Having just read a most thought-provoking exchange, The Great Tory Tax Battle: seconds out . . . in this week's Spectator between Fraser Nelson and Danny Finkelstein, two people whose insights I genuinely respect, I thought I'd add a couple of points that still need to be aired.
So here's what I wanted to say . . .
1. The difference between a funded and an unfunded tax cut is largely a question of time. That's because the private sector of the economy - except in a recession - grows faster and adds more value, in exports, human capital and tax revenue, than the public sector. Don't agree? Read this paper by David B. Smith. Give it more money and let it fly. I'm with Roger Bootle that we are in a situation that requires an increase in aggregate demand and "unfunded" tax cuts - "tax cuts now, financed by borrowing, to deal with recession, followed by future expenditure cuts, in order to deal with the deficit once the economy has recovered" - are the best way to do it. The true cost of additional short to medium-term government borrowing is not as great as the magnitude of the crisis we face. Government debt is much cheaper than private debt and if people choose to use their tax cuts to stave off reposession, make next month's payroll, top up their much diminished savings/pensions and generally recapitalize the financial system, then good.
2. A privatisation programme 2.0 undertaken by the next government will go a long way to meeting the cost of unfunded tax cuts today. Yesterday we learned that Alastair Darling is planning a string of "disposals" - a New Labour euphemism for privatisation - to help balance the books. This limited list of asset sales could easily be boosted by some big beasts; Channel 4, Network Rail, BBC Worldwide and last but not least, the Banks - when the markets recover, which they will. Someone should also be looking at how these privatisations can be leveraged with options - to be held by the government, to maximize taxpayer returns. The sorry example of the privatisation of Quinetiq last year where senior managers made £107m from £500,000 is actually quite instructive of what could be done, if a cash-strapped future government was so minded. For a recent primer on the possibilities of Privatisation 2.0, read this excellent paper by Nigel Hawkins published by the Adam Smith Institute.
3. We do not have to raise taxes. Robert Chote of the IFS argued yesterday in the Sunday Telegraph today that "Every pound that Alastair Darling gives away in his stimulus package tomorrow will add to the already large sum that he or his successor will have to claw back once the economy is stabilised". Wrong ! This clawing back argument with higher taxes is only true if you accept the existing size of the state, all of the functions that it performs and are ignorant of the fact that historically, the IFS's typically static calculations woefully underestimate the rapid crowding-out of private investment, household consumption and net exports which come from increased tax and spending. In public sector reform, we have yet to scratch the surface of uncontested government contracts regularly handed out to quangos, the high cost of locating so much government in Central London and the deflationary benefits of open tender competitions for vast swathes of government services.
4. Punks could only ever have emerged in Britain. To become a punk takes a certain willful individual disregard for received opinion, group think and enforced socialism of all kinds. I don't care for the genre myself, but if you want more successful, stubborn entrepreneurs who don't fit in and triumph against all the odds, people like Trevor Baylis OBE and James Dyson, you have to put up with the occasional punk !