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Building a Conservative Majority (8): Shock-and-awe tax cuts

By Tim Montgomerie
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Tax Take

In today's Times (£) I make the case for George Osborne to announce shock-and-awe economy-boosting tax cuts in the Budget. The economy needs them and I also suggest that the Tory Party needs them:

"Ed Miliband is much closer to becoming Prime Minister than many Conservatives realise. It took the Conservative Party 13 years to add 5 per cent to its share of the vote after John Major’s historic defeat in 1997. It took Labour five days. On the day that the coalition was formed, on May 11 2010, two million Britons abandoned the Liberal Democrats and walked into Labour’s arms. These people, generally on the left of the political spectrum, are unlikely to lend their vote to Nick Clegg’s party again — and certainly not if the Deputy Prime Minister remains as leader. Mr Miliband may be a very inadequate leader of the Opposition but, because of the vagaries of Britain’s electoral system, he’s within spitting distance of leading the largest party after the next election. The unpopular, unnecessary and unheralded Health and Social Care Bill could be the factor that gives him a majority."

To change the dynamics of British politics I suggest big tax cuts focused on (1) helping businesses expand and (2) helping lower income workers cope with these difficult times.

Almost everyone seems to think that taxes should be cut. Ed Balls has recommended unfinanced tax cuts. On the sensible side of politics there is the same enthusiasm for tax cuts but an understanding that there's no more scope for extra borrowing. David Laws, the Centre Forum think tank and some Tory MPs, notably Nick Boles and Mark Reckless, have recommended income tax cuts financed by taxes on the wealthy. Liam Fox has urged a cut in NI, financed by deeper spending cuts. Today's FT (£) argues that "imagination is needed to get the UK economy moving" and that there might be better ways of allocating taxes and spending to achieve this objective.

I urge George Osborne to embrace the prescriptions of both Laws and Fox and also to spend his better-than-expected January surplus. This would give the Chancellor enough money to deliver shock-and-awe tax cuts (a phrase I've stolen from David Davis) of the kind that will boost the economy and demonstrate in a powerful and not uncontroversial way that the Conservative Party is on the side of ordinary families - rather than the very wealthy.

I guess that financing tax cuts by deeper spending cuts won't be controversial among ConHome readers. Yesterday Paul Goodman called for a "Lower Spending Commission" to investigate ways of delivering a smaller state more quickly. On Comment today Lord Flight says faster cuts in spending are essential.  The Chancellor, he writes, "would be hugely ill-advised to assume that it will be easy to finance deficits of the size planned for another 4 or 5 years." "There is," he continues, "a powerful argument for the UK getting on with cutting public spending more aggressively, now, in order to avoid the risk of being forced into far harsher spending cuts later."

THATCHERMore controversial among ConHome readers will be my belief that we should increase wealth taxes too so that we can reach towards a pot of £25 billion for cuts in income and other more economically-harmful taxes. In my Times piece I say that Margaret Thatcher was the last Tory to rebalance the tax system and we should learn from her example:

"[Margaret Thatcher] was the last Tory Prime Minister to oversee a major rebalancing of the tax system. The motivation behind her decision to increase VAT and reduce income tax was that higher taxes on consumption were less of a disincentive to work hard, to strive for promotion and to take on another employee. The same motivation should encourage a shift from the taxation of income to the taxation of wealth — or, to put it another way, from the taxation of wealth creation and social mobility to the taxation of existing wealth and property."

A £25 billion pot could mean we could raise the income tax threshold to £10,000 immediately, introduce a tax break for married couples (which is more pro-poor than the threshold change), accelerate Osborne's cuts in corporation tax, lower national insurance and end the counter-productive 50p tax band. My conclusion:

"The Government would send a message to the world that it is creating a pro-enterprise environment. The Conservative Party would send out a message that it isn’t the defender of those at the top of the property ladder or fattened by bank bonuses in the boom years. It would be saying that the modern Conservative Party is the ally of the striver, the job creator and every family of modest means that has chosen work, not welfare."


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