Between the Rochdale incident and Gordon Brown's sheer contempt for the public, the press seems to have finally arrived at the conclusion most ConservativeHome readers reached some time ago - indeed even before the 2008 financial crisis in some cases - namely that we're in a serious financial mess. The fact that you cannot spend more than you earn indefinately is surely obvious; the fact that few seem to understand this simple truth is rather shocking; and the degree to which some will go to deceive themselves one of those great mysteries of political phychology. Thanks to Greece and the IFS however, the past month of election delusion in which politicians, media and the public acted as if nothing had ever happened, that bust was still boom, and that money grew on trees, has at last ended. Having touted their various political menus offering a range of lavish courses to the nation's ever hungry diners the truth that George Osbourne told them years ago has at last started to sink in - the cupboard is bare.
Britain is now in a situation rather like a loss making dot com company during the dot com crash, dependent upon ever more cash injection from investors hoping it eventually will turn red into black and never likely to do so. They called the "burn rate" what we call the deficit, but they at least could work out from that rate how long they had until the cash run out - we are instead ever dependent on gilt markets, and paying in interest rather than equity. Unless we demonstrate that we have a viable plan as a nation then we face our own Greek style tragedy. Why people cannot understand this I do not know - maybe it's nicer to delude oneself? - but in the next 7 days the seriousness of the situation and the sheer inability of a hung parliament to deal with it must be pressed home. After the election the proposals set out will in effect be our business plan, our pitch to the bond market equivalent of Dragons' Den. At this election and in tonight's debate we must ask the public one question: would they invest in a company run by Gordon Brown and Nick Clegg? I know I wouldn't.
* * * * * *
Looking through the Lib Dem and Labour manifestos I'm struck by something. The word "fair". It's everywhere! Everyone likes fair - it's fair, after all, who doesn't want fairness? It's up there with apple pie and Grandmars, and apple pies made by Grandmars; a thing that only the most wicked, evil, nasty person could dislike, surely? (Maybe best claim to be allergic). However the word fair is devoid of anything qualitative. "A future fair for all" doesn't mean a better future for all, or indeed better for anyone, and "Fairness that works for you" is equally vague about quality of outcome. Like equality, "fair" is a word that actually means nothing in physical reality. You cannot feed your family on fairness. A nation can be fair and wealthy or fair and poor, it can be equally rich (in theory) or equally poor (as regimes bent on equality always end up). This is not to say unfairness or inequality are good - they too are devoid of qualitative definition - but rather that these are bad things to base policy on. Quality matters more than equality. Blair was elected on "Things can only get better" - when a party moves from betterment to fairness and equality you know pessimism has taken hold and ambition abolished. It shows once again that only the Conservatives believe in a better and more prosperous future for Britain, the others just believe in a fight over what we have.
* * * * * *
One of the things I dislike about politics and the way we are governed is what you could term bad business practice. I believe the country should be run more like a business, a good business that's run to the maximum of its potential. Efficient, cost effective, forward looking, getting the best deal for the public. Looking through the Labour and Lib Dem manifestos I'm left stunned by the sheer madness of it all. They seem to be averse to all notions of efficiency and cost minimising; Labour indeed having identified £11bln of waste which they wish to keep, instead raising the jobs tax they call National Insurance to pay for it! Meanwhile the Lib Dems want to levy VAT on new homes, increase Capital Gains to 50% and remove higher rate pension tax relief. It's as if they've never even heard of the Laffer Curve and have no thought of their action's dire consequences.
If however the Laffer Curve's concept that lower taxation creates faster growth and ultimately more revenue is too difficult to sell to the public, or indeed unaffordable in the short term, that does not mean that revenue neutral tax shifts wouldn't be a good idea. The Conservatives already plan to cut Corporation Tax for example, funded by ending loopholes and special allowances, but why not go further?
The impact on our GDP of all forms of taxation could be analysed and measured in terms of damage done per billion pounds of tax revenue (after collection costs), and having this new measure we could easily weigh up what to use to raise revenue with the least impact yet what to cut to get the maximum increase in growth for the money. To cut where we get the most bang for our buck, funded by increases where we get the least drag. I don't have the data but it's fairly easy to guess parts of the order. Taxes such as Employers National Insurance make our labour more expensive, making our goods more expensive than foreign imports at home and less competitive as exports abroad - we're in effect helping foreign firms undercut British ones - putting it at the top of my list needing the chop. Indirect taxes by contrast tend to have far less impact, as Brown's daft VAT cut demonstrated. A revenue neutral tax shift cutting or abolishing Employer NIC funded by increased indirect taxation (not neccessarily VAT) could do wonders for manufacturing and employment.
Given our current financial state and dire need for growth the need for "smart taxes" based on minimising harm and "smart tax cuts" based on maximising growth is even more pressing. Will any government be able to though, knowing that such a radical shift of tax from business to indirect taxes would be controversial? For the country's sake I hope so.
