Matthew Elliott and James Frayne on David Cameron's first 100 days: Tax

Over the last week ConservativeHome has hosted diverse reflections on David Cameron's first 100 days as Tory leader.  There have been Platform essays on the environment, the Tories and the working class, social justice and David Cameron's opinion polls impact.  Yesterday David Cameron wrote for ConservativeHome.  Today - in the final piece - Matthew Elliott and James Frayne of The Taxpayers' Alliance focus on the issue of tax.

Cameron’s first 100 days strongly suggest that the Conservative Party will not meaningfully campaign for lower taxes in this Parliament.  Given that the Party has made low-tax one of its key campaign messages for years, that’s a big step.

Cameron’s rebranding of the Party – above all in the briefing that accompanied the Built to Last document – has deliberately excluded low-tax from the new Tory brand.  The way the document was briefed to the media and the news stories that followed made it clear that the Party was “junking Thatcherism” and the things that go with it – including low-tax.

The TPA is disappointed the Conservatives are abandoning the issue of tax for two reasons:

• Firstly, we think the Party is wrong to have concluded that “you can’t sell low tax”.
• Secondly, we think that Britain is set to face a set of economic challenges that will make low-taxes vital to our future economic strategy.

Dealing with the first point, the reason the Conservatives have struggled to make the case for lower taxes is because they have spent the last ten or so years making a very narrow, economic case for lower taxes at a time when the economy has been perceived as doing well and when the Party’s ratings on economic competence had bombed after the ERM debacle.  In short, it’s been the wrong message.  Messages that “Brown is ruining the economy with his tax rises” were obviously going to fail.  (This does not mean the economic message cannot work.  If anything it looks set to become very powerful again but it clearly was ineffective throughout most of the ‘90s). 

Instead of making such a narrow case in the ‘90s the Party should have looked at the way George W. Bush made the case for lower taxes (in similar political and economic circumstances) ahead of the 2000 election.  Bush didn’t make a narrow economic case.  He made a personal and moral case for lower taxes in the framework of “compassionate conservatism”.  He said that he wanted to help make ordinary American families’ lives better by cutting their tax bill to give them more money to spend on their child’s education, on their homes etc.  He articulated the case in terms of how he cared about ordinary people.  Cameron could certainly have fitted lower taxes into his own “modern compassionate conservative” framework. 

On the second point, we believe that ruling tax cuts out will make it more difficult to deal with the unprecedented economic challenges of the 21st Century – or to put pressure on this Government to deal with these challenges. 

While Britain is used to dealing with competition from low-cost countries in Asia in low-tech manufacturing, increasingly Britain is having to deal with competition from these same countries but right across the board.  Emerging economic powerhouses like India and China are starting to challenge Britain in areas like high-tech manufacturing, financial services and so on.  These economies combine lower-costs with higher-skills – quite a combination.  We need an economic strategy that keeps costs down by keeping taxes low and regulation light.  If we do not succeed in this then Britain will face a period of sustained economic decline.  “Stability before tax cuts” is all very well but at a time when our tax burden is set to overtake the tax burden of Germany - widely viewed as the Sick Man of Europe – then all economic stability is going to mean is gradual but steady economic decline.

David Cameron is clearly a very effective communicator and some have even encouraged comparisons with JFK.  Cameron certainly has some of JFK’s star quality – the question is whether Cameron is prepared to follow Kennedy’s position on tax:

“An economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits… In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.”

Matthew Elliott is the Chief Executive of The Taxpayers' Alliance and James Frayne is its Campaign Director.

Comments

[Phil Taylor]

Congratulations to Matthew Elliott for the way he has developed the TPA and turned it into the formidable voice it is.

Whether DC wants it or not tax will be a huge issue because the supertanker of State spending will take years to slow down let alone turn around. All the State workers who have convinced themselves that they need top of the range salaries, big advertising budgets, hot and cold running secretaries and congenial offices are not going to reform themselves overnight.

Furthermore the nomenklatura does not even care that the spending is going on meta-activity not the real work of cleaning streets, looking after difficult young people and providing personal care to the very old. Too many mediocre graduates are chasing non-jobs while real needs are unmet.

You only have to look at the NHS to see that massive increases in spending just encourages managers to ignore financial controls and sluice money down the drain.

If we are going to make our way in the world we need two types of people: those that get out into markets and make money and those that look after the vulnerable and do so at a reasonable cost. If you are not in one of these groups you need to look at yourself and ask “what am I for?”.

[Wat Tyler]

We all understand the reasons, but this image-led Conservatism speaks so badly of Westminster politics. Because the economics are very clear- if we are going to meet that "Threat from the East" Gordo keeps going on about, we need much smaller govt and lower taxes (ironically govt spending is only c29% of GDP in India and c21% in China...yes, yes, not entirely comparable etc- but of course international productivity champ the US has a tax/GDP ratio nearly 10 percentage points below us).

[Donal Blaney]

As ever, I wholly agree with the TPA's take on events. If you or anyone else you know is considering giving a donation to the Party machine, give it instead to the TPA. As you can see from the TPA's work, it would be money well spent.

[Matthew Sinclair]

I completely disagree with this article's premise that the Conservative party under Cameron has given up on tax cuts. Sharing the proceeds of growth means a reduction in the size of the state as a portion of GDP and this clearly implies a significant difference between the parties (it has grown massively as a portion of GDP under Labour).

Besides, the comparison with Bush as saviour is economically questionable. He has cut taxes but has also massively increased spending. Most of his "progress" has come from massively increasing the deficit. If the taxpayer's alliance see deficit funded tax cuts as an achievement they need to look to the long term... these things do need to be paid back.

On the "stability instead of growth" question I posted on my blog:

http://sinclairsmusings.blogspot.com/2006/03/cameronomics.html

The question is which contingencies he is addressing; when is stability going to be endangered by tax cuts.

[PassingThru]

"Dealing with the first point, the reason the Conservatives have struggled to make the case for lower taxes is because they have spent the last ten or so years making a very narrow, economic case for lower taxes at a time when the economy has been perceived as doing well"

Absolutely Agree. Furthermore, the fact is the British electorate seem to think 'only the rich pay tax', whereas nothing could be further from the truth. They need to be convinced of the truth.

We must have one of the worlds least progressive direct personal income tax system, with effective marginal rates really only at 33 or 41%. The basic rate needs a big downward revision, and the allowance a big increase. Add in indirect taxes, and the bottom 20% pay 39.5% of their income in taxes, while the top 20%, just 34.2%. Its always seemed immoral to me the government defines the poverty line as 'below 60% of median earnings' yet proceeds to tax them from under £5000 - dragging them further into 'poverty'. Yet nothing is ever said of it.

[Michael McGowan]

A very astute article. Nothing is ever said about the tax burden on those on lowish incomes because you cannot tax and spend at the level Gordon Brown is taxing and spending (and Cameron proposes to tax and spend) without placing a heavy direct and indirect tax burden on the relatively low-paid. Jacking up higher rate taxes and corporate taxes will simply not get you to the tax yield you need, especially as high earners have above-average mobility and the corporate sector is working overtime to move jobs and functions out of highly-taxed, highly-regulated Britain. "Sharing the proceeds of growth" is an evasive mantra which can mean anything.

[Chad]

Why not focus on taxes that are so blatantly unfair, like the application of stamp duty? Why not promise to apply it fairly and progressively instead of apply the upper rate across the full purchase price? A simple way to show a little tax fairness.

If you or anyone else you know is considering giving a donation to the Party machine, give it instead to the TPA.
Good point Donal. I just donated fifty quid.

[Victoria Street]

"If you or anyone else you know is considering giving a donation to the Party machine, give it instead to the TPA."

Much as I have sympathy with the TPA, they are not putting up candidates in May's local elections, and therefore your money is better spent helping to ensure the election of Conservative Councillors who will keep the council tax down, keep service standards high and political correctness out of the picture.
Give to your local candidates and associations - get out there and fight for election, rather than e-bleating.

[Iain Murray]

I am so pleased that Matthew and James (who played such an important part in defeating the North East Assembly farrago) have made the moral case for tax reduction here. To my mind, the idea of allowing working families to keep more of the money they have earned is essential to modern compassionate conservatism. Why wouldn't we do this? Do certain people believe that the lower orders wouldn't spend it wisely? If that's the case, then we really have gone backwards. Reaching out to the working class, emphasising social justice* and reducing the tax burden are the three most important things we can do, in my opinion, to break through the polls' glass ceiling.

* Although I wish there was a better term.

[PassingThru]

Michael McGowan Said;

"Nothing is ever said about the tax burden on those on lowish incomes because you cannot tax and spend at the level Gordon Brown is taxing and spending (and Cameron proposes to tax and spend) without placing a heavy direct and indirect tax burden on the relatively low-paid"

Dang, and i always believed the Thatcher/Reagan argument that as rates go down revenues go up!
More seriously though, if you cut away Scotland, Northern Ireland and Wales (which, in my mind i frequently do!) spending in england alone as a % of GDP is in the region of 33%-35% iirc. That, hypothetically at least, represents a serious potential for cutting a large chunk of the poor out of income tax altogether, whilst maintaining their 'welfare state'. Oh how i wish Blair applied the 'no representation without taxation' ethos to his devolution of Scotland and Wales.
I guess nothing is ever said of this because conservatives are unionists, and the libs need the scottish vote. Never happen, getting scotland to be fiscally accountable/responsible, but in many ways i wish it would.

[Paul Hodgson-Jones]

Taking the poor out of tax altogether would be extremely popular with the (hard)working-class - and so make some inroads into a large chunk of the electorate which the Tories need to reach. Osborne should be truly radical here and propose scrapping Gordon's Tax Credits in their entirety - which would easily release enough cash to raise the tax threshold in stages to first £7.5k, then £10k then £15k by the end of the next Parliament.

It is abosolutely ridiculous that a full-time job at the minimum wage puts one into the second tax band of our three tier system.

[David Sergeant]

I just find it odd that all the brave tax cutters are yelling away when they think the Tory leader is against cutting taxes. (He isn't of course but I suppose the TPA have got to pretend he is to get donations.)

But I never heard a word from the brave tax cutters when Labour were going on about saving the NHS etc.

Why is it that so many "right wingers" seem happy to take on only the Tory party?

[Derek]

The case for tax reductions is strong and very well made in this article. I think it is a great pity that our party has given the impression that tax reduction is not a priority. I hope that this will change before the next election.

[Adrian Owens]

It is abosolutely ridiculous that a full-time job at the minimum wage puts one into the second tax band of our three tier system.

This is Gordon Brown's soft underbelly. We should be concentrating on radical changes to the personal income tax allowance and to the immoral tax credit system which imposes marginal tax rates of 69% on people earning less than £300 per week.

[John Hustings]

"Why is it that so many "right wingers" seem happy to take on only the Tory party?"

It's not a question of "taking on" the Tory Party. It is about discussing what sort of agenda the party should be advocating. Since "right-wingers" tend not to invest much hope in the Labour Party, they spend less time suggesting what policies they should be espousing.

[Richard]

Let's not forget the 82-83 billion pounds wasted by government every year!

[Yet Another Anon]

>>>>Since "right-wingers" tend not to invest much hope in the Labour Party, they spend less time suggesting what policies they should be espousing.<<<<
Surely the best thing is to espouse views and hope that they are adopted whoever they are adopted by (preferably of course by the party in power) and if that is by Labour, the Liberal Democrats, Greens, Conservative, UUP, DUP, UKIP, BNP, National Front, Muslim Council of Great Britain or whoever - the more the merrier.

[David Sergeant]

If "suggesting" is what was happening that would be great. Trouble is "taking on" is a better description. Frankly I worry that the result is to help the other parties. As an example, in the 1997 election James Goldsmith based his campaign on attacking the Tories, the most anti Europe party, and that must have been a help to the pro Europe parties who won.

The same thing is happening now, all the "tax cutters" said nothing (except lets cut more tax) until the Tory leadership expressed some reservations now the most low tax party is being "taken on". Frankly it is diffecult to avoid the thought that the low tax merchants are knowingly trying to discourage support for the Tories. Either that or it makes the loony left in Michael Foot's day look responsible.

[Phil Whittington]

I very much respect both Matthew's grasp of politics and policy and there is a lot of sound stuff in that article. Is not the Geroge W Bush comparison slightly flawed for the reason that Matthew points out?

While Geroge Bush made the "compassionate" case for tax cuts very early on, the Tory Party has been making the wrong case for a long time, and, perhaps unlike the Republicans, therefore needs to go through a period of regaining people's trust in the Tory brand - during which it must not say anything about tax - before it will be listened to properly. Only when people are ready to listen to us can we make a reasoned, logical case for something that is counter-intuitive and be trusted that doing so for reasons other than our own self-interest.

I really love the JFK quote and that pretty much sums up my position on tax, but unfortunately the public don't arrive at their voting choice by reason!

Phil Whittington