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Matthew Elliott: Twice in eight months, the tax burden has been centre stage in British politics

Matthew Elliott is Chief Executive of The TaxPayers' Alliance.

Alistair Darling’s statement on the abolition of the 10p rate of income tax yesterday afternoon was a fascinating development in the ongoing tax debate. Having taken a battering for Gordon Brown’s decision to raise taxes on some of Britain’s poorest workers, the Government has finally been forced into at least partial retreat.

The Chancellor’s proposals are not perfect, and certainly don’t correct all the damage – raising the threshold by £600 will return 80% of those adversely affected by the abolition back to the financial situation they faced in March, whilst partially mitigating the losses suffered by the remaining 1.1million people. They do, though, mark an improvement on Brown’s original Budget. In essence, things for those on low incomes are better than they were yesterday but slightly worse than they were a month ago.

We shouldn’t let this moment pass, however, without noting the positives from this development, as it shows the growing power of the public’s opposition to the tax burden. Particularly good news is that it has brought the power of raising the threshold to the public’s attention. For years, the Government have sought to keep up the pretence that the poor can only be helped by direct intervention – an Emperor’s Clothes-like charade of insisting that more tax credits, benefits and public servants are the only answer to poverty. That is not the case, and today’s statement shows it.

Matthew Elliott: The 2012 Watchdog

Matthew Elliott is Chief Executive of the TaxPayers’ Alliance.

Five years from today, the torch for the 2012 London Olympic Games will be lit.  It is still unclear whether British taxpayers will have much to celebrate.  Over the last two years the initial excitement at winning the Games has subsided and is being replaced by a growing distrust of the entire project.

While a majority still support the 2012 Games, the number disagreeing with the statement “the benefit to Britain of having the Olympics here is well worth the money it will cost to stage the games” had risen by 9 per cent according to a Populus poll in November 2006.  Central to this growing disillusionment is that people are becoming increasingly aware of just how much they might have to pay.  87% of them expected the budget to rise; they may not have expected it to rise as much as it did (We will be re-polling these questions later in the summer. Watch this space!).

Matthew Elliott: Response to the Tax Reform Commission's proposals

Matthew Elliott is the Chief Executive of the TaxPayers’ Alliance.

Regular readers of ConservativeHome will know the difficulties the Conservative Party has been having with tax in recent times. We don’t think it would be unfair to say that the Conservatives haven’t really had credible policies on tax for a while. 

Lord Forsyth has gone a long way towards addressing this by producing an excellent new report from his Tax Reform Commission.  We would like to think this will form the basis of the Party’s policies on taxation in this Parliament (although George Osborne’s comments yesterday suggest this is far from likely). 

The TaxPayers’ Alliance would have gone further than the report in a number of areas, but we think that implementation of the report’s proposals – by any Government – would be an important first step in the right direction for Britain.

We welcome four proposals in particular. Firstly, reducing the basic rate of income tax to 20 per cent would save a taxpayer on average earnings around £300 a year. 

Secondly, raising the threshold at which people start to pay income tax by abolishing the starting rate would save most taxpayers a further £215 and would take around 2.5 million people out of income tax altogether.

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.

Matthew Elliott: Conservative strategy after the Pre-Budget Report

Matthew Elliott is the Chief Executive of the TaxPayers’ Alliance.

The Pre-Budget Report contained few surprises. Gordon Brown slashed his economic growth forecast to 1.75% from the Budget prediction of 3-3.5%. He revealed a £60billion spending hike over the next two years and he conceded that the government deficit will rise sharply this year to £10billion, nearly double his £6billion estimate in March.

From the Chancellor’s delivery, however, it was a Life of Brian performance. Crucified by his dodgy forecasts, he continued singing “always look on the bright side of life”, trumpeting his refrain of low inflation, low interest rates and record employment and predicting better times next year.

In the real world, the picture is not so rosy. The red tape burden is £40billion more than in 1997 according to the Government’s own statistics. Our increasingly uncompetitive corporate tax regime has pushed the economy from 4th to 13th in the global league for competitiveness. And, according to a new pamphlet by Ruth Lea, by 2007 average public spending per household will be £10,000 higher than when Labour took office, with precious little to show for it thanks to increased public sector inflation and falling public sector productivity.

How should the new Conservative leader respond to Gordon Brown and the Pre-Budget Report?

One issue that all the leadership contenders have agreed on is the case for lower taxes. There was some difference over how specific the Conservatives should be about their tax policy – with David Cameron talking about “sharing the proceeds of growth” and David Davis wanting a clearer “Growth Rule” to reduce overall public spending to 40% of national output – but all the candidates supported lower taxes in principle. This general economic consensus was in contrast to the protracted debate over social issues, especially drugs and 24-hour drinking.

In the late 1980s and early 1990s when the conservative movement in the United States was deeply divided by the Religious Right and split on issues such as abortion, Grover Norquist, President of Americans for Tax Reform, drew them together under the low tax banner. At his weekly Wednesday Meeting, liberal and social conservatives came together, unifying the conservative movement and focusing their fire on Bill Clinton’s Democrats. 

For the Conservative Party to succeed, they too need a strong conservative movement in the UK. After last year's Republican Convention, George Osborne noted in The Times how Bush used surrogates to attack his principal opponents. The build-up to the Pre-Budget Report has shown the start of an embryonic low tax coalition.

Politeia published an excellent pamphlet suggesting that the optimal level of public spending is 30-35% of GDP. (Even though spending currently stands at 41.8%, it is worth remembering that it was 37.2% as recently as 1999-2000)

Reform published an effective ICM opinion poll showing that 51% of voters think Mr Brown is an “imprudent Chancellor who has spent too much, so that taxes will have to rise”, against 41% who think he is still prudent.

And the TaxPayers’ Alliance organised a joint letter from sixty leading businessmen to the Daily Telegraph warning that Britain’s high corporate taxes were putting our competitiveness at risk and threatening public services.

This is in addition to Ruth Lea’s new paper for the Centre for Policy Studies cited earlier, the lobbying of the Confederation of British Industry and the Institute of Directors, and the effective work or many other organisations. 

However, to be effective, Britain’s conservative movement needs to be much wider than the ‘usual suspects’. There are many other groups that have an interest in lower taxes.

Environmentalists are currently concerned that businesses who invest in carbon-free renewable energy sources are currently taxed at a higher rate than those using systems such as Combined Heat and Power, which do emit carbon, whose energy systems are exempt from business rates.

The Royal British Legion is concerned that council tax increases are penalising pensioners. They have worked closely with IsItFair, the largest council tax campaign group, to campaign for a fairer system for raising local government revenue.

Poorer families also have a strong interest in tax reform. Leading accountants Grant Thornton have calculated that poorer families are paying an effective marginal rate of tax of 70%: 22% income tax, 11% National Insurance and 37% in the form of tax credit “claw back”. There is an opportunity here to show how a flat tax would help the most vulnerable members of our society by increasing the personal allowance and taking them out of income tax.

The importance of a broad conservative movement based on support for lower taxes cannot be emphasised enough. Britain’s Eurosceptic movement achieved the pinnacle of its effectiveness when the No Euro campaign joined forces with left-leaning New Europe, brought in the Green Party and the grassroots Democracy Movement and used celebrities to promote their message.

The next election will be fought on the economy and the new Conservative leader will take on Gordon Brown for his economic incompetence. Between now and then the new leadership will inevitably want to also discuss other themes, so it is vital that there is a strong low tax coalition to supplement their attack on Brown. The low tax message unites the conservative movement in the US and it can also do so in the UK. It’s the economy, stupid.