Do we need to raise taxes?

On this morning's Today programme David Cameron refused to rule out tax rises to restore the nation's public finances.  Speaking at 8.35am BBC Political Editor Nick Robinson suggested it was only a matter of 'when' the Tories would be considering tax increases.  Last week a former adviser to George Osborne recommended higher taxes.  Yesterday, ConservativeHome asked some prominent centre right commentators to answer the question: 'Do we need to raise taxes?'  These are four 'no' answers.

Oliver March Hartwich, Chief Economist of Policy Exchange:

"There can be no doubt about it: The economic prospects for Britain do not look rosy. Nor are the forecasts for the public finances any better. For the time that a new Conservative government may be elected, in 2010, economists forecast a budget deficit between £95bn and £150bn - or 6 to 9% of GDP. Deficits of such proportions are not sustainable beyond a very short period of time without causing considerable damage, so a new government should make reducing the deficit its first priority. But does this mean raising taxes? Not necessarily. The alternative is to curb public spending. That's why all big government projects (e.g. the costly ID card scheme or other big IT projects) should be put on hold. While this would not endanger public service delivery, it would nevertheless help the consolidation of the state's finances. Cutting such spending is the better alternative to increasing the tax burden in economically difficult times."

Matthew Elliott, Chief Executive of The TaxPayers' Alliance:

"Winston Churchill is not often quoted in economic debates, but one of his pearls of wisdom is very apt for the current economic circumstances. Churchill likened raising taxes to generate prosperity to standing in a bucket and trying to lift yourself up. If a new Conservative government tries this approach to plug the deficit, it will be similarly futile. Instead, the Party should be looking to cut spending to generate the funds to either cut the deficit or, even better, cut taxes. For example, scrapping Regional Development Agencies would save £2.3 billion. Freezing civil service recruitment as Margaret Thatcher did in 1979 and Oliver Letwin proposed at the last election would, after ten years, save £3.3 billion a year. Just think what cutting civil service numbers would save. When Ronald Reagan was elected President, he appointed the Grace Commission to root out wasteful Federal Spending. By the 1990s, it had saved the US taxpayer $10 trillion. Boris Johnson has appoint Patience Wheatcroft to root out waste, and is now freezing the GLA precept. The first announcement of a Conservative Treasury should be the appointment of a Waste Tsar to go through Gordon Brown's dodgy books with a fine toothcomb. Then they will find the money to plug the deficit (and, hopefully, cut taxes) without imposing extra burdens on already over-stretched households."

Oliver Marc Hartwich: Urban regeneration isn't working (but it can be better)

Dr Oliver Marc Hartwich is Chief Economist at Policy Exchange although he's about to emigrate for a new think tank appointment in Australia.  In this Platform he explains the argument of the urban regeneration paper that he edited and that caused such a storm earlier this week.

Ken Dodd, one of Liverpool’s funniest sons, has stuck to one dictum throughout his career: that the success of a joke is in the way it is told. Unfortunately, our recent urban regeneration research has been reported inaccurately, which has not been funny for anyone in the cities we mention who might benefit from its recommendations. We did not actually say that places such as Liverpool and Sunderland are doomed, just that they are not suited to everyone and the government should acknowledge that. As Ken said of Honolulu, ‘it’s got everything: sand for the children, sun for the wife, sharks for the wife’s mother.’ The problem with British urban regeneration policy is that successive governments of different political persuasions have spent billions of pounds on regeneration policies with the expressed aim of helping struggling cities to catch up with the UK average. Unfortunately, and despite at least £100bn spent on a myriad of policies over the past three decades, this promise has not been fulfilled.

While we are not denying that most (if not all) places are better now than they were, say, thirty years ago, this would not be enough to call regeneration policies a success. They would only be a success if those places receiving lots of regeneration funding were also improving faster than other places.

Whatever indicator you may wish to take, urban regeneration towns are still lagging behind the UK average – a gap that is actually widening. You are still less likely to get a good education in urban regeneration towns than normal ones, your life expectancy is dramatically lower and you are more likely to be on benefits.

But this is emphatically not a north-south issue. True, there are many places with renewal needs in the north. But there are also pockets of deprivation in the south. The difference between them is that because of their geographic location it may be even harder to regenerate places like Liverpool than places closer to Britain’s economic centre, which happens to be in the south-east.

A Government Worth Having... Needs To Increase Economic Growth

We asked a few friends of ConservativeHome to offer 100 word thoughts on how George Osborne might prepare to lift Britain's economy.  Our contributors didn't all keep to the word limit but their responses cover a wide range of economic policy angles.

Nicholas Boys-Smith, Consultant Director of Reform: "George Osborne is the most successful Conservative Shadow Chancellor since Geoffrey Howe. He has turned the debate on an iconic right of centre policy (inheritance tax), stymied plans for a 2007 election, prised open important new debates on tax complexity and green taxation and even managed to win the favours of the Prime Minister’s erstwhile mistress, Miss Prudence. Now it gets really hard. He has five key challenges;

1. Radically simplifying the tax system so that Britain is once again internationally attractive – merging National Insurance and aligning the accounting and tax systems would be a start;
2. Devising green taxes which can be implemented without increasing tax or complicating the system all over again – no easy task in the current climate;
3. Making sure that the Treasury can support the wealth of ideas now emerging to channel private funds and voluntary energy into mending our starkly broken society and benefits system (this means taking on debt and risk – again not easy);
4. Judging how many ideas to reveal in advance of the election (he needs substance) and how many to keep in reserve (he needs surprises and not all ideas will necessarily be election-winners); and
5. Perhaps hardest of all, devising the 200 day plan which will effect most of his programme – politics being the art of the possible and electoral honeymoons being short..."

Michael Fallon MP: "We will probably inherit public finances in their worst state since 1975.  The public are ready for honesty: they know that, like any household, government has to cut its costs and its borrowing. We can protect frontline public services but will have to be much tougher elsewhere: too many shadow ministers seem to assume that the current department budget is theirs to spend.  We also need to make in-work benefits more effective: tax credits are fine in principle but poorly administered and go too far up the income scale."

Mark Field MP, CentreRight contributor: "The Party needs to make a strong case for reduction of personal taxation paid by the lowest earners. I believe that far more attention now needs to be directed on the lowest paid in our communities. At the moment you barely have to earn £105 per week in order to start paying income tax.  Rather than institutionalising the complexities of tax credits, I should like the Conservative Party promote a system whereby no one earning less than £200 per week pays any income tax at all. Similarly by raising slightly the thresholds of those paying tax at the higher rate, the better-off in our society would not benefit from this long overdue extension of the zero rating."

Oliver Marc Hartwich, Chief Economist of Policy Exchange: ""How could an incoming Conservative government increase economic growth? On the one hand, of course, increasing economic growth should not be too difficult. If the experts are correct, there will hardly be any economic growth, maybe even a recession at the time of the next election.  On the other hand, and more seriously, these tough economic conditions require an adequate policy response. It is easy to say that Britain's structural deficit will leave little room for manoeuvre. True as this may be, the party should still find the courage to do the things that will make economic growth more likely in the long run: shrink the proportion of GDP that the state is consuming, keep taxes low, lower barriers to market entry by reducing regulatory burdens.  Conservative economic policy has always been best when it was economically liberal."

Andrew Lilico, Managing Director of Europe Economics and CentreRight contributor: "For an incoming Conservative government to increase long-term growth, I would recommend (a) the introduction of a robust price-level (average inflation) target; (b) enhanced use of market mechanisms in public services.  A price-level target would increase certainty over the long-term inflation rate, leading to more investment and less loss in inflation-proofing contracts, and hence to more growth.  Productivity growth in public services is very low, and so this very large portion of the economy contributes little to overall economic growth.  The use of more market mechanisms (especially on the demand side) would lead to higher productivity growth and more innovation, adding materially to the overall growth of the economy."

In the next part of this series, which will be published in a few days, we'll turn to foreign policy.