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Edward Leigh MP: The downtrodden taxpayer should receive the proceeds of growth

Leigh_edward_mp Edward Leigh is Conservative MP for Gainsborough and Chairman of the Public Accounts Committee.  With John Hayes he leads the Cornerstone Group of Tory MPs.

Now that the dust has settled over Gordon Brown’s Budget, the Conservative Party should recognise that it has the greatest opportunity in a generation to champion the case for lower taxes.

Of course, I am well aware that we have fought the last two elections on a promise to cut taxes.  The scale of our proposals was modest – only £4 billion or about one per cent of total taxation under Michael Howard in 2005.

But that did not stop Labour running its well-tried and tested big lie that the heartless Tories were planning to shut half the schools and hospitals in the country so that they could fatten the wallets of their rich friends.

Brown’s Budget has changed all that. By reinventing himself as a tax-cutter, Labour will no longer be able to advance its moronic but plausible argument that you cannot cut taxes without putting doctors and nurses on the dole.

What is sauce for the goose is sauce for the gander, Gordon. If you can unveil a 2p cut in the basic rate of income tax without putting schools and hospitals at risk, so the Conservatives can come forward with their own ideas to ease the pain of a tax burden, which is now as high as it was in the 1970s when Denis Healey was making the pips squeak.

Fortunately, David Cameron has not turned his back on tax cuts. He has spoken of sharing the proceeds of growth between higher public spending and lower taxes. It is a perfectly sensible formulation. The only issue is who gets the lion’s share.

I believe it should be the downtrodden taxpayer and that efficiency gains, also accepted by Brown as a legitimate source of revenue, should be used to safeguard service delivery in the front line. My fear is that the Conservative Party, badly scarred by its failure to make headway last time, will make the mistake of fighting the last war and commit itself to a relatively feeble programme of tax cuts, all but indistinguishable from those of a Brown-led Labour government.

I believe we need to be big and bold in our tax-cutting ambitions and that we should exploit the mistakes made by Brown in scrapping the 10p starting rate of income tax and thereby clobbering the poorest people in society. He has increased the amount of income tax paid by millions of people earning less than £15,000 a year and left them with only one recourse – to join his army of state supplicants and fight their way through the undergrowth of his virtually impenetrable system of tax credits – not claimed by 40 per cent of those eligible.

This is the moral case for low taxation. Under our cock-eyed, unfair system, the poorest people pay the highest tax. According to the Office for National Statistics, the poorest fifth of households pay 36.4 per cent of their gross income in direct and indirect taxes, compared with 35.6 per cent for the richest fifth and 35.3 per cent for households on average earnings.

Brown may be gloomily wondering why both he and the Labour Party are increasingly unpopular with voters. Is it because he has never met the Arctic Monkeys? Is it because Tony Blair’s evasions over Iraq and the award of peerages have turned the Labour brand toxic? Is it because our public services are hopelessly mismanaged? Could be. But it could also be because the combined effects of tax rises and higher prices are leaving people worse off. Real disposable incomes are no higher now than they were four years ago, according to a study by tax lawyer Charles Elphicke published by the Centre for Policy Studies a couple of weeks ago.

But there is also an economic case for cutting taxes. Low tax economies are successful economies, generating growth, jobs and revenues for the Exchequer.

To take a couple of examples. Ireland has transformed its economy over the last 20 years, achieving average growth of 7 per cent from 1992-2005 – roughly three times that of the UK. Aggressive cuts in personal and business taxes have driven this so-called economic miracle. Corporation tax has been reduced to 12.5 per cent and personal taxes have been slashed from a basic rate of 35 per cent 20 years ago to 20 per cent today.

Australia has followed a similar course, slashing tax rates, achieving GDP growth of an average 3.6 per cent over the last decade, and eliminating the chronic budget deficit of the pre-1996 era.

Socialist pre-conceptions about tax-cutting are wrong. Lower taxes equal faster growth and more money for vital public services such as health, education and crime-fighting. Our international competitors are cutting taxes; we are moving in the wrong direction by raising taxes. As the OECD has noted, the UK’s tax burden has increased by 3.2 per cent since 1997. There is also a political case for cutting taxes. Opinion polls are consistently showing public support for reform of the public services and reductions in taxation. For instance, an ICM survey for The Taxpayers’ Alliance found that nearly 60 per cent of people believe that if Britain reformed public services and cut waste, taxes could be lowered without having to cut spending on vital services. Over 70 per cent of people believe that taxes have risen and that we are not getting value for money from public spending.

Gordon Brown has levelled the tax and spending playing field. We should now outflank him with a bold tax-cutting proposal designed to help the low paid.

We should aim to take around 14 million low paid people out of income tax altogether. This could be done by tripling the personal tax allowance to £15,000 in today’s prices – which would also mean raising the top rate threshold to £47,000. Such a change should be phased in over the lifetime of a future Conservative government and could be paid for without cutting public spending or increasing borrowing.

Over a four-year period the cost of such a proposal in lost revenue would be about £44 billion. We could balance the books by holding future overall spending increases to inflation rather than the 2 per cent increase in real terms envisaged by Labour. On top of that, we could use efficiency gains from our bloated and wasteful public sector to produce real increases in priority spending areas such as health, education and law and order.

Much like 1979, we are at a tipping point in the tax and spending scales. To help the low paid and keep our economy on track, we should share the proceeds of growth this way.

Comments

First rate blue-sky thinking. This will take people who fall below the government's calculation of the poverty line out of the tax system (60% of average earnings being about £14K). We need to couple this with a Clinton-style incentive system to end the benefits trap.

Just one problem with the presentation of this is that most voters know Brown's "tax cut" was not a real tax cut.

indeed, the problem is that the tax take actually will rise due to Brown's last budget. I don't think he's called it a tax-cutting budget.

Canmeron won't listen to Edward Leigh, of course, but this sort of policy would make a Conservative government worth electing.

Its a good idea. Cornstock ignores what is proposed and just plays the man.

Its a sensible idea, unfortunately not in line with Tory policy so unlikely to see the light of day, but at least its out in the open for public debate.

I've deleted comstock's posts for being personal and offensive.

Brilliant analysis.

The main problem with socialist thinking is the assumption that there is a fixed pie and politicians decide how to cut it. In fact lower taxes can increase the size of the pie, creating larger slices.

I've deleted comstock's posts for being personal and offensive.

I notice you don't say 'personal and offensive and wrong'.......

What you posted was unfair, cornstock. Why do you express distaste at the decision to delete those messages? You knew they werent going to stay up.

Everyone believes in freedom of speech until it affects them...

I don't want to fall out comstock - I normally enjoy your comments - but bad language and personal attacks contravene this site's comments policy. Please attack Edward Leigh's views but not him personally. I will now delete ALL OTHER COMMENTS on this thread that are off subject.

I don't want to fall out comstock - I normally enjoy your comments

Thank you for saying so, but I cannot and will not agree with your decision to give a platform to this man....regardless of what he is proposing......

Great article - but for this argument to gain real plausibility the leadership would need to push DC's original budget reponse line that the Chancellor was able to cut taxes and share the proceeds of wealth instead of the tax con line. DC and co. may well revert back to this once they have succesfully tainted the chancellor as being a dodgy spinny bean counter. But would this approach risk being perceived as disingenuous?

I agree with Mr.Leigh's proposals, the conservatives must argue the case for lower taxes, drastically lower taxes (in the region of 50 billion pounds) to put clear blue water between them and the socialist centre-left parties. Ideology is important. You need to have a clear set of principles to guide you in government. You either believe in low taxes or high taxes, big government or a small state, personal responsibility or state intervention. What do you believe in Mr.Cameron? I still don't know. Let's have some ideas please and put Labour on the back foot.

Super article.

Edward Leigh's tax cuts are just what I, as a traditional Tory, want to hear. No one earning less than £10.000 a year should pay tax at all.
It is interesting that the cost of £44 bn is only what it costs us to be shackled to a dying, backward-looking, over-regulated and corrupt European Union. If we sought associate status as Norway, Switzerland and Iceland have with the EU, we could afford this in one year. Better Off Out!

I'm not sure that publishing this in the middle of election campaigns is helpful, Mr Editor.

I would like to point Alan S in the direction of Hammersmith & Fulham where promises of tax cuts led to the council turning Blue for the first time in many years.

Are Conservatives supposed to pretend to dislike tax cuts during election campaigns?

Well on paper it seems a great idea and if enacted would I suspect guarantee a COnservative government with a big majority.What I fail to understand is why something similar has not already been proposed if it was all so easy. I'm not an economist so cannot really judge as to how realistic Leighs plans are.
Two other thoughts occur. If these plans can be enacted so easily it would be tempting not to look for areas to cut spending. This should not be allowed to happen. We need to identify areas of waste and pledge to cut them before the next election because it is the right thing to do.
Secondly there are certain areas of public expenditure (ie defence) that will probably need to be increased significantly before any tax cuts can be considered.

Excellent article. One way to sell the policy of tripling the personal tax allowance, assuming that joined up thinking on our part tied this in with root and branch reform of the Brown tax credits system, might be along the lines of "Labour have made your lives a misery - time to call a halt." It would also be consistent with a more general approach of being seen to disclaim the Blair legacy.

Freeing millions of people from involvement with the income tax system would itself be a boon, and even more so if they could also be freed from involvement with the appalling tax credit system. Nobody ever takes into account the time spent assembling the information and filling out these forms, plus arguing over
the phone with a succession of incompetents who can't even key in the correct number of children, or agree among themselves what is required. If all the time wasted by taxpayers on jumping through the hoops of an over-complex system was properly costed then I suspect it would come to an immense sum, plus of course there is the more visible cost of the extra Inland Revenue staff.

Great stuff and I wholeheartedly agree, but consider the politics of this.
Contrary Edward's assertion that Brown's 2p tax cut has put to rest NuLabs very effective attacks on tax cutting, Brown and his cronies will again portray this as a £44Bn cut to public services. They will count the number of schools n' hospitals 44Bn equates this to and very effectively claim that to finance the 44, these will have to be cut. It will require huge political courage to hold such a policy prior to the election and will be extremely politically risky.
Isn't it better to offer smaller, token and symbolic cuts to signal our intentions, and then once we have reviewed the NuLabs cooked books in government offer some real cuts that are fully costed and implementable and that we can afford without giving NuNuLab any opportunity to claim we are damaging public services?

However I think Mr Leigh should also think in terms of de-aggregating "earned" and "unearned" income, with a separate personal income tax allowance for the latter to encourage saving. At present most people who are in a position to save will automatically be hit with further income tax on any savings they set aside from already taxed income, unless they confine themselves to the absurd special schemes so beloved by the various vested interests (Treasury, Inland Revenue, financial services industry).

Brilliant.

These tax cuts would be good for the economy and help the poorest most (sensible AND compassionate conservatism) and you can be 100% sure that the Blairites in charge of our party will reject them.

Of course, you could do this and deflect the criticism of spending cuts by increasing the top rate to compensate, and then promising to reduce the top rate as we get to grips on public expenditure.

MikeA's point is well made, and has many a precedent in the "bleeding stump" tactics of socialist authorities forced to spend less - they won't trim off the fat but they'd rather hack off a limb. It's going to take the courage to show up the "which schools'n'hospitals are you going to close" argument as yet another Big Lie, and perhaps the further courage to counter this by speaking of what wasteful public sector bodies will be abolished and how many outreach liaison co-ordinators will be made redundant.

Excellent idea because it benefits everyone, not just those on low incomes. A tax cut aimed solely at the poor would carry the risk of failing to enthuse middle class swing voters in marginals.

"Of course, you could do this and deflect the criticism of spending cuts by increasing the top rate to compensate, and then promising to reduce the top rate as we get to grips on public expenditure."

That could shaft us in the South East. The Lib Dems' commitment to a higher top rate in 2005 is one of the reasons they failed to make the gains they wanted.

Raising the top rate won't net you anything like enough to offset this kind of cut. If you want the City to start offshoring even faster than it is already doing, go ahead and raise the top rate. Surely the better point is that it would be fairer and more efficient to take the low-paid out of tax than to tax them and then hand back that tax in the form of tax credits and benefits? In fact the miserly Brown doesn't even manage to do that: he relies on lowish take-up of his means-tested tax credits in order to boost his tax take from the low-paid.

"That could shaft us in the South East."

Tricky, isn't it.

"Raising the top rate won't net you anything like enough to offset this kind of cut. If you want the City to start offshoring even faster than it is already doing, go ahead and raise the top rate"

I don't particularly. But if you cut the intake of taxes, you are going to have to cut expenditure. And the question is whether this level of expenditure cut is indeed possible without causing to much damage to services and whether the marginal increase in economic activity caused by the cut will be enough to lessen the 'pain' (the curve works both ways-while you can improve economic growth by cutting taxes at a certain level, you will get to a point where there is no increase, just as raising taxes above a certain level results in a decrease in the overall tax take).

"Surely the better point is that it would be fairer and more efficient to take the low-paid out of tax than to tax them and then hand back that tax in the form of tax credits and benefits?"

I agree wholeheartedly. But I'm also realistic enough to accept that doing so may, at least in the short term, mean that the burden of taxation falls on those who can pay, and thus may require a rise up top. If this results in too much of a loss from the City, then it may be that we can't take as many people out from the tax system as we'd like.

And while I'm against tax credits on the principle they make people to reliant on the staet, they do have the interesing positive of targetting state monies away from the feckless.

Sounds Easy. Great idea for a second term Conservative Government - but we need to win one election first.
Public sector employees are understandably suspicious of any mention of tax cuts because they believe their jobs are more at risk from us than from anyone else. We should remember that most people vigorously oppose any cuts in services and huge numbers of our fellow citizens get their living, directly or indirectly from public funds. We need significant numbers of their votes as well as those of our traditional supporters if we are sincere about wanting to form the next government.
Talk of actually cutting waste is so old that no one takes it seriously anymore. The public would be more supportive of pusuing more savings if they were reinvested in areas still crying out for important spending, such as Defence and Law and Order.

Increasing the top rate would not be a good idea- it would be too easy to portray it as a Brown-style giving with one hand and taking away with the other.

However, the Leigh proposal could be made cheaper by making no commitment to raising the threshold for the top rate other than keeping it in line with wage inflation. There may be a cost-related rise in that threshold which could be justified (eg presumably HMRC has statistics for the income levels of those who it has sent out tax returns to and who it has subsequently decided need only complete the short form version- I'd expect there to be a salary range where the majority of higher rate payers in that band have been reassessed as not needing to fill out a full tax return- removing the administrative requirement for such PAYE employees would be a big benefit and involve a cost saving).

Whatever happened to flat tax proposals? Oh well, another day, another fad.

Interesting but woolly article, and very short on the specifics. Just what size of a lion's share is Leigh proposing for his income tax reductions? 60%? 100%? Indeed, given his assumption of freezing spending in real terms, is there any sharing of the proceeds of growth going on at all?

I note he skips over one of Ireland's chief attributes rather quickly - a very low rate of corporation tax. Indeed, corporation tax (as shown in Ireland and Finland) can be very fast to pay back it's cuts. But Leigh doesn't tell us if his plan has any cash left over to do this.

And then we get to the real rub - extra spending will be financed through that magic answer: efficiency. However, it's quite disappointing that the Chairman of the Public Accounts Committee was unable to outline how large these savings might be, or give any examples for us. Given the implementation of Gershon right now and the failure of the James review to find very much Leigh will have to forgive me for being extremely sceptical.

Finally, I'm surprised that Leigh has managed to ignore the calls on government spending - not least the armed forces crying out for much needed injections of cash.

Leigh is right, Comstock is a cretin, CCHQ are a bunch of timid pussies and if we had anything like a proper oppostion party at the moment any bleating of cuts to public services from Labour would fall on deaf ears. We have not been NEARLY as aggressive as we should have been over the NHS debacle. Gerry Robinson on the telly had more impact in a couple of nights than the shadow health brief in two years. Hewitt should have been a casualty months ago.

David, I think I was suggesting that the "expenditure" you would cut would be tax credits. These are just a way of recycling tax already collected back to those who paid that tax, so what is the net loss? I am not clear why tax credits are a better way of targeting money away from the feckless than cutting tax on earnings.


The longer that the Conservative Party dithers over any real commitment to reducing taxation and regulation, the louder and clearer the message to business that the way forward is to offshore. You don't need to go to India. You can stay within the EU and transfer financial services jobs to Ireland and Eastern Europe where tax and other costs are much lower and the workforce better trained.

Comstock is a cretin

If 'f**kwit' is out of order and worthy of deletion, so also should 'cretin' be, since they both mean basically the same thing.

This article is bonkers. At a time when hospitals are being closed down, the pensions system is in crisis and our infrastructure crumbling, this type of monster tax cut is just not sellable on the doorsteps.

In the LibDem-Conservative marginal that I campaign in, people want to see investment in public services and our hospital kept open (which is going to require money). In the last year canvassing, I have never had someone ask for a monster tax cut

Whilst I wouldn't disagree with any of the substance in Leigh's proposals, this is the kind of grandstanding and sudden tax-cut announcement that provides an open-goal to our opponents.

It allows them to change the subject from their appalling lack of investment in the armed services, their spectacularly failing PR war against the Iranians, and cirsis in the MOD to exploiting the public's fears by misrepresenting us as public service neglecters or the "same old Tories".

Breaking from the leaderships hymn sheet isn't going to deliver election wins Mr Leigh. He ought to allow the case for tax cuts to be made gradually and in good time prompted by a mandate-holding leader. Leigh's recent public shows of disloyalty are begginning to become a serious problem. Of course, ContinuityIDS are only too happy to provide him a platform.

I find it incredible that times are so desperate that no Minister was prepared to defend the Government's behaviour over the Iranian PR war yesterday on Newsnight, but Gordon Brown (the one with a divine right to be PM) turned his back to the camera when he was asked about it without prior arrangement by the BBC.

"Leigh's recent public shows of disloyalty are beginning to become a serious problem". Loosely translated as: we can't have proper debate in the Conservative Party ....only vacuous soundbites and spin authorised by a CCHQ in thrall to the left. We will be waiting a very long time indeed, probably generations, if we leave it to NuLabourLite to make the case for a reduction of the tax and regulatory burden.

Msimpson must be innumerate if he thinks that an income tax cut paid for by cutting tax credits paid to the selfsame taxpayers is either a "monster tax cut" or a recipe for closing his local hospital.

The general suggestion is very welcome. Is it worth instead reducing the tax rates given that the marginal tax rate is meant to be the biggest influencer on economic growth, rather than keeping the same marginal tax rate but with a higher personal allowance. Potentially a better policy would be to both raise the personal allowance but not so far and cut the 20% and 40% tax rates to reduce the marginal tax rate to try and achieve more growth.

Leigh's premise is good, but his analysis lacks rigour. His example of Ireland cutting taxes to stimulate growth is a poor one. From the 1980's Ireland operated a separate tax regime at the Shannon Free Port and later in the Dublin Docks, initially offering 0% tax rates to qualifying comapnies, later rising to 10%. This was a very attractive to companies in certain EU companies to hold assets with minimal management in Ireland or to build screwdriver factories where there was minimal value added but the factory fell within the EU (benefitting from relevant tax treaties) and was not treated as an offshore tax haven. For example a German computer manufacturer would put all of its European leasing business in Ireland, where its profits would be taxed at 10% and repatriated to Germany as a dividend on which no further tax would have been paid because it came from an EU country not a tax haven. The 30% or so of taxes saved justified the extra inconvenience of administering the business from the far western edge of Europe, but without the tax breaks, it is doubtfull the business would have been put there.

Under pressure from the EU, Ireland raised its tax rates for these companies to 10%, and since they remained popular, the revenue to the Irish exchequer increased. In fact it increased to the extent that it far exceed the tax receipts from the rest of the Irish economy so that when the EU told the Irish that their split 10% and 35% rates were harmful tax competition and the differential would have to go, the Irish government worked out that they could equalise the rates at 12.5% and raise the same revenue.

The conclusion is that dropping the tax rate made Ireland more competitive, but the reality was that it only made it more competitive compared to nations that were prepared to lose some tax revenue for the sake of EU unity / trade benefits. If every country in the EU had dropped their tax rates in the same way there would have been no net economic growth. Such a policy works for a small country like Ireland, Belgium or Luxembourg surrounded by larger countries that will react slowly against such behaviour, but it is not a viable strategy for a large economy like the UK.

The true benefit from tax cuts arises from the reduction of overheads and administration and the ability to make economic returns from a wider range of businesses.

Thank goodness for Edward Leigh.

The real voters know that their hospitals, schools, police and refuse service are each less efficient and more expensive because of the Blair/Brown government. Voters of every generation want to keep their money or, if it is to be taxed, not to have it wasted for them. They can only do something about it by electing a government that will do less better.

The Cameron proposition offers no reduction in nationalised industry and needs more money for green wheezes. So far there has been no good reason for them to prefer a Cameron government to the one they have already. The exquisite voodoo of media marketing might get us elected, but it misses the point that Mr Leigh has so clearly grasped.

Mr Leigh is half way there, with the wraith of Howard Flight reminding him of the trouble he might be getting himself into. Actually to persuade the downtrodden taxpayers they will really keep their money, we need Mr Leigh’s fellow parliamentarians to be brave about eliminating the costs for which these taxes are being taken. A Conservative government has no better reason to staff and manage hospitals and schools than any previous government did to run the fuel, power and transport industries.

There is still time for our current leadership to think not of the media but of the voters.

Mark Williams, 13.32, excellent summary. Plus 2% or 3% of Ireland's GDP is EU-subsidies.

People should be able to keep as much of their hard-earned money as possible, with taxes being used for things that the state should provide such as law, order and defence, or has a role in, such as infrastructure and front-line services. As Mr Leigh says, it must be possible to cut taxes while improving front-line services by cutting waste. And someone suggested on this thread that leaving the EU could help fund tax cuts.

I can understand that “lower taxes equal faster growth and more money for vital public services such as health, education and crime-fighting.” However could cutting taxes too fast lead to too much money in the economy, and the Bank of England raising interest rates to control inflation?

Particularly welcome is that Edward’s Leigh’s proposes to cut taxes for the low-paid following Gordon Brown’s tax raid on them. But of course Mr Brown doesn’t mind putting up taxes for the low paid, because he then can increase benefits and claim to be helping the worse-off, while all the time increasing dependence on the ever growing and dominant State. Better to let people keep more of their money in the first place.

Gordon Brown’s tax increase for the low-paid, plus the fact that voters are likely to be more aware of waste (to the extent that Labour’s increase in NHS spending has brought redundancies among medical staff and threatened ward, A&E and maternity unit closures) might make it harder for opponents to sustain accusations that we would cut taxes for the rich and cut essential services. But I can believe it is still the case that hospitals, crime, etc are still of more concern to voters than the need for tax cuts. Therefore I think David Cameron is right to emphasise our commitment to public services.

Mr McGowan, you're being extremely unfair. Surely you accept that to be taken seriously by the electorate any political party must appear united. Edward Leigh is welcome to make his reservations known privately to the leadership and gauge support for his ideas, but all too often he has shown a reckless tendency to express his opinion publicly painting us as a divided opposition.

'In the last year canvassing, I have never had someone ask for a monster tax cut

Posted by: msimpson | April 11, 2007 at 12:41 '

I can honestly say I have. I think you're either a member of the Labour Party or you live in cloud cuckoo-land.

Quite why people receiving an income under £10k p.a. should pay tax I know not. VAT collects most of it.
As for waste of >£700M spent on street lighting half is wasted and is a nightmare (unwanted pun) for astronomers and plays havoc for wildlife.

"If 'f**kwit' is out of order and worthy of deletion, so also should 'cretin' be, since they both mean basically the same thing."

Agreed, although cretin has always been one of my favourite words.

"I would like to point Alan S in the direction of Hammersmith & Fulham where promises of tax cuts led to the council turning Blue for the first time in many years."

Hammersmith and Fulham's Band D Council Tax was 12% higher than the average for Inner London. It's not accurate to directly translate local priorities into national priorities.

How interesting. A UKIP policy being recommended by a Tory MP. Finally they're talking some sense.

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