Two of the most threadbare arguments are being wheeled out by opponents of the Tory Tax Reform Commission’s recommendations:
1. The Tories would be foolish to offer tax cuts as they didn’t win the last two elections; and
2. The kind of tax cuts recommended by the TRC will only benefit the wealthy.
THE TORIES WOULD BE FOOLISH TO OFFER TAX CUTS AS THEY DIDN’T WIN THE LAST TWO ELECTIONS
- The Conservatives lost the last two elections for all sorts of reasons but tax policies were not the lead factors. In 2001 voters were still ready to give Tony Blair the benefit of the doubt and in 2005 Michael Howard’s pitch was too unbalanced. Mr Howard offered a thin manifesto and emphasised ‘core issues‘ like immigration too much and did not talk enough about the justice and quality of life issues that David Cameron is rightly championing.
- It was too early to sell lower taxation in 2001 and to a lesser extent 2005. Voters were still ready to believe that extra taxes would produce commensurate improvements in schools and hospitals. In 2006 – and certainly by 2009 – voters are more open to the idea that their taxes have been wasted and they deserve a refund from Labour salesmen who promised too much and reformed too little.
- The Tories played a very uncertain trumpet on tax before the last election. ‘You cannot fatten a pig on market day’ was Lynton Crosby’s famous advice but that is what the Tories attempted to do with their eve-of-election tax plan. Only months before the General Election Oliver Letwin – then Shadow Chancellor – was telling the Tory Conference that he wouldn’t make promises of tax cuts that voters wouldn’t believe. When, a few months later, he did say he could afford £4bn of tax cuts it was no surprise that unconvinced voters remembered his earlier hesitancy.
THE KIND OF TAX CUTS RECOMMENDED BY THE TAX COMMISSION WILL ONLY BENEFIT THE WEALTHY
Labour are saying that only a third of Britain’s poorest citizens will benefit from the TRC package while Britain’s wealthiest people would benefit by at least £1,000 each year. This analysis ignores the dynamic effects of the tax package recommended by Lord Forsyth’s team. Some of the taxes that are least socially just – like council tax – were outside the TRC’s remit. The main focus of the TRC was on business and other forms of taxation that – when cut – can boost the economy. Until the dynamic effects of tax cuts have been considered – on higher growth, job creation and extra long-term revenue for the Exchequer – it is difficult to say whether the TRC package is regressive or progressive.
Interviewed on this morning’s Today programme the Shadow Chancellor made it clear that he would not be diverted from his existing position on tax. He would take no risks with peoples’ mortgages or with the nation’s public finances and there would, in consequence, be no unfunded tax cuts. All tax cuts, he continued, would have to be paid for by other tax increases. He highlighted environmental taxes which, he promised, would rise as a percentage of revenues under a Tory government. He questioned the focus on tax cuts as a way of boosting the economy. He argued that low interest rates and low inflation were the basis of a strong economy although he accepted the case for simplification of the tax system and had invited Price Waterhouse to investigate reform options in this area.
The leader writers in this morning’s Daily Mail offer some comfort to the Shadow Chancellor:
"While we applaud Lord Forsyth for identifying some eminently sensible areas of fiscal reform, it could be that Mr Cameron is wise to avoid committing to tax cuts. He can be certain, after all, that Labour – and unfortunately a majority of the British public – will construe these as cuts in public services, most particularly the NHS."