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Is Boris right? Should Osborne cut taxes?

By Tim Montgomerie
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Screen shot 2011-07-27 at 07.37.07

Telegraph story.

Boris has underlined his reputation as troublemaker-in-chief and guardian of a more conventional conservatism in the last 24 hours. On LBC London's Mayor called for cuts in National Insurance and the 50p tax rate to get Britain's sluggish economy motoring:

“You’ve got to look at ways of stimulating growth now, and certainly I think you should look at National Insurance, you should look at ways of stimulating consumption confidence in the market, and certainly I think that the 50p tax rate - as a signal that London is open for business, London is a great international competitive capital - when you look at all the other capitals where they have much lower tax rates in the end, and I think that’s the right direction to be going in, obviously."

This recommendation precisely matches the agenda of the TaxPayers' Alliance. Contributing to yesterday's Growth Manifesto Matt Sinclair said that lower NI was one of the best ways to boost growth.

LeunigAnd it's not just Boris and the TPA who favour tax cuts. Perhaps more interesting was yesterday's call for accelerated tax relief from an influential Liberal Democrat - albeit from the Orange Book wing of that party. On the Centre Forum website Dr Tim Leunig wrote:

"George Osborne cannot change his position – that would spook the markets. But he can accelerate sensible policies already announced. The best thing would be to announce a rise in the income tax allowance to £10,000 from next April. This is coming over the parliament anyway, so the cost of doing it early is relatively low, and it doesn’t have to be taken back as and when the recovery arrives. The 50p band falls into the same category, but cutting taxes for the very rich while the economy is in a mess is terrible politics."

I would be surprised if George Osborne takes this advice. Having largely rejected Laffer-style arguments for lower taxes and also Ed Balls' call for a VAT cut he will not want to do anything that increases borrowing. He does have two escape routes, however:
  • One which would be unpalatable to the Liberal Democrats would be to fund lower taxes with faster spending cuts.
  • Second would be to delay his budget reduction programme. At present Osborne is on course to hit his budget target a year before the end of the parliament. By bringing forward some tax relief measures he could still hit his budget targets but he'd no longer have that one year's wiggle room.

Something extra does need to be done. In the words of The Sun, Britain is, at present, "going nowhere, slowly".

> ConservativeHome's growth manifesto is updated with three more contributions this morning:

  • Open Europe recommends liberalisation in the EU
  • The Social Market Foundation advocates reform of the Competition Commission.
  • Third, Civitas proposes a more activist industrial policy including local enterprise banks.

Read them here.

10.30am Matthew update:

Earlier this morning, Boris took to the airwaves again, appearing on BBC Radio 5 Live's breakfast show to repeat his attack on the government's tax policy. However, this time, he struck a loyal note for the government, saying:

"I understand the politics of it, of course I understand that these are tough times. People on low incomes have been losing their jobs because of huge mistakes made by the banking sector and by politicians. So of course people will feel a sense that everybody has got to share the pain, and people who are lucky enough to have high incomes should pay. I completely accept that and that is why I think the government's policy so far has been broadly right and I support them"

Boris also praised the "incredibly good job" George Osborne is doing:

"The key thing to remember is the appalling mess the Chancellor inherited and I think George had done an incredibly good job in difficult circumstances."


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