Lord Flight is Chairman of Flight & Partners Recovery Fund, and is a former Shadow Chief Secretary to the Treasury.
It is particularly disappointing to see the Prime Minister and Chancellor abandoning Tory tax principles. While the Treasury pulled the right levers during the Covid crisis, allowing government spending to rise to keep the economy afloat (and avoiding a crash), it is now raising taxes too soon and arguably more than is presently necessary.
The key way to restoring the public finances is a strong and growing economy, itself leading to increased tax revenues. In the four months since the March budget, government borrowing has been £26 billion lower than forecast by the OBR. The Treasury should be letting things run and not risk stalling economic growth with tax increases or threatened tax increases.
We need a long-term strategic framework for the tax system, giving a clear map for both its structure and the target levels of key tax rates. In the absence of this and without strong control of public spending, the default position is higher taxes and more complications. What we need is lower and stable taxes, and minimum government intervention. Back to 1979, whenever they reasonably could, Conservative governments have cut taxes.
The main problem is the NHS; there will always be limitless demand for free goods. The Government needs to face up to this and copy France to install NHS charges at modest levels and with exemptions for low-income individuals. We need to examine the French, German and other European health systems to identify appropriate funding models.
When John Major took over as Prime Minister, NHS costs were £36 billion p.a. Last year the total was £212 billion, which included £60 billion of Covid expenditure. To meet the pressures of Covid, the Government is now spending an additional £36 billion over the next three years and an additional £5.4 billion in England over the next six months. I suspect this is more than is really necessary and is politically inspired.
History is repeating itself in reverse. Back in 2002, Gordon Brown’s budget raised National Insurance contributions to pay for a record increase in funding for healthcare. Boris Johnson then criticised the NHS, where he pointed out that other European economies’ health systems were doing better than the UK.
He criticised Chancellor Brown for setting his face against the experience of other countries. He pointed out that the provision of European health services outstrips the UK because they do not rely exclusively on a top-down health service.
Back in 2002 Johnson’s contribution was that is was all very well to treat the NHS as a religion, but it is legitimate for some of us to point out that it is letting down some of its customers badly.
NHS expenditure is by far the largest public expenditure – defence at £43 billion p.a., for example, is no where near NHS levels. Most of the NHS’s core budget is funding for spending on day-to-day items such as staff salaries and medicines. A significant reason for the huge increase in expenditure has been the increase in staff remuneration.
The announcement of extra funds for the NHS also comes without any clear plan of how the money is going to be spent. Alas, the likely outcome is that the extra funding will disappear into the “black hole”, causing subsequent increases in the NHS social care levy and taking the overall tax burden to still higher levels.
For those who understand and support the advantages of a low-tax economy, a new vision of the future is needed which must include a reformed NHS and care industry. In the short-term Conservative MPs should muster their strength to oppose the spending bandwagon and to support tax reductions where they can be found.
Politicians and civil servants need to relearn that the route to lower taxes lies in sustained economic growth and discipline on public expenditure – and the route to economic growth lies in lower taxes. The public spending announcements arose from the lack of clear strategic thinking in the Treasury, a failure to understand economic reality and too much input for short term political positions.