Matthew Elliott answers your questions

Matthew Elliott, co-founder and chief executive of the TaxPayers' Alliance, answers your questions:

TaxCutter: Do you think the Taxpayers' Alliance would have become the, thankfully, successful group it has, had the Conservatives in recent years countered the government with a more traditional tax cutting policy? What do you think is the most effective way on an issue such as tax of changing or forming public opinion?

With the exception of the United States (where I’m replying to these questions from the National Taxpayers’ Union conference), taxpayer groups only generally succeed where there isn’t a major party committed to lower taxes. There wasn’t a pressing need for a TaxPayers’ Alliance when Margaret Thatcher was Prime Minister – Geoffrey Howe and Nigel Lawson did a great job cutting taxes – but as soon as taxes began to rise under John Major the political space emerged for a UK taxpayer group. Now the TaxPayers’ Alliance has emerged, I hope that it has a role to play regardless of the future positions taken by the political parties, because taxpayers desperately need a group to represent them in the corridors of power and to provide some counterbalance to the countless groups arguing for more spending and therefore higher taxes.

Regarding public opinion, you are absolutely right that this is the key. If I go to a politician with a 100 page pamphlet setting out the case for lower taxes, the chances are that their eyes will glaze over and they’ll put it in the round file once I’ve left the room. However, if I give them an opinion poll demonstrating that people in their part of the country want lower taxes and show them a leaflet that our activists are delivering in their constituency calling for lower taxes, there’s a chance they’ll take an interest. This is why our focus is on changing public opinion and the way that we’re doing this is to demonstrate that their money is being wasted, to show that there is room for tax cuts and to show how lower taxes help families and create jobs.

Umbrella Man: You started TPA only a few years ago and it's grown very fast. What advice would you give to someone starting something similar?

The key reason for the TPA’s success, Umbrella Man, is that we represent a group in society – taxpayers – who are incredibly important but who have never had a unified voice in the media. When I worked at the European Foundation, I saw how Business for Sterling managed to dominate the European debate within a short period of time by running a competent media campaign and by building a credible coalition of support for their position, representing every group from businessmen to trades unionists to environmentalists. My advice to new groups would be to establish yourself as a single-issue campaign group. I think the age where the media automatically reported every new publication from a multi-issue think-tank, just because it represented the view of an expert sitting in SW1, has gone. The cost of political action has massively fallen, allowing organisations to emerge that represent disparate groups of people. If you can credibly claim to represent a certain group or point of view in society, you will be successful because you will get media coverage.

Trevor: What was the name of your first pet?

Trevor, are you trying to find the secret question for my Hotmail password? ;-)

Mark Wadsworth: When talking about tax reduction, why do people always politely ignore VAT, which raises (£80bn) about as much as corporation tax (£50bn) and Employer's NIC (£35bn) taken together? VAT is the worst tax of all, Employer's NIC is the second worse tax, corporation tax isn't so bad, really, and Business Rates (£20bn) are by far the least worst.

You are right to highlight the huge amount VAT takes from people – it plays a large part in making the British tax system as regressive as it is – but I think that you seriously underestimate the harm of business taxes. Research by the Centre for Economics and Business Research for the TPA found that steadily cutting corporation tax to Irish levels would create huge increases in incomes and, in very little time at all, additional government revenue. Business tax reduces the amount of investment in a country which creates huge harms not captured by the amount it raises in revenue. This is particularly true in Britain as we have a relatively open economy and taxation on business hurts our ability to attract international investment and the ability of British firms to compete.

Alan S: We will never cut our taxes low enough to compete on wage levels with emerging economies. Doesn't our competitive advantage lie in investing through the private and public sector in high technologies and an educated workforce?

The most efficient investment, whether in high-technology or human capital, happens in the private sector. We will attract more international investment and ensure domestic firms face the proper incentives to invest if we lower taxes. That investment will lead to the high-value economy you are looking for.

Also, while we are unable to equal the low labour costs of developing economies that does not mean that the amount it costs to employ someone in Britain is insignificant. Clearly there are costs and benefits to employing someone here rather than in a developing or another developed country, that we speak English is an obvious benefit over most other countries, and the final decision over where people are employed will obviously be based upon a balance of those costs and benefits. While we should pay attention to increasing the benefits to employing someone in Britain we should also ensure that we keep the ‘costs’ to a minimum by cutting tax.

TomTom: London is home to most corporate headquarters and thus the location for corporate tax payments.....without these corporation tax payments being allocated to London how would London's tax base look?

Unfortunately the Treasury doesn’t provide a regional break down of most taxes in official figures, so it’s difficult to answer your question. However, based on its income, it doesn’t seem unreasonable to assume that London’s tax base is probably similar to that of the South East. For more information on differences in regional fiscal policy, I highly recommend Burning Our Money’s post on the subject or David B Smith’s article for the Economic Research Council.

Edward: What is the fairest form of tax?

A flat tax. For more information on how this could be introduced in the UK, I recommend the book Allister Heath wrote for the TPA.

Justin Hinchliffe: Matthew, why do you think Osborne is so reluctant to support flat taxes?

In the summer of 2005, there was a wave of enthusiasm in Britain for the flat tax, and George Osborne latched on to this tide by setting up the Tax Reform Commission. However, this enthusiasm quickly dissipated following the German election in September 2005 and was replaced by the myth that proposing a flat tax is electoral suicide. As a result of this change of opinion, the Shadow Chancellor quickly backed off.

However, was this analysis of the German elections correct? The myth that proposing the flat tax is electoral suicide came about because the media focused on the flat tax element of the German elections whilst neglecting some of the other key reasons for the CDU’s poorer than expected performance.

Because Angela Merkel lacked a real power base within the CDU, she had to make compromises with the powerful leaders of states like Bavaria and Lower Saxony. The final election program of the CDU was a tepid affair that proposed to cut the top rate of German income tax from 42% to 39%. But what really got negative publicity was the CDU's decision to more than balance that with an increase in VAT from 16% to 18%. In other words, Merkel was forced to go into an election campaign promising an overall increase in taxes. Needless to say, the result was a qualified disaster for the CDU.

Imagine if the Conservative Party announced six months before the next election a policy of increasing the tax burden by cutting our top rate of tax from 40% to 37% whilst increasing VAT from 17.5% to 19.5%. And then imagine, a few months before the election, David Cameron appointing a Shadow Chancellor who was a long-time advocate of an unfamiliar tax system called the flat tax. Gordon Brown would have a field day and the policy would back-fire. But this is what happened in Germany.

The Free Democrats, on the other hand, who advocated a flatter tax won their best result ever, taking 10% of the vote.

It is also worth considering an election held on the very same day as the German election, in a country more culturally attuned and historically linked to the United Kingdom.

In New Zealand, Don Brash’s National Party won 49 seats – up from 27 at the previous election – and came within one seat of forming a government. Helen Clark's Labour administration was expected to sail to victory but it flopped in the polls because of the opposition National Party's confident tax message, a message that was attractively wrapped up in the language of fairness for families. The Conservative Party should learn from this.

James: Assuming that consumption taxes like VAT make a big difference to the budgets of the poor, would you rather cut the basic rate of income tax or cut VAT? Also, do you support giving tax relief on private school fees?

The basic rate of income tax. Geoffrey Howe was right to shift the burden of taxation from income to consumption. It would be a big mistake to reverse this trend. Iain Dale’s blog nicely illustrated why this is the case a few weeks back.

I think tax relief on private school fees would be a good move, just as it was right for John to provide tax relief on private healthcare payments before 1997. A even better incremental step to improving our education system would be to give parents the right to use the money that would have been allocated to their child’s education in the state sector, towards private school fees or setting up their own school. The analysis by Reform of the Swedish education system is well worth a read on this.

HF: Why did the TPA get it wrong in welcoming Brown's Budget?

I thought this might come up! HF, I’m going to split your question in two: Why did the TPA welcome Brown’s Budget? Did we get it wrong? 

Part of the TPA’s success is down to the fact that we are non-partisan. We work with all political parties – most recently organizing a cross-party letter arguing against the Bill to exempt Parliament from the Freedom of Information Act. With this in mind, when a politician who isn’t a natural ally of the TaxPayers’ Alliance says or does something that moves the ball in our direction, we welcome it.

We think that it is highly significant that Gordon Brown felt the need to present his Budget in tax-cutting, tax-simplifying terms because it demonstrates how far the debate has moved in our direction since the mid-1990s when more money was seen as the solution to public sector failure. OK, the Budget didn’t cut the tax burden, and the tax hike on small businesses was massively misguided (and may have been a massive internal Treasury foul-up), but it did simplify the tax system and cut tax rates which any future Chancellor will find is difficult to reverse.  Just like the reduction in the top-rate of tax under Thatcher.

Regardless of tax credits which the Conservatives have yet to commit to abolishing we do now have a simpler tax system:  two main rates and two thresholds.  This is an advance if only a modest one.  This is in line with the recommendations of Lord Forsyth’s Tax Reform Commission – to abolish allowances and cut rates – albeit without £20 billion of increased thresholds.  But this is the problem with broadly revenue neutral tax changes, and the Conservative Party should remember this.

So, yes, by and large we did welcome the Budget because it was far better than Brown’s previous Budgets and we felt we’d give some credit where credit’s due. We won’t get anywhere if we constantly bash Brown and moan when politicians refuse to sign up to our agenda 100%.

Did we get it wrong?

The 2007 Budget is thought of as Brown’s “con trick” because he presented it as a tax cut rather than a simplification in his speech. Reading the papers the next day, some went with this line and others took the more positive line that we did. But by the time the Sunday newspapers hit our doormats, the consensus was that people had seen through Brown’s con-trick – this budget did not cut the tax burden – and the Budget had backfired.

As we are not a front group for the Conservatives I think that we were right to welcome the longer term legacy of Brown’s budget: a simplification of the tax system. However, at the same time, we agree with George Osborne that this was not the cut in the tax burden that Brown implied in his speech.  I take my hat off to George Osborne and his media team for winning the party battle. We steer clear of party politics, but there’s no doubt that it was a brilliant few days for the Conservatives.

Tory T: I loved the Bumper Book of Government Waste. If David Cameron were elected tomorrow and you were appointed his waste-elimination czar, where and how would you start?

I’m reluctant to turn down a job, Tory T, but I’m not sure that David Cameron needs to appoint a waste-elimination czar. George Osborn has rightly committed the Conservatives to creating an online database of all government spending over £25,000. The TPA, half of Fleet Street and thousands of taxpayers will be combing this database for waste and I think that the areas for the new Chancellor to cut will emerge spontaneously. However, the first search item I will type in is “Trade Unions”. Following the little-known Warwick Agreement before the last 2005 General Election, the Government has pumped millions of pounds into the Trade Union movement in return for funding the Labour Party. Rooting out these grants would be a massive strategic victory for taxpayers.

TaxHater: Have you got any plans to do another tax pledge campaign at the next general election and do you think that the Conservatives will sign?

We haven’t made a final decision on this yet, but we are actively exploring the idea. One reason why I’m in the States at the moment is to learn from Grover Norquist from Americans for Tax Reform about how he has successfully used the Taxpayers Protection Pledge to commit candidates for federal and state office to oppose all tax increases. Of course, the US is different to the UK. In America, candidates control their own platforms, whereas in Britain, candidates run on the Party’s manifesto, so the Pledge would probably have to be executed in a slightly different way in the UK.

In terms of whether the Conservatives will sign, it is important to note that it is not a pledge to cut taxes, it is a pledge not to raise taxes. When George Osborne unveiled the Party’s plans for green taxes, he was careful to say that any rise in green taxes would be matched by an equivalent cut in personal taxes. If he expanded this to cover tax policy in general, I think it would provide a very clear distinction between the two parties and make it clear to taxpayers who they should support.

Torygal: Which 3 books would you say have most influenced and inspired you and did they have anything to do with your involvement in TPA?

The book that has most influenced the strategy of the TPA is Death by a Thousand Cuts, by Michael J Graetz and Ian Shapiro. If you read that book, which is about the Death Tax Repeal coalition in the States, you’ll understand our approach to campaigning. Gang of Five, by Nina J Easton, demonstrated the importance of grassroots campaigning and inspired me to set up the TPA. Atlas Shrugged, by Ayn Rand, is a gripping read and great primer on how and why government grows. Rand wouldn’t approve of the TPA though – read the book to find out why.

ThatcherBoy: Outside of Parliament, who do you think the future stars of the Right are going to be under a Cameron Government? Are any of them instinctive tax-cutters?

Amongst the think-tankers, Anthony Browne (Policy Exchange) will be more influential than most Cabinet members under a Cameron Government. Andrew Haldenby (Reform) will hopefully have a big input into health policy and David Green (Civitas) should be listened to on welfare and crime.

In the media, Allister Heath (The Business) and Fraser Nelson (The Spectator) – two journalists who are already stars – will become even more prominent, hopefully from new perches in the broadsheets.

In the world of public affairs, look out for James Frayne (Portland PR), who organized the excellent Bebo conference earlier this month with Joe Trippi. Also worth following are Robert Sullivan (Hanover), who worked in CCHQ before the last General Election, and Greig Baker (CommunicateResearch), who was the brains behind Geoffrey Clifton-Brown’s excellent private members bill to take poorer people out of income tax.

ConservativeHomer: What is the TPAs position on 'green' taxes such as fuel duty, given that such taxes (1) are relatively regressive and increases affect the poor more; (2) are powerless to stem the overall global demand for oil and its emissions with their application nationally alone and (3) are anti-free choice.

We take a similar view to you on this, ConservativeHomer. Green taxes are not taxes on ‘bads’ as they are sold by political parties and the media.  The amount of money raised by fuel duty alone is, even under very ‘green’ assumptions, enough to cover the externalities of Britain’s entire CO2 emissions.  Green taxes are revenue raising measures designed to extract more money from ordinary families and British businesses which, as you rightly say, affect the poor more. In regional terms the North is hit incredibly hard by the Climate Change Levy.  I’d love to give you some more details and statistics on this issue but they are going to be in a research paper we’ll be releasing soon.

Comstock: Which public services would you cut, and what would you say to the people who currently depend on those services?

I’m afraid this Q&A is already rather long and a detailed plan for public services cuts would require it to become considerably longer.  For a good start take a look at the Bumper Book of Government Waste which details public service cuts that could be made without cutting front-line services.

Comments

[Reality check]

Contrast the long and thoughtful answers from Matthew with the brief and fence-sitting ones given by Shadow Ministers.

I actually believe that Ayn Rand would have approved of TPA. After writing "Atlas Shrugged" she recommended that Objectivists should support and join pressure groups rather than political parties.

I should have followed her advice, especially as the Conservative Party is now the party of Ellsworth Toohey rather than Howard Roark and John Galt.

[TaxCutter]

I agree. This is one of the most impressive sets of answers given, both in style and soundness of response. Matthew should be included himself in the response to ThatcherBoy's question!

[William MacDougall]

Impressive group and impressive interview.

I understand why Osborne does not want to promise lower taxes in the first year or two, or that they would be lower in every individual year. But why can't the Party promise lower taxes by the end of a Parliament? Surely that would be achievable, responsible, and popular?

[Michael McGowan]

Not when you have effectively promised that the taxpayer and only the taxpayer will pick up the (unlimited) bill for exploding healthcare costs of an ageing population for the indefinite future.

[outsider]

good questions great responses

[Comstock]

"good questions great responses"

Well he certainly dodged my question (but thanks go to Editor for including it).

I'm not doubting there is waste out there (just as there is waste in parts of the private sector) but surely any savings from waste should be ploughed back into frontline services.