A very political tax policy

The other day we described the Tory policy on tax as economic disarmament - conceding at the same time that the policy might work politically.  The Conservatives believe that neutralising Labour's fifteen year long advantage on economic competence (plus their traditional advantage on the NHS where we have also 'disarmed') might be enough to persuade voters to be tempted to vote Conservative - because we have other attractive policies on crime, welfare and schools, for example.  George Osborne has decided that the lesson from last year's inheritance tax cut isn't that tax cutting is necessarily popular again but that a relatively inexpensive but well-targeted tax cut can have all the political advantages of a much larger tax cut without the danger of being accused of wanting to slash public services etc etc.  All this does, we concede, amount to a credible political strategy.  It will only work, however, if we are hare-like in other policy areas.  Over at The Spectator, James Forsyth agrees.  Winning the next election remains a big ask.  Voters unhappy with Labour need potent reasons why they should choose us rather than stay or home or vote for 'that nice Mr Clegg'.  We still believe that a low tax policy can work electorally but respect the politics of George Osborne's position.

But if the Tory policy on tax is politically understandable it remains wrong for the economy.  On Monday Danny Finkelstein had fun pointing out that Margaret Thatcher wasn't the big tax cutter that Ben Brogan and Stephen Pollard had suggested.  She was a tax reformer, he noted.  Putting aside the obvious question as to whether George Osborne is anything like as seriously committed to tax reform as the Iron Lady we are left wondering whether comparisons with Margaret Thatcher's time are besides the point.  The real issue is comparing Britain's tax burden with those our competitors today.  In 2001 the combined corporate and income tax rate across major economies was 32.5%.  It was 4.1% lower at 28.4% in 2006.  Britain's rate stayed flat over that period at 30.0%.  In a difficult global economic environment stressed businesses are likely to be  more and more sensitive to advantages that they can gain by moving to lower tax jurisdictions - like Yahoo!.

Matthew Sinclair, Policy Analyst at the TaxPayers' Alliance, told ConservativeHome:

"Britain has done extremely well out of cuts in corporation tax in the past and could see huge returns from moving towards Irish rates today.  Other countries have learned that lesson just as we appear to have forgotten it."

Comments

[Andrew Lilico]

Why would it be electorally smart to seek a no-score draw on the economy? Isn't the Labour Party vulnerable? Or is the concern that if we attack too hard, then we will be seen to be revelling in human misery if the economy goes very badly? (I think of Portillo on Thursday evening saying that the Conservative High Command hopes for a recession.)

[Laffer Curve]

Not only are the Torys holding to Labours high tax, high borrowing policy, which is wrecking the economy. The Torys are offering absolutely no other solutions to get the economy moving...quite the reverse, they are proposeing the kind of touchy feely interference in Companies, that drive owners mad.

So not only are they discarding all orthodox thinking, which has been proven to work time and again, they are offering absolutely no new thinking either.

The correwct impression given by such an aproach, is that they haven't the faintest idea of what to do, or how to do it.

[Dave B]

I seem to recall a panel discussion programme where it was suggested that the new 'green taxes' angle was just going to be the PR for moving taxes to consumption, rather than income. How's that for tax reform?

[Northernhousewife]

Remember how 'investment' was the buzz word before 1997 how toxic 'Tory cuts'.?Yet Labour promised to match the spending restrictions in the short term, so as not to scare the voter but with an underlying expectation that that would not always be the case.
It made sense then and it still does.