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Matthew Elliott: Conservative strategy after the Pre-Budget Report

Elliott_matthew_1Matthew 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.


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