Five ideas for Conservative tax and spend policy

Companies leaving Britain because of our nation's high and complex tax burden.  Anger over the 10p tax increase produces the biggest crisis of Gordon Brown's leadership.  Tax and the cost of living dominate the successful Tory campaign in Crewe and Nantwich.  The front page of The Mirror and thirty Labour MPs demand a tax break for motorists.  Labour MP Denis MacShane tells Telegraph readers that it's time to cut taxes and spending.  Nick Clegg claims that only his party is committed to reduce taxation for lower and middle income workers.  Professor John Curtice notes that support for higher taxes hasn't been this low for more than two decades.  PoliticsHome.com's 5000 panel finds that tax overtakes law and order in voters' list of concerns.  And, just today, The Independent's Associate Editor, Hamish McRae asks: "When times are tough, you spend less. Why should it be any different for a government?"

How should the Conservative Party respond to this changed environment?  The easy answer to that question is to stay doing exactly what the leadership has been doing.  A large opinion poll lead would appear to vindicate the current strategy but David Cameron has rightly warned against complacency.  Two years is a long time until the likeliest date for the General Election.  We can't take victory for granted and we can't assume that Team Brown will keep shooting themselves in the feet.  Most of all we need to think beyond politics and to the good of UK plc.

So here are five recommendations - some familiar, some new:

One: Don't renew the pledge to match Labour's spending.
Two: Promise we'll do for Britain what Boris is doing for London.
Three: Embrace deeper welfare reform and Iain Duncan Smith's social justice agenda.
Four: Promise to target tax cuts on the lowest income Britons.
Five: Abandon all schemes for 'replacement taxes'.

Taking each briefly in turn:

One: Don't renew the pledge to match Labour's spending.
We've been campaigning on this since the start of the year.  The IoD, the TaxPayers' Alliance, The Telegraph and Michael Fallon MP have been allies from the start.  But when a Labour MP and The Independent's Associate Editor start writing about the need for reduced spending you know that the public mood is really shifting.  Britain's tax and spend burden is hindering UK global competitiveness.  George Osborne's promise to share the proceeds of growth should have a related commitment to fair sharing of the proceeds of economic pain.  When UK households are struggling to make ends meet it's only fair that public spending growth is brought under much tougher control.

Two: Promise we'll do for Britain what Boris is doing for London.
Boris Johnson has made some inspired appointments since becoming London's Mayor.  Patience Wheatcroft and Cllr Stephen Greenhalgh are auditing City Hall and the new CEO of Boris' operation is esteemed cost-cutter Tim Parker.  If Boris can stop the rise in Londoners' council tax bills while still maintaining all essential services - as London boroughs like Westminster, Wandsworth and Hammersmith and Fulham have done - we can reassure the electorate that Cameron-Osborne will bring the same discipline to Whitehall.

Three: Embrace deeper welfare reform and Iain Duncan Smith's social justice agenda.
The agenda of the Centre for Social Justice is morally right, full stop.  It promises to keep families together and rescue people from drug addiction, homelessness and from educational failure.  A little while ago we highlighted six must-adopt ideas from Iain Duncan Smith's social justice report that have yet to be embraced by the Conservative leadership.  David Cameron's recent speech preferring a strategy of reducing the demand for government to the approach of the James' Report is exactly right (indeed Tim Montgomerie recommended exactly that new approach in an article for The Times in 2005).   The CSJ has given Mr Cameron the blueprint to reduced demand for government.  It's time to adopt it.

Four: Promise to target tax cuts on the lowest income Britons.
What happened in Crewe and Nantwich wasn't just traditional Tory voters coming home but 5,000 or so Labour voters coming over to us.  They came because of unhappiness at Brown and the 10p tax issue.  Can we use the next two years to make that crossover a more permanent feature of UK politics?  Can we deliver some sort of realignment by becoming the champion of low-paid workers?  A promise to make the recent increase in the tax threshold permanent should be a start of this realignment.  Let's not wait for Labour to make Darling's U-turn permanent.  Let's get on to the front foot.  Recommendation one above is essential to give us the flexibility for this and other moves.

Five: Abandon all schemes for 'replacement taxes'.
ConservativeHome had been sympathetic to the idea of replacement taxes (long unpopular with grassroots Tories) in the past but now is not the time to propose them.  Lots of people benefited from Gordon Brown's cut in the standard rate of income tax from 22p to 20p but their gratitude was overwhelmed by the anger of those stung by the abolition of the 10p band.  It's true that George Osborne's inheritance tax promise - paid for by a levy on non-doms - didn't follow this pattern but it's unlikely that there are many such easy tax targets to finance further cuts.  There is a real danger that voters will clobber any party that proposes any kind of tax rise at the next election.   Any reduction in family taxation needs to be funded by the control of spending, waste or by bigger reforms - such as to the Barnett formula.

Comments

[Robert McIlveen]

I particularly agree with number 4 - if we made cutting the tax burden paid by the lowest paid (and linked it to a freeze on JSA?) it would appeal to precisely the voters who carried Thatcher's governments into office but have deserted us since 1992: the skilled working class.

I would love to see the personal allowance rise towards the amount earned by someone doing a full week on the minimum wage...

[David Cooper]

Good thinking - I would suggest adding "and green taxes" after "abandon all schemes for replacement taxes" in point 5, to make it clear that our approach to environmental issues will be based upon incentives and not coercion.

[Alexander King]

Forget 1,2,3 and 5. Just print 10 million cards with 4 on them and hand them out all over the country.

4 has the potential to bring working-class people over to our side for a generation.

One of the abiding failures of modern Conservatism in the UK (unlike in the US) has been its inability to persuade working class voters that the Tories will benefit them financially. 4 could do that.

Any economist would tell you that it also makes a lot of sense for the economy as a whole.

[Vince]

Without 1, 2 and 3 we won;t be able to afford 4 Alexander but I'm with you on the power of 4.

[Tony Makara]

The public sector needs to be reduced significantly, whenever there is a serious problem with inflation public sector wages are going to be a flashpoint for conflict and the public sector has the ability to bring the country to a halt.

A radical approach is needed to tackle homelessness with greater support for voluntary bodies. Public buildings such as sports halls and civic halls should be used as sleep-ins, inflatable beds cost as little as 10-20 pounds and could be used over and over again and are easy to store. Sleep-ins would also serve as a way of collating information on the problem of homelessness and as a medium for giving advice to those without a roof over their head.

[Patsy Sergeant]

I think these are five very grown-up and thoughtful recommendations.

With the average person in Britain experiencing such enormous price rises at the moment, which is set to continue for the timebeing at least, the type of spending that Gordon Brown is so fond of, becomes a total turn-off, unless of course it was directed towards the 'average person' - which of course it never is!!

Again I think the average person is becoming very concerned about the amount of violent crime that is taking place in society these days, although the Home Secretary and government, in a craven way, deny this is happening. Probably, as a result of this 'knife anarchy', I think there is a ground swell amongst 'ordinary' people, who would be more than willing to 'get behind' some one like IDS and his Social Justice Agenda, if they could be guided and informed as to what they can do, or how they can help!

[David]

Proper public sector reform, with the potential for longer term savings and increasing consumer power, is most likely to require more money to start with. Further, IDS' recommendations may cost money to implement and monitor.
While I agree that the poor should be removed from taxation if possible, this will mean those at a much higher level of income should be required to pay more in taxation.

[Editor]

You are right David to warn about the short-term costs of IDS-inspired programmes. They'll require a lot of careful budgeting.

[Sally Roberts]

Re item 2 - I am sure that Patience Wheatcroft and the excellent leader of my local council, Stephen Greenhalgh might be able to apply their expertise on the national level once they have finished their work on the audit at City Hall!

[David]

I somehow suspect that two people may balk at having to audit the activities of a large number of national government departments employing a total of several hundred thousand people and with budgets totalling the hundreds of billions.

[David Belchamber]

"Any prime minister in office today would feel the voters' anger as they see their cherished plans to spend their own money as they see fit destroyed by rising prices combined with the insatiable greed of the state in all its manifestations to take the people's money for its own, often incompetent and counter-productive ends".

Which of our right-wing headbangers wrote that? As many will recognise, the author was not a right-wing headbanger at all but the Labour MP Denis MacShane. Can we soon hope to welcome him into the tory party, because that is exactly what we have all been saying about Gordon Brown's management of the economy for years.

As Tim points out:

"But when a Labour MP and The Independent's Associate Editor start writing about the need for reduced spending you know that the public mood is really shifting".

The advice Boris would no doubt give us, would be "carpe diem" or Shakespeare "There is a time and tide in the affairs of men ...etc".

Now is surely the time to be bold and do everything that Tim suggests above. That message is absolutely first-class and inspirational; it should become the conservatives' clarion call from now to the (hopefully early) election.

[David Belchamber]

David at 18.01:

"While I agree that the poor should be removed from taxation if possible, this will mean those at a much higher level of income should be required to pay more in taxation".

Of course you are quite right to suggest that this would be very costly. That is why (i) we must rigorously target government waste, (ii) we must phase in higher than inflation increases in the initial tax threshold over a period of years and (iii) there must be some compensating savings, not only from actual benefits payable but also from the huge bureaucracy involved.

I think that it might be necessary to raise more revenue from really high earners and I hope that this could be presented in such a way as to show them as partners in a major restructuring of our society which could make a lot of difference to low paid workers and pensioners. Under a tory government, it is to be hoped that they will do pretty well on balance.

[David Sergeant]

Given that Osborne has said he will follow Labour's spending plans for three years I don't see how it can be changed as general government expenditure. There are plenty of proposals calling for more expenditure (including redundancy costs!) and saying you will cut taxes without saying what costs you will cut will be seen as economically incompetent and politically naive unless Boris can demonstrate that "good housekeeping" works.

I thought Osborne promised to cut taxes on the low paid as a high priotity ages ago. Just because Clegg says he hasn't said it doesn't mean he hasn't said it.

[Goldie]

Nr. 4: Promise to target tax cuts on the lowest income Britons.

Is completely misguided. Lowest income Britons already don't pay a lot of tax.

This goes contrary to the established wisdom of supply-side economics. If you want successful people to stay in the country, and spur economic activity you need to cut top rates and offer middle class tax relief.

[Editor]

Ten more Labour MPs call for lower taxation.

[Sally Roberts]

David @ 18:22 - SuperPeople though both may be, I don't think anyone is contemplating Patience and Stephen doing it all by themselves!!

[Jack Stone]

Prtomise any of these and the party will lose.It will be playing right into Brown`s hands and he will once again start the old thing of Tory spending cuts and people will believe him
Any of this nonsense will simply undo all of the excellent work that as been done by David Cameron and his team during the last couple of years to make the party electable.
As for Boris. Can we really take seriously anyone who goes on holiday two weeks after being elected.

[Sally Roberts]

Admittedly it doesn't look good, Boris taking off on holiday so soon but be fair Jack - it is his children's half term and he has been working incredibly hard over the last few months to get elected. Everyone needs a break - he'd be no good to anyone collapsed with exhaustion would he?

[Richard]

The only problem with four is that if it is restricted to those on lower incomes it won't help those on average or even higher incomes who have to face rising living costs. The answer is of course to increase the threshold for paying tax, thus benefiting all taxpayers.

We should also aim to slash corporation tax to deter businesses from relocating elsewhere.

[Miranda]

Where is the one that talks about encouraging business investment and entrepreneurship? How are we going to recover?

Where is the one on Europe - silly question I know but its lurking in the background?

Where is the one on population? To avoid competition for resources, and preserve the environment.

[Paul Marks]

Point One - agreed.

Point Two - it is too soon to judge what Boris Johnson is doing. But if he does things like get rid of the corrupt London Development Agency, then agreed.

Point Three - welfare reform yes, but "social justice" is a term of the left (if means "distributing" income and wealth according to some scheme - rather than the traditional notion of justice which is to each their own) and no amount of double talk by us can take the "social justice" away from the left or make it compatible with the traditional notion of justice.

Did F.A. Hayek, M.J. Oakeshott, Antony Flew (and so many others) write in vain?

Point Four - cutting taxes on the higher rates of income tax (or on such taxes as Capital Gains Tax) can sometimes produce more revenue, but cutting the taxes that fall directly on the poor very rarely does. So any plans for tax cuts for the poor must be backed up with plans to resist government spending increases.

Point Five - agreed. Cutting one tax (or getting rid of a tax) is pointless if one increases a tax (or introduces a tax) in order to "pay for it".

[Malcolm Dunn]

No. The first priority should be to reduce the crippling level of borrowing that this government has indulged in. Massive savings are going to be needed for that alone. Mrs Thatcher used to talk of 'sound money', she was right.

[Sammy Finn]

If (1) is done Malcolm there is room to reduce borrowing and taxes. Licks lips!

[Adam Johns]

We need to find a way of making remaining on benefits a less attractive option than taking on work. This can be done through eliminating taxation on the category of jobs most likely to be taken up by people coming off benefit.

The effect of the roughly equal returns from working and staying at home is to depress entire areas of the North, Scotland and Wales way beyond the effect on the individuals concerned. Whole areas like Merthyr and Aberdare can take on a malaise resulting from the perverse attraction of "going on the sick" compared to taking a job.

Welfare reform and the related taxation policies is something Labour (apart from Frank Field) never had the guts to tackle. Let's be different.

[Graeme Archer]

more or less 'yes' to 1-4; but a resounding 'no' to 5, at least from day one. Mrs Thatcher initially moved taxation from income to spending, and we should do the same again, shifting taxation from income to pollution.

[nimblehippo]

can i get an aaaaaaa-men!

[Nick Gulliford]

Patsy Sergent writes, "I think there is a ground swell amongst 'ordinary' people, who would be more than willing to 'get behind' some one like IDS and his Social Justice Agenda, if they could be guided and informed as to what they can do, or how they can help!" I don't agree with the Editor, who suspects "the short-term costs of IDS-inspired programmes [will] require a lot of careful budgeting." Much of the work already being done now in relationship education is entirely voluntary. What is required is for each Conservative controlled local authority to publish a policy for Domestic and Social cohesion. It should list what programmes it is publicising to support it and what measures it is using to evaluate them. Many more volunteers will emerge - as Patsy Sergent suggests - when they appreciate what they can usefully do and how their efforts will be assessed. Later, money will flow in the direction of the successful programmes.

[stephen hoffman]

what about looking at flat taxes , this would make the tax system much simpler and mean everyone would know what they would be paying for and could budget for it .

[Edward Huxley]

The party doesn`t seem to have a coherent policy on taxes. In my local paper this week spokesman Philip Hammond says "High level taxes are beginning to damage Britain`s competitiveness" and "we can re-establish sustainable prosperity with lower taxes..." Yet only a few weeks ago he was on TV and in the national press saying no tax cuts until 2014. George Osborne said he would match Labour`s spending and David Cameron came up with the crackpot idea that mothers and fathers should take six month`s paternity leave.

As the Red Indians used to say in the Westerns; "White man speak with forked tongue".

[Terry]

Definitely get rid of the Barnett formula!!

[John Lish]

I think that 4 is the most important philosophical change that the Conservative Party could take.

The threshold for when taxation starts should be based on the minimum wage. If you take the current level and use the current definition of the minimum hours that define full-time working (30 hours a week) then the point of when taxation starts would be approx. £8,900 for this financial year. So use this formula when taking office is likely to mean that the start point for taxation is around £9,500

Personally, this should be done in the first budget of a conservative administration. Then increase this level by 5% above inflation for each subsequence year in office. This would send a powerful signal to the country.

So how would this be paid for? Partly by adjusting the 40% tax threshold downwards; abolishing tax credits and their associated administration costs; freeze the minimum wage level; and the most radical idea - abolishing Jobseekers Allowance and Incapacity Benefit and replacing it with a Single Working Age Benefit (SWAB).

Why would SWAB bring savings? Because it wouldn't be mean-tested. Not mean-testing would allow the dismantling of the parasitic DWP. We waste billions on all the associated costs for paying people a pittance (£3,000 a year) and worrying about fraud and the black market. Yet the disproportional taxation on people leaving benefits for work remains - they pay more tax than those on the higher tax bracket.

Our current system stops people returning to the jobs market on a part-time basis as well. Why? All this does is stop economic activity. A non-means tested benefit would help employers and stimulate the economy.

Link SWAB to the tax system and claimants of SWAB can start paying the benefit back proportionately (say 30p in the pound to keep the incentive for working) once they start paying income tax.

We should be more worried about economic inactivity than anything else.