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.
