David Cameron called it "petty and spiteful" when Labour attacked the priviliged background of members of the Conservative leadership ahead of the last election, but apparently it's okay when a campaign backed by Phillip Hammond launches pretty similar attacks aimed at loyal party members. The adverts launched by the campaign supporting the proposed high speed rail (HS2) route yesterday - which Tim wrote up - seem to be based on the idea that Northerners hate Southerners so much they'll want a faster train line down South. Presumably so they can travel down, steal the bowler hats everyone wears in the Home Counties and make a faster escape.
Silly blue-on-blue attacks aside, the reality is that HS2 will be paid for by ordinary people across the country and benefit a fortunate minority. Passengers on the line are expected to be overwhelmingly from the top income quintiles. At a time when there are so many pressures on people's finances, and with long term fiscal pressures on the budget which mean we need to prioritise, it just isn't the right project. If the Government persist with high speed rail, it is going to become harder and harder to keep casting this as NIMBYs vs the national interest. It will become more and more clear that it is about a relatively small numbers of passengers, on what is already the fastest line in the country, going a bit faster at the expense of an enormous bill equivalent to over £1,000 for every family in the country.
It is great to see that Rob Halfon is launching a major new campaign on fuel prices, and has secured a debate in Parliament. He is absolutely right that they are a heavy burden, particularly in suburban and rural areas where lower population densities mean public transport networks will never be dense enough to constitute a convenient alternative to the car. There are a few points worth adding:
High rates of Fuel Duty can't be justified to try and address potential climate change. Our research at the TaxPayers' Alliance has found UK motorists pay almost £18 billion a year in excessive motoring taxes.
If the Conservatives want to fight for a majority, then they should look to bring down fuel prices. Back in March 2008 we looked at the census statistics and found that people in marginal constituencies were more likely to drive to work.
The political and economic case against high rates of Fuel Duty is compelling. Small and medium sized enterprises around the country, in regions like the Midlands which have had a particularly tough time in the recession, will welcome lower costs to deliver goods and services. The Government's cut at the Budget was great, even though sadly the North Sea tax that paid for it is likely to mean shooting ourselves in the foot, but Rob is absolutely right that it needs to be followed up with at least a freeze for the rest of this Parliament.
Ireland's economy lies crippled by the disaster of the euro. The bailout it has received is obviously not going to work, it just "kicks the can down the road" to give French and German banks some time at the expense of crippling austerity in Ireland. But it looks like Greece will default well before 2013. As Andrew Lilico has written recently, the European Central Bank itself may need a bailout, and we'll have to make sure that British taxpayers aren't asked to put more money at stake backing more bad debts.
With the scale of their fiscal crisis, the Irish are taking very tough measures to try and balance the books. Outright cutting pay for senior staff in the public sector for example, as we have recommended. There are two things they aren't doing though: hiking corporate tax rates or tobacco taxes. At the moment, it looks like they'll win their fight with France and Germany to keep their low corporate tax rate, and tobacco taxes are frozen. The reasons why a country with so much pressure on its finances isn't hiking those taxes are instructive, they hint at what a country like us, big enough to get away with making mistakes, should be doing.
Ireland's low corporate tax rate of 12.5 per cent has been a brilliant way of attracting foreign investment, boosting the economy enough that a lower rate means higher revenue. Acres of research, including a dynamic model that the TPA commissioned the CEBR to put together, show that the results from a cut in corporate taxes could be impressive, and quickly increase revenue. This is an opportunity that we are leaving on the table: in Ireland their leaders - normally such good Europeans - attach such importance to their low rate that they have fought a tough battle to keep it. The Government here are cutting corporate tax rates a bit, but they can go further and faster.
Rob Halfon has done so much great work for the conservative movement, standing up for Israel and to bolster the defence of free markets. At the election, the people of Harlow showed their appreciation for all the hard work he does there.
I think he made a mistake in his article yesterday on the unions though. I believe the source for his claim that union members “are eight times more likely to engage in voluntary work and give to their members” is the TUC report Unions in the Community: a survey of union reps. If so, he has misinterpreted the results.
The report actually looks at union reps, not members, and even the union reps aren't eight times as likely to engage in voluntary work. The report says that: "Union reps were nearly three times as active in terms of volunteering and more than eight times as active in terms of civic participation." Civic participation means political campaigns, for good and bad causes. Helping to organise an SWP anti-war rally would count for example. I don't think it would surprise many people that union reps are quite politically engaged. The most popular voluntary role was being a school governor and there is an obvious interest there in promoting the objectives of teaching unions, in particular.
Last week I wrote about why the Government should be trying to tackle crony capitalism. That way, they can show that they aren't in it for the rich. More importantly they can defend the vital quality of a free market: that you succeed by efficiently producing goods and services that other people value, not by winning political favour at the expense of others. Too many bailouts and subsidies have left that basic principle in a sorry state.
Unfortunately, the special interests have their hooks in deep. Yesterday Nick Clegg stood up at Climate Change Capital and announced two things about the Green Investment Bank, which the Government are putting £3 billion of our money into.
First, that it would be independent of ministers and set up under legislation. The idea is that insulates the bank from ministerial interference. In practice, I suspect it means two things. That a Government with more sense can't easily get the money sunk into the GIB back if it decides there are better uses for the capital. And, crucially, that it won't be subject to accountability through mechanisms like the Freedom of Information Act.
Today Mark Reckless is making a powerful case, outlined on ConservativeHome yesterday, for Parliament to decide whether it is acceptable for our money to be committed to eurozone bailouts. We should all hope he is successful. It is simply unfair that British taxpayers, who rejected the euro, should have their money risked trying to save it.
It is also unproductive, while the results of a Greek default could be dire, as Andrew Lilico has written for the Telegraph blog it is now a matter of when that happens, not if. And those bailouts are illegal under the rules that are supposed to govern the eurozone. All that means there are plenty of ways the Government can challenge the commitment of our money under existing bailout mechanisms, and refuse additional commitments.
We have set up a petition against eurozone bailouts so that more people can add their voices and call on the Government to reject them, and you can sign it here. Please sign it and pass it on to your friends and colleagues.
Tim's article this morning is brilliant, but I think his argument can be extended. He rightly highlights the finding in Lord Ashcroft's opinion polls that, like it or not, the Conservatives are still hamstrung by the popular belief that "the Conservative Party is for the rich, not for people like them." As he says, that is why robust welfare and education reforms are so vital for the party. For the 2020 Tax Commission project we are looking at how tax reform can fit into that picture as well.
Free schools are going well enough, despite some missteps, that previously implacable Labour opposition is starting to subside. Welfare reform is rightly popular. While the Government could go further, this video is a reminder for anyone who has forgotten the scale of the problems they are addressing.
Their proposition to the less fortunate is the most important part of winning the moral high ground, and addressing the perception that the Conservatives are the party of and for the priviliged. But some thought also needs to go into the other side of the equation. What about how they are seen to treat the rich?
At the moment, the political strategy seems to be essentially defensive. The party tries to accept any measure, like the 50p rate, that might allow Labour to start drawing dividing lines between its class warriors and Tory toffs. Even the wildly popular proposal to cut Inheritance Tax was sacrificed on that altar, though the public think the tax is deeply unfair.
There are two problems with that approach. First it means accepting policies that will be economically disastrous, such a disaster that they aren't in the interests of the poorest. People might want the rich to pay their share but do they want to pay more in order to inflict a higher rate on high earners, if the 50p rate loses money? Second it accepts the Labour advantage on this issue, even in the long run, and is limited to minimising the damage to Conservative fortunes.
I wrote about one way that the Conservatives might move forward on this issue before the election: Attack crony capitalism. Start to aggresively draw the distinction between people doing well by creating value and rent seekers. With so many bailouts and the recent final report on the MG Rover fiasco there are plenty of opportunities around to elaborate on that theme. Interventions in the economy from Regional Development Agencies to feed-in tariffs have produced plenty of opportunities for people to make a lot of money out of lobbying for grants and subsidies, instead of catering to consumer demand.
Suppose the Conservative response to the 50p rate hadn't been to accept it, but instead to say: "We don't think it is right or sensible that someone who works hard, and builds a business that employs thousands and provides a valuable services is treated the same as someone who has profited at the expense of the rest of us." That way defending against Labour attempts to paint the Conservatives as the party of the rich wouldn't mean accepting disastrous policy mistakes, but starting a fightback against the slide towards an economy where political favour counts for more than productive efficiency.
The Rally Against Debt was an incredible event. It was wonderful to see hundreds of people turn out to give a voice to that silent majority who know that cuts in spending are right and necessary.
It seems there are two reasons to run a rally, and why - contrary to Tim's suggestion - it would be worth doing again if the right opportunity presents itself. First raising awareness by attracting attention focussed on your message, not trouble on the sidelines. Second bringing supporters together to build camaraderie and an effective movement.
We definitely got attention. If you judge it just by the BBC website, this interview was on their front page and this report was the most viewed in the news section. There was plenty more coverage across a range of print and broadcast media. The Guardian even ran a poll about it.
The Rally Against Debt this Saturday promises to be a really great event. Hundreds of people have signed up to come along on Facebook (please do so here if you can make it) and hopefully others will join us on the day. It is being held at Old Palace Yard just opposite the Houses of Parliament. There are more details on the TaxPayers' Alliance website.
Matthew Sinclair is Director of the TaxPayers' Alliance. Click here to read his preview of the Budget.
Whatever Ed Miliband says, the story of the Budget is not the change in the growth forecasts. With the scale of the international crisis, and the generally stuttering nature of recoveries from financial crises, the revision isn’t much of a shock. As I’ve written before on ConservativeHome, we are having a pretty average recovery by European standards. We should expect to do better as a thrusting Anglo-Saxon economy, and there is a pressing need for a long term plan for growth, but the Budget forecasts aren’t the right test of whether the Government are getting that right.
There was some good news for those hoping to drive to work or take a holiday without getting a second mortgage. The straight cut in Fuel Duty is exactly what motorists need and is fair given how wildly overtaxed motorists are. Air Passenger Duty is frozen for now but it is important to bear in mind that aviation’s inclusion in the EU Emissions Trading System is coming soon and will mean flights are double taxed. Finally, the increase in the personal allowance is great and hasn’t been matched by sucking more people into higher marginal rates for once.
Unfortunately they are paying for all this in some quite ugly ways. Not the bank levy, that’s a bit of a distraction and makes little lasting difference to the tax burden on financial institutions. The biggest tax hike is the new floor on the carbon price. In other words, a £1.4 billion tax by 2015-16 added to electricity bills for families and struggling manufacturing industries. That won’t help rebalance the economy away from reliance on financial services and is a tax on the poor.
There is also the new tax on oil production. Do we really want to reduce the incentive to invest in the North Sea? When every bit of oil or gas extracted there doesn’t have to be imported from a fractious global market? George Osborne suggested this wasn’t a problem as it would be axed if the oil price fell. But even with oil prices this high companies need to decide where to invest more or less; the North Sea or Alberta or US shale gas deposits, for example. This tilts the balance against investment in the UK and domestic production.
Finally there is avoidance. We’ll see if they can get £1 billion by trying to limit it. They might think they have, but actually have just pushed people to different forms of avoidance, perhaps even to the avoidance strategy of last resort: leaving.
The pledge on national insurance was extremely vague. We didn’t get anything but a promise to consult on merging it with Income Tax, and even that was hedged with a promise to save the contributory principle which seems a little unrealistic. Some reliefs were abolished to reduce tax complexity but they were matched by lots of new fiddly sticking plasters.
There were plenty of measures to like in this Budget. The cut in corporate tax is most welcome and a good signal to investors. But the only really bold stroke was the cut in Fuel Duty.
George Osborne should be doing all he can to make things easier for ordinary taxpayers, who are particularly hard pressed at the moment. It looks like he will at least stall rises in taxation on driving to work or going on holiday, but those taxes should be coming down as Fuel Duty is wildly excessive and EU regulations coming in soon could mean flying is double taxed.
They also need to scrap gimmicks like the 50p tax rate that are designed to look like they are bashing the rich, but will actually lose money and result in ordinary people having to pay even more as a result. As well as lowering taxes, there is an exciting opportunity to simplify the tax system, so less time and money is wasted complying with the rules and taxpayers know exactly how much they're paying.
To make further spending cuts and ensure they aren't backtracking on necessary action to get the public finances in order, they should apply the same kind of fiscal discipline to those budgets that are still growing rapidly that we have seen in other areas. That would mean stopping big rises in some departments, like international development and the capital budget of DECC, and cancelling major new projects that aren't worth the money, like the high speed rail white elephant. There are opportunities for the Government to ease the burden on families if they really make that their priority.
Wednesday’s Budget announcement needs to set out a path for lower taxes and get to work creating the conditions for a proper private sector-led recovery. There has been talk of rolling National Insurance and Income Tax together. As well as making the system simpler, that measure would increase tax transparency and blow away the myth that the basic rate of tax is 20 per cent. But there are other measures the Chancellor could take that would help businesses in the recovery.
Yesterday the TPA released a Briefing Note on Empty Property Rates. Soon nearly all businesses will have to pay full business rates on an empty commercial property just three months after it becomes vacant, and six months later for an industrial property. Relief from Empty Property Rates was worth £1.2 billion last year and the Government is set to hit businesses – and savers – hard. Besides hitting entrepreneurs in the pocket, there could be other consequences. For example, instead of paying full business rates, landlords may be forced to simply demolish empty properties. This is a very real concern, and with high vacancy rates at the moment there’s a risk that Empty Property Rates will deplete the fixed capital stock, making it very difficult for businesses to relocate or expand as the economy recovers.
In opposition Conservative and Liberal Democrat politicians were scathing about Empty Property Rates, which were introduced by Gordon Brown in 2007. Michael Gove said that the removal of the relief was a “wicked and ungodly act”. Vince Cable called it counter-productive and economically damaging. Now in Government, however, they seem to have given up hope of doing anything about it, with Local Government Minister Bob Neill saying recently that it was unaffordable. But these rates could be disastrous for businesses, as well as pensioners and savers that have invested in commercial units as a means of income in retirement.
They’ll be clobbered by another tax while no revenue is coming in. That's the problem with this kind of tax. It also affects council tax on residential properties, which hits pensioners particularly hard as they tend to have quite valuable homes relative to their incomes (which fall in retirement).
David Cameron said recently that he wanted to take on the enemies of enterprise. His Chancellor should help him do that by Scrapping Empty Property Rates on Wednesday.
Just over a week ago, I tried to produce a list of those who have recently attacked the Government's proposals for a new high speed rail line. Even then the range of their opponents was striking:
"Campaign groups including the TaxPayers' Alliance (TPA); the RAC Foundation; the Countryside Alliance; and Friends of the Earth. Commentators including Simon Heffer; Peter Oborne; Christian Wolmar; Simon Jenkins; and the leader writers at the Financial Times. The Green Party "overwhelmingly" voted to campaign against the scheme, on the grounds that it won't cut emissions and has a business case premised on being a "rich person's railway" (both those claims are accurate)."
I'm sure that list was far from complete. It didn't count the dedicated campaigns like the HS2 Action Alliance, for example. But in a new letter to the Daily Telegraph we've helped to organise many more critics make themselves known. Signatories include Simon Wolfson, who co-chaired the Conservative Party's Economic Competitiveness policy review, and the former Chancellor of the Exchequer, Nigel Lawson, along with a number of other prominent business leaders and economic commentators. Many others will be familiar names to readers of this site.
They are "extremely concerned at the Government's plans to spend over £30 billion on a new high speed rail line"; argue that it "isn't what the economy needs"; and believe that there are better ways of boosting economic growth than "getting each family to pay over £1,000 for a vanity project that we cannot afford".
While it sometimes seems like the Government's mind is made up about this project, they are supposed to have just launched a consultation. There is no reason that can't be an opportunity for a rethink. With the range of groups and individuals opposing the scheme, they really need to consider taking another look at more affordable ways of getting the capacity the rail network needs. Or are they only prepared to consider changing the direction of policy when it means spending more money? They'll have a hard time achieving their admirable fiscal goals if that is the case.
The UK's print and TV news markets are clearly very different. The print news market is extremely competitive and products are highly differentiated in order to compete and find a niche in the market. The TV news market has only a few providers, and thanks to regulation there is a very limited set of ways they can differentiate their product.
Sky News and BBC News are different, but those differences are pretty subtle compared to the gulf between any two of the Mail, Sun, Mirror, Telegraph, Times, Guardian or Financial Times. Channel 4 and ITV's news broadcasts also look quite a lot like the headline broadcasts produced by the BBC. That isn't the broadcasters' fault. The market is much more closely regulated.
With that in mind, wouldn't the absolute priority - in responding to a proposed tie up of BSkyB and News Corp - be to maximise the number of strong competitors in the TV news market? If that was your priority, wouldn't spinning off Sky News so it has a less reliable cross subsidy from the rest of BSkyB and/or News Corp be the worst possible result in terms of media diversity? It would weaken a key competitor in the least diverse section of the news media. Undermine competition that should be keeping the BBC on its toes.
If Sky News is separated from the rest of BSkyB, even if it enjoys some kind of temporary assistance, then it has to be able to differentiate itself properly. Deregulating TV news so that we can get the kind of diverse offerings we do in the print media, even if there will still be formidable barriers to entry, would go from being a good idea to an absolute essential. Otherwise it is easy to imagine that in just over a decade Britain will only have one mainstream 24 hour TV news channel. For all that the reach of new media is growing, that would be a pretty dismal prospect.
I've been writing a lot about the problems with high speed rail. The project is huge so there is a lot at stake. Early last month the TPA released a research note looking at the flaws in the business case for HS2 from senior railway executive Chris Stokes. Since then we've been looking at the incredible cost of the scheme - at well over £1,000 per family including the "Y" to Manchester and Leeds.
That vast cost is why the Government's claims that it will create lots of jobs - the subject of our new research note out today - need to be taken with a whole bucket of salt. The first London to Birmingham stretch will cost £17 billion. Any investment on that kind of scale will obviously create work for some people. Spending that much erecting 20 foot tall solid gold statues of Phillip Hammond would create jobs importing the gold, casting it into statues and then putting them up. Burying such a massive amount of cash would take quite a few strong backs with spades.
We can't spend the money twice though; there is an opportunity cost to putting so much money into HS2. The vital question is how the 40,000 jobs that the Government expects to create with high speed rail compares with the number of jobs that it would likely create otherwise, in the public or private sectors. That figure is a bit spurious, as many of the positions are temporary, and it isn't the boon to the Midlands that it sounds like as most of the jobs are in London, but let's take it as given for now.
40,000 jobs from a £17 billion project means that each job is costing well over £400,000. By contrast, in the wider economy the capital stock is about £3.2 trillion and that supports over 30 million jobs; just over £100,000 a job. In other words, every job created by high speed rail comes at a cost of four jobs in the wider economy.
That shouldn't really surprise us. High speed rail is capital intensive, not labour intensive. It doesn't mean the new line is a bad idea in itself, there are reasons to make investments other than creating jobs, but it does mean the Government are misleading people if they try to sell high speed rail as a job creation scheme. And, with the rest of the business case collapsing, it further strengthens the case they need to cancel HS2.
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