Today’s papers pick up ConservativeHome’s enquiry last week about new council tax bands. We drew on David Cameron’s memoirs in pointing to this potential alternative to a Mansion Tax, which has reportedly been mulled by the Government during this run-up to next month’s budget.
The former Prime Minister wrote that the idea of such bands for more expensive properties “has merit…there is a strong argument that in the UK they are under-taxed”. Our probe was given legs by the former Chancellor with whom Cameron once worked so seamlessly – George Osborne.
The latter tweeted in response to our article that he thinks new bands of this type would be “a sensible tax reform”. (Interestingly, he and Cameron gave different figures for the change they once considered. Osborne said he wanted “two new council tax bands for homes worth over £5 million and £10 million”. Cameron’s account refers to £2.5 million and £5 million – presumably a consequence of the Liberal Democrats pushing for a threshold nearer that of own their original Mansion Tax plan.)
At any rate, Boris Johnson and Sajid Javid united in eventually backing off a Mansion Tax next month – or so it is claimed today – and new council tax bands too. But that last if not the first will be back on the table sooner or later: The institutional Treasury believes that “the best way to tax property is to bring in new council tax bands”. All the mergers in the world between its top team and Number Ten’s won’t prevent the idea being pushed again and again.
This raises three main questions. One is about the proposal itself. The second is a broader one about what Conservatives should tax. The third is an even bigger one – about how much they should tax.
First, the plan. It is very hard to see how it could be implemented without a revaluation. These are perilous. They lead inevitably to changes in the value of one property being compared to that of another. The media projects hard cases and strange anomalies. Voters seethe. It is sometimes forgotten that one of the reasons for the poll tax was the row over a revaluation in Scotland.
The second consideration leans in other direction. “What should Tories tax?” this site asked in a 2018 series – for, after all, they must tax something, at least in a modern country in which the state provides public services. And the classic doctrine is that it is better to tax property than income, if one has to tax either at all. Cameron has a point when he suggests that it is inequitable to treat houses worth £500,000 and £5 million at the same rate.
The third raises profound questions about Conservative policy in general and this Government in particular. Let’s imagine for the sake of the argument that new bands are eventually introduced. Should they be a part of a tax hike? Or should such a rise in a property tax be balanced out by a cut in income tax? Or even exceeded by it? What should a Tory Government be trying to do?
Our answer is uncompromising. Government cannot tax its way to prosperity, nor the Conservatives their way to success. Taxes are too high.- at their highest level since the 1940s, according to the Institute for Fiscal Studies.
So tax rises should be outpaced by tax cuts – at all levels. But these must broadly march in step with spending cuts; that’s to say, with reductions in the rate of growth of public spending. And it is here that Johnson and Javid clearly ran into difficulties, which were a contributor to the latter’s resignation last week. In a nutshell, the Prime Minister’s instinct is to spend more, and his then Chancellor’s was to spend less (comparatively speaking).
Johnson wants more nurses, police, surgery appointments and “millions more invested every week in science, schools, apprenticeships and infrastructure”, to pick out items and words from the Conservative Manifesto. So does Javid. But he would stress the three words in the manifesto immediately after those just quoted: “while controlling debt”. The former Chancellor won the internal debate within the Tory top team pre-election over whether or not to use those words to frame an electoral and political choice.
The fruit of this was the manifesto’s two fiscal rules: “public sector net investment will not average more than 3 per cent of GDP, and that if debt interest reaches 6 per cent of revenue, we will reassess our plans to keep debt under control”.
The Sunday Times claims today that last week “the Prime Minister explicitly asked his Chancellor to look at how he might tear up the restraints on spending” – in other words, junk the fiscal rules. Some in Downing Street’s political circle certainly want to do so.
This takes us to the heart of the issue, which is of more import even than the resignation of a Chancellor. What is this Conservative Government for? Is its purpose to tax better-off voters in its south-eastern base in order to fund less well-off ones in its new northerly seats? Should Surrey South-West fund North West Durham? And Tory Blue Heartlands stump up for the Red Wall – in some parodistic version of what the Cummings’ Circle wants?
Or should government’s instinct to tax be curbed by the only ultimate realistic means: spending control – which is also the only practicable means of delivering tax cuts? But if it is to provide this, what will become of Johnson’s urge for bread and circuses – or rather, thinking of his urge to build one between Scotland and Northern Ireland, bridges and circuses?
One conclusion is inescapable. If there are to be significant tax cuts, together with the spending discipline that would underpin them, those Blue Heartlands will have to take a hit. The readers of the Daily Telegraph may not howl because they’ve been stung by a Mansion Tax, but rather because they’ve been hit by social reform. Because sustainable spending discipline means curbs on the third of it that goes on health and pensions.
Whatever your take on fiscal rules, either in principle or in practice, Javid was right to stand up for spending discipline. The question is whether a Number 11 than dovetails better with Number 10 can now deliver it. Rishi Sunak’s energies will be bent on his Budget, which is due in less than a month.
It’s a challenge set within a wider one – namely, to “level up” Britain rather than level it down. To bring better infrastructure, joined-up transport, more skills and higher wages to the recession-prone country outside the greater south-east. But without provoking the “terror and slaughter” of the Gods of the Copybook Headings.