treasury has absolutely no political antennae – the Autumn Statement went well, most notably with the reduction in Stamp Duty (though it made the system even more complex), Brexit preparation funding and support for the NHS. But clearly elements of the Treasury with no political antennae seem to have more power than you might hope – and this bodes ill for later this year.

With a small majority and unstable political situation, the Government cannot afford any major domestic rows between now and March 2019 – most notably at the Autumn Budget. One way to try to ensure that this does not blow up in Minister’s faces would be to give greater power to the Chairman, Brandon Lewis, to both input at the start of the process, and at a late stage, to go through the proposals, perhaps with the Chief Secretary to the Treasury, and ensure there are no proposals that risk creating an unhelpful backlash.

The Spring Statement passed off without hitch – largely because it was so dull. But in November the Budget will, up to a point, have to be interesting. We need to ensure that it does not become interesting for the wrong reasons.