'The Treasury will struggle to afford tax cuts but one thing is far more certain: the economy can’t afford tax rises'

We reported on David Cameron's big economy speech earlier and mentioned Cameron's unwillingness to rule out tax rises.  There is a real fear within Team Cameron that Brown will follow a scorched earth policy over the next two years and the Tories will inherit truly dreadful public finances.  The IFS are already warning that tax rises may be necessary.  We've just noticed Benedict Brogan's blog...

BB's headline: Cameron opens the door for Tory tax rises

BB's conclusion: "The golden economic prospect Gordon Brown inherited in 1997 was built in large measure on the fearsome tax rises brought in under John Major to restore health to the Exchequer. Necessary, but politically terminal. Mr Brown is unlikely to return the favour, which is why Mr Cameron and Mr Osborne must be viewing the prospect of power with some trepidation."

Will we have 'Tory tax rise' stories in tomorrow's Mail and other right-leaning newspapers?

Mark Wallace of the TaxPayers' Alliance has just provided us with this quote (our emphasis):

“The Conservatives may think the Treasury will struggle to afford tax cuts but one thing is far more certain – the economy can’t afford tax rises. Seeking to plug holes in the public finances with tax rises will simply hobble the already wobbly economy further, harm confidence on the high street and put more people out of work and onto benefits, further worsening the financial situation. Sizeable savings can be made by getting rid of unnecessary quangos, freezing civil service expansion and radical public sector reforms. Tax cuts – or even rebates along the American model – would give the economy a shot in the arm.”

[What Cameron said on Today, when asked if tax rises might be necessary: "I hope that won't be the case, because I think we do have more responsible spending plans. Government always has to do what is right to safeguard the public finances. The tragic thing now is that at this point in the economic cycle what the Government ought to be doing is cutting taxes and giving a fiscal stimulus to the economy. They can't do that because the cupboard is bare and borrowing is so high."]

Comments

[Steve]

Ironically, difficult economic conditions may make it easier to more ruthlessly abolish quangos, staffing in government departments and overall pubic sector employment levels.

It can be done and should be done. Bring it on.

[Alan S]

Today's speech wasn't methinks so much about the Chapter 11 idea but to signal that we are entering the most difficult economic time since the Conservatives last followed a Labour govt.

[chrisblore]

I'm going to leave the Chapter 11 stuff to one side for the moment because I think that's a potentially very dangerous and controversial policy on so many levels and I doubt that will ever see the light of day under a Conservative government to be honest.

On the other hand, I'm glad to see Cameron is being quite sensible in refusing to rule anything out at this stage. We have seen in the past how promising tax cuts can be misunderstood and spun by our opposition to mean cuts in public services. The simple fact is, when the next Conservative government comes in the public finances are going to be in an absolutely diabolical state and that is the gamble being taken by Team Brown at the moment. The likelihood is any Conservative government is going to be severely limited by the dreadful state of over a decade of economic mismanagement by one of the most incompetent and over-estimated Chancellors this country has ever seen and it is important that we manage the expectations of the electorate beforehand. A second term Conservative government will be the time for fundamental change but for now, the priority must be to steady the ship and ensure that we have a base from which to build.

[brian]

Agree with Steve (12:08), this will just mean that govt. spending must be reigned in quickly and tightly.

However there is no need to stand idly by and watch. They should be highlighting any scorched earth policy and make it quite clear where the blame lies.

[Richard Calhoun]

The state of the economy already is screaming public spending cuts, by 2010, when no doubt the tax take will be even higher than now it will be even more desperately in need of public spending cuts.

Tax cuts cannot be considered until this nettle is grasped.

Cameron and team must take the opportunity to make radical changes to the tax system at that time.

Top priority must be to take earners under £15000 p.a. out of income tax.

[Oberon Houston]

The current CSR07 (Comprehensive Spending Review 2007) expires in 2011, after the date of the next election. It has a spending growth assumption of 2%pa, half of the previous figure of 4%. In '07 this was 0.5% below the real trend of growth in the economy, so the aim was to push down borrowing.

The economic situation is deteriorating however, on 16th June this year the CBI lowered its growth forecast from 2.1% to 1.7%, so obviously the fiscal deficit will grow unless spending cuts can be found. This will be difficult as there is now severe pressure on public sector workers who are getting 2% pay deals as inflation is soaring, meaning that their standard of living is falling now, as is the case with many private sector workers.

Whichever way you look at it, its going to hurt, but reducing taxation is not the way to go. Just as the proceeds of growth are shared, the same should occur the other way, part taxation increase, part public sector cut.

Who is to blame for this unsavoury situation? Gordon Brown. In the previous CSR, just before the last General Election, he tactically set growth in public finance at 4%, and used this to attack the Tories for setting it at 2.5%, calling it a £32bn cut – remember? If we had won that election and implemented our spending plans, we wouldn’t be in this mess. This is the reason why his popularity ratings are worse than Major, Foot or anyone else for that matter, people trusted him to do the right thing, and he cheated them to get one over us. I’m (rightly) not allowed to attack personalities on this site, so I’ll stop there.

[Robert]

Chris,
Sadly, you are wrong. The first term is the time to be radical, every government loses what little radical zeal they have by the second term when the comfort factor creeps in. Structural reform needs to happen and soon.

[Michael McGowan]

I said it months ago: the Tories are very likely to put up taxes, not least in part to show that they have "changed". That likelihood is all the greater because Cameron has committed himself to Labour's bloated spending plans even though the economy is in serious decline.

[Richard Calhoun]

Cameron has committed himself to Labour's bloated spending plans even though the economy is in serious decline.

Posted by: Michael McGowan | July 15, 2008 at 12:46

I think we can forget this commitment by Cameron, it just isn't going to happen.
Even Labour is going to have to delay public spending increases, sadly they have neither the wit nor the courage to come up with radical spending and tax cuts.

We must rely on Cameron et al to provide that solution.

[Oberon Houston]

I think Cameron committed to the current CSR07 target of 2%, which ends in 2011 actually fellas, and is actually not the problem - as I said, it was the previous one that has caused the damage. Back in your boxes... GO ON... inside... properly!

[David_McD]

This is beginning o look like 1929 – 31. Last time we had a general strike, a Fleet mutiny at Invergordon and a rise of the British League of Fascists.

This time, it may be more complicated because of the EU (which will inhibit the action of which government in power) and because of recent mass immigration.

[Oberon Houston]

Hardly... and anyway, don't think the EU will complain about us cutting out budget deficit - France sees it as an unfair underhand advantage!

oh ha ha ha....

[Michael McGowan]

Oberson, which Labour spending programme has Cameron committed to reverse/cancel?

[Paul D]

IMO, Cameron WON'T commit to cutting spending yet - he's probably worried about the issue of Letwin (2001) and Flight (2005) where talks of cutting spending and taxes were seized on by Labour as evidence of how we'd destroy public services within 8 minutes of being elected

I suspect our spending plans will stay very close to the chest, not so much because of the oft-used line "we don't know what state the books will be in" but rather as to not give Labour any ammunition to use against us in their election campaign

I remain confident that the next Conservative government WILL cut taxes

[Gordon's Missing Bottle]

There is a risk the Conservatives may get flak for key cuts. I think within a Cameron honeymoon period, there needs to be a swift and high-profile "unmasking" of the real legacy of Labour so that Conservative improvements are demonstrable. Things like calculating the costs of final-salary pensions for public sector workers. Produce a figure (which I'll call the LPI, Labour Profligacy Index), stick it on a website or on a board outside Downing Street and label it "Labour's legacy of debt."

Just as, to this day, Labour are terrified of being seen as too close to the unions, future governments must also be terrified of ever mortgaging our future in such a way again. The pin must be stuck on the donkey squarely, permanently -- or else 10, 15 years down the track Labour will get in and start another empire on credit, knowing the political heat in terms of taxation will come under a Conservative government.

[christina Speight]

Why does nobody deal with his a c t u a l speech. I watched it live 3 1/2 hours ago!

Cameron has boobed on this. The only thing he said that rang a bell was "a "full blown plan for economic recovery" is needed. Well we’re waiting !

The Taxpayers Alliance is spot on and Fraser Nelson completely demolishes any case for the Chapter 11 provisions. which only serve to keep failed companies in business, dragging down the economy and costing jobs

[Iain]

"This is beginning o look like 1929 – 31."

What has surprised me is the complacency of the British establishment to what is staring them in the face. At every point in this economic crisis I have been astonished by the apparent ignorance of our politicians to what is happening, who seem to be something like 6 months to year behind the event. People always like to compare markets to past events and make a comparisons, which is wrong, for all situations are different, but I can't help but feel there is something about the 1929-31 which makes you concerned for what is happening now, for it wasn't just the 1929 crash that was the problem, but that the rot kept spreading through the economy for a decade afterwards. Even by 1942 NYSE stock market volumes were still falling and it wasn't until 1949 did a new market bull run begin. Now look at our stock market , the market put a high in 2000-1 but hasn't achieved new highs since, 8 years on from the DotCom bubble and we still haven't put in new highs, other markets did, but not ours, and as to the current situation you just feel that they haven't go ahead of the dry rot that's spreading in the economy. So far we are just talking about a credit crunch, but this has got to feed into other structured financial products, and into the insurance industry.

[snegchui]

Quangos. In a discussion on these on a thread a few months back, no-one seemed to challenge the assumptions:
(a) Nobody knows how many there are?
(b) Duplication seems to be abound, Quango says this, Quango B says that. What should we do?
(c) They seem to very unaccountable and a useful tool for bypassing the Civil Service Departments.
The end result is duplicated payments for the sameish work and anything but joined-up govt and unaccounted millions propping up an amorphous edifice that consumes wealth.

A nice little answer is let some wannabe Conservative Researchers loose on each Civil Service Department, and investigate the Quangos for which they are theoretically responsible. Collate this centrally, find out where different departments have quangos duplicating functions. Find out those quangos which are independent, ie nobody seems to own them (to do this establish with each Civil Service Department where they experience responsibility clashes and if you can't tie down the responsibility clasher to a Dept, it is likely to be an independent quango).
Then I think you will find ready candidates for redeployment , saving good cash there, and smoother running Government, oodles of cash and better customer satisfaction.
With a bit of luck won't need to do too much else.
A right proper cutting of the teeth for the trainee researchers in getting detailed knowledge of the processes of Govt and its Depts and a good boost to the CV, and a cleansing of the stables of truly Augean proportions. The only real cost will be getting a good manager to set the tasks and advise when the researchers are running into flak. As worthwhile as the Policy Reviews that have been carried out recently at least.

[Richard Calhoun]

I remain confident that the next Conservative government WILL cut taxes

Posted by: Paul D | July 15, 2008 at 13:25

I entirely agree with the comment above but it is vital that tax and spending cuts are in an overall package that radically changes the shape of income tax and benefits.

i.e. We must grasp the nettle to ensure we take out those earning under £15000 p.a. are excluded from income tax.

[RichardJ]

With people struggling to pay off mortgages and with prices of food and fuel rising, tax rises would be madness. Spending cuts and tax cuts are the way forward. Let's see just how much people want to spend on schoolsanospitals when the bank is knocking on the door demanding possession of their house.

[Stewart Geddes]

Those who question how tax cuts can be afforded are clearly assuming that all Government expenditure is absolutely essential and cannot be changed and that there is no waste in the system.

Having seen local government in operation and a number of quangos likewise, there is plenty of scope to reduce Government expenditure.

[Mark Wallace]

snegchui said:
"Quangos...
(a) Nobody knows how many there are?
(b) Duplication seems to be abound, Quango says this, Quango B says that. What should we do?
(c) They seem to very unaccountable and a useful tool for bypassing the Civil Service Departments.

...let some wannabe Conservative Researchers loose on each Civil Service Department, and investigate the Quangos for which they are theoretically responsible. Collate this centrally, find out where different departments have quangos duplicating functions."

As it happens, snegchui, the TaxPayers' Alliance have just done exactly that - there are 1,162 quangos, agencies, advisory committees and they employ almost 700,000 people. The full report listing them, their funding, expenditure and staffing can be found here:

http://tpa.typepad.com/bettergovernment/files/080515_structure_of_government_1_unseen_government_immediate_release.pdf

Apologies for the long url!

[Mark Wallace]

Snegchui said:
"Quangos. In a discussion on these on a thread a few months back, no-one seemed to challenge the assumptions:
(a) Nobody knows how many there are?
(b) Duplication seems to be abound, Quango says this, Quango B says that. What should we do?
(c) They seem to very unaccountable and a useful tool for bypassing the Civil Service Departments...

A nice little answer is let some wannabe Conservative Researchers loose on each Civil Service Department, and investigate the Quangos for which they are theoretically responsible. Collate this centrally, find out where different departments have quangos duplicating functions."

As it happens, snegchui, the TaxPayers' Alliance did that very task recently - and discovered 1,162 quangos, agencies, advisory committees etc, employing almost 700,000 people. The full report, including names, departments, staff numbers and costs can be found here:

http://tpa.typepad.com/bettergovernment/files/080515_structure_of_government_1_unseen_government_immediate_release.pdf

[Mark Wallace]

Not quite sure what happened there - this is the proper url:

http://snipurl.com/2yxul

[Norm Brainer]

Apologies for the long url!

which doesn't work.. found and shortened for you...

http://10b.ta4.at

[Edward Huxley]

Unless the Conservatives stop this vaccillation and come up with some real proposals for lower taxes and the abolishing of useless bodies like quangoes people will say what`s the point of changing from New Labour to Blue Labour?

[Yogi]

This is all very depressing. We have another 2 years to go and what damage NuLab will do knowing that the Conservatives have to pick up the pieces.

Spending must be cut - quangos yes; public sector bonus payment; reduce the fat gold plated pensions; Cameron should start with the MPs, Ministers and the likes of Ken Livingstones fat pension. Parliament can pass retroactive measures and if the Lords block it, then bring in the parliament act.
Increase the fuel tax escalater - green taxes. If people want to drive, they can pay for it.

Privatise the BBC and abolish the TV license fee - that is a tax cut.

[snegchui]

Thank you Mark Wallace. Has anybody in the Tory Party indicated any interest in following up the findings of your report? That could mean anything from reading it, questioning the assumptions and methodologies and goals of it.
I find the first two pages interesting in that in 2003 the problem was recognised by Govt but appears not have been addressed.
I am not a technical figures person nor a political doer either so excuse my ignorance in asking the two questions:

The Housing Corporation: All that funding and no spending? What is going on?
HM Prison Service. Well we have to have it, does it really belong in the report as is or should there be more categories of Quangos and State Funded bodies. More funding than expenditure, good year-end parties then??? If you asked me , I would have said HM Prisons is part of the Home Office and not a quango, or non-governmental subsidiary and it is definitely very visible.
Millions
Staff Funding Spending
Housing Corporation 551 1,644.1 2.0
HM Prison Service 47,010 2,282.7 2,235.3

And a third question, probably beyond the scope of your report, did you find evidence of Govt Depts duplicating each others work>

[snegchui]

Dratted formatting

Housing Corporation : 551 Staff,1,644.1 Millions Funding and 2 Million Spending
HMP 47 010 Staff, 2.287.7 Millions Funding and 2,253.3 Spending

[RichardJ]

"Increase the fuel tax escalater - green taxes. If people want to drive, they can pay for it."

We already do, it's called road tax. Declaring war on motorists on the verge of a recession is not a wise idea.

[Libertarian]

Mark Wallace is right. Osborne needs an equivalent of sharing the burden of recession, i.e. negative growth.

The private sector, i.e. the producers of wealth, should not bear all the burden. If necessary, the Conservatives should cut public sector services, jobs and salaries to avoid tax increases.

[Alan S]

THIS IS THE LATEST MAIL REPORT ON THE SPEECH:

"Taxes may have to rise to fix mess Brown has made of the economy, warns Cameron"

http://www.dailymail.co.uk:80/news/article-1035391/Taxes-rise-fix-mess-Brown-economy-warns-Cameron.html

[christina Speight]

Iain @1355 "What has surprised me is the complacency of the British establishment to what is staring them in the face"

I'm sorry but I'll bring it closer home and alter that to "What has surprised me is the complacency of the posters to this blog and the blog itself to what is staring them in the face"

I referred to the herd of elephants in the room. It is not the detail of Cameron's speech and its lack of urgency but the whole tone of it. We're crashing and Rees Mogg reminded readers yesterday of what 1929-1939 entailed. That was 10 years wretchedness and I imagine this will be too.

[prziloczek]

David Cameron is going to be faced with a huge bill when he takes over. The National Debt has already been remarked on by the EU - 3% of GDP. Personal debt stands at £1.3 trillion pounds.
All I ask, myself, is that he reins in public spending and does his best in the circumstances. He is going to have to deliver some really nasty medicine to get the show back on the road, I suspect.
Meanwhile Brown goes merrily on wasting our money as if (and this is true) there was no tomorrow (there isn't for him).

[Richard Calhoun]

I'm sorry but I'll bring it closer home and alter that to "What has surprised me is the complacency of the posters to this blog and the blog itself to what is staring them in the face"
I referred to the herd of elephants in the room. It is not the detail of Cameron's speech and its lack of urgency but the whole tone of it. We're crashing and Rees Mogg reminded readers yesterday of what 1929-1939 entailed. That was 10 years wretchedness and I imagine this will be too.

Posted by: christina Speight | July 15, 2008 at 16:41

I agree with your observations and frustrations but we must remember that you have to have the correct timing in breaking the remedies to the public

[Iain]

"We're crashing and Rees Mogg reminded readers yesterday of what 1929-1939 entailed."

christina Speight, thanks, you might not believe it but I hadn't read the article until you pointed it out, which suggests I have company in my concerns and not make me feel like the lone eccentric shouting from the sidelines.

[David_McD]

Richard Calhoun @ 17.15

We, as a nation, have been living well above our income now since about 2000 (alas poor Prudence!) and the storm is about to break.

I fear it may not be a matter of "breaking remedies" to the British Public but rather of negotiating our way through a major economic recession and, quite probably, the civil unrest that this will bring to our fractured society.

The Tories should not deceive themselves that they are now loved and trusted by the British Public. They are not. With few exceptions, the political class in all three main parties are despised and distrusted, as is the EU. The real question may be how can we retain our democracy in the face of near economic and social collapse?

[David_McD]

Ian @ 17.35. You are not a lone eccentric. Unfortunately the evidence is all around (and has been for at least 3 or 4 years) that we are building up to something potentially nasty.

But we are a bunch of Cassandras, crying in our caves.

The spring and early summer of 1914 in England were quite glorious, or so I have read. During this time, Admiral Beatty hosted a glittering cocktail party in St Petersburg, on the quarterdeck deck of HMS Lion; the Russian aristocracy attended in their finery and, so it was reported, many of the ladies were quite remarkably beautiful.

I do not think most people want to see into the future!

[Martin Cole]

It is gratifying that Christina Speight has come far on the Conservative Party since we first crossed swords over the title of my blog "Teetering Tories" in its early days. This quote from September 2003 still holds true:

"In observing politics it is so easy to carp from the sidelines, that those involved in the day to day struggle can be forgiven for ignoring the mountains of amateur criticism with which they are faced. Observing from this distance, however, it is possible to see the seeds of the Tory's next defeat already being sown. We shall therefore continue to shove our oar in from this blog.

"The Telegraph today voices its fear of amateurism in PR. Last night we raised the problems of failing to make a big enough break from the Major years.

"The emphasis placed in the IDS article on health, schools and the police show signs that the party is not yet anywhere close to realising the need for a fundamental break with the past.

"Leadership is required, setting the agenda and bringing public opinion behind. Those three great social issues might appear to be the driving prioroites of the British public, but they are NOT. Major's ministers managed the three responsible departments fairly competently and much more so than Blair's ministers have proved themselves capable. But competent management when headed in the wrong direction is equally disastrous as bungling.

Europe, or more precisely "Who Governs Britain" is the first and all important matter to be addressed. Only by clearly defining who is really in charge of what can clear Democratic Accountability be reestablished and a direction determined for those essential social elements of everybodies daily lives. That means Britain out of Europe!"

Impossible to believe but each leadership change takes the party ever further in the wrong direction - now the nation clearly stands at the edge of an abyss and Cameron and Osborne remain clearly clueless. Chapter 11 with 12 trillion dollars of debt!
Crass stupidity.

[Votedave]

Didn't the tax burden have to increase in Mrs Thatcher's first term before they starting coming down?
Some things have to get worse before they can get better.

[Michael McGowan]

Taxes didn't HAVE to increase at all in 1979. They DID increase which is something rather different...largely because the Tories were stupid enough to commit to honouring a number of Labour spending pledges that then had to be paid for. Sounds familiar doesn't it but don't fall for the spin that tax rises are "inevitable". They wouldn't be if both parties were prepared to spend less incontinently.

[Richard Calhoun]

The real question may be how can we retain our democracy in the face of near economic and social collapse?

Posted by: David_McD | July 15, 2008 at 17:35

The only way I believe is to first look after those on low earnings, yes those who have been kicked in the teeth by nulab, and take them ( under £15000 p.a.earnings)out of income tax.

Only by attending to this problem, ignored by nulab, will we get the trust of the electorate.

[snegchui]

Ah well. I asked some questions about the TPA report in good faith, and I mean that. I am not aware of the exact link between TPA and Tories, but I think the work that the TPA does is more than worthwhile.
A question is does it register in the wider populace? If it doesn't , what lessons does it need to learn to make its message more effective? If it does, do you have an equivalent to the "Dummies Guide" to explain your results. Tricky game I know.
I may have annoyed by asking some questions earlier: I can hear it now " What after all that hard work, the message still whizzes overhead" Well, the downside of blogs perhaps, it is much more difficult to see the emotional/political context in which the questions are asked.
And in a sporting context, "You can only play what is in front of you"

[Ben Farrugia]

For snegchui @ 3:15pm and 01:33am

Sorry for the delay in responding to your queries; I'm the author of the discussed TPA report, and thank you for your positive comments regarding the work. I assure you there was no annoyance at the questions asked; in fact the more people ask questions the more we can get people talking about the ludicrous size of quasi-government today, and the better able we are to identify those bits of it that can be cut back.

As regards your specific questions:
(1) The Housing Corporation - 'all that funding and no spending'

This is in fact an error in the PDF, for which I apologise. The amended report reads:
Funding £1,644.1
Expenditure £2,002.9
Such human error is unfortunate but inevitable in a report of this size - well spotted! Totals and figures referred to in the main body of the report are all correct, as they were generated from the spreadsheet template in which all data was double checked.

(2) HM Prison Service
The Prison Service is an Executive Agency, and so you are not wrong in suggesting that it is 'part' of the Home Office. However it is a distinct part, with its own budget, chief executive and board. It is definitely a subsidiary of the core government departments, and comes under the label 'agency'. The reason it is in the report is that this agency status makes it less accountable than it should be, and distanced from the democratic process. As to its underspend, this is common among agencies, and is surrendered back to the the Treasury.

On your final point, concerning departments duplicating each others work, this happens all the time. However this is - in part - intentional, a product of the Public Service Agreements (PSAs) used by government. These demand cross-departmental cooperation in the delivery of services and policy priorities and lead inevitably to duplication. The task here was to catalogue the bodies - as you rightly point out, even the government didn't know how many there were. We'll be doing a report on duplication later in the series.

I hope this goes some way towards answering your questions. As of yet we have not heard anything substantial from the Tories on this issue, but we continue to hope that the structure of government will be become a serious issue in and of itself.

[snegchui]

Ben Farrugia, Thank you for your answer.
I find the statement that agency status enables less accountability interesting.
I am of the school that thinks good institutions make for better Govt, and a good institution is flexible enough to adapt to changes in its environment or at the very least be aware of changes in their environment and discuss changes. If you do not understand your own composition, your awareness and flexibility are likely to be very limited thus leading to the chances of more inefficient Govt.
So I don't think Political Parties should need to have the importance of the structure of government pointed out to them, especially the Tories who claim to wish to run with a minimal Govt. If you don't know how bloated or how lean you are, how can you deliver on this claim?
Thanks again, Ben.

[Joe James Broughton]

The Thatcher government in 1979 faced very high inflationary expectations whilst the economy was going into recession - as it did at the start of 1980.

But one of the major contributions to high public spending was Professor Clegg who recommended big rises for public service pay.

Clegg was dismissed at the earliest opportunity but the damage was done.

[Janet]

Gordon Brown should be portrayed as akin to a deceitful spouse who has been spending all the family money and then spent to the maximum debt on all his the credit cards. This analogy is simple and explains why constraint is needed once the 'grown ups' are back in government.