Q2: Economy-boosting tax relief

"In the early Thatcher years some taxes were increased in a bid to protect the public finances but others were cut to address the brain drain and other disincentive effects. Do you agree that the first budget of the next Conservative government should include some simplification and reduction of the tax burden that Gordon Brown has imposed on Britain's wealth creators?"

David Cameron: “I agree that lower and simpler taxes are essential components of what should be our principal aim: a comprehensive economic policy that helps create prosperity in an age of global competition. A strong economy needs competitive tax rates and good public infrastructure in areas like education and transport.  That’s why I’ve argued that we must share the proceeds of economic growth between tax reduction and investment in public services. But I don’t think it is at all sensible to specify the contents of a budget four or five years in advance – when we have no idea what the public finances look like.”

David Davis: “The cost of all the extra regulations on our business is put at £40bn by the British Chambers of Commerce. We have now the heaviest tax burden on people for 25 years. Regulations and the burgeoning tax burden is crippling our economic growth and damaging our competitiveness. It will soon stop us being able to afford the public spending we need to obtain the public services we want.  Reducing the regulations imposed on business and the tax burden are therefore essential and will form the core of the first budget of a Conservative Government under my leadership. I have announced that I would ensure public spending grows within the growth rate of the rest of the economy and return £38bn back to people from Government. This could equate to giving back £1,200 p.a. for an average family.  I have set out examples of where this growth policy has worked in practice e.g. as in Ireland and Australia. The argument is a difficult but vital one to make. We must start now in getting this argument over to the electorate if we are to have a chance of succeeding at the next General Election.”

Editor's Comment: "David Cameron doesn't really attempt to answer my question here.  His answer is a string of his campaign soundbites - including the 'sharing the proceeds of growth' formulation that the independent Institute for Fiscal Studies has described as so elastic as to be pretty meaningless.  I read Mr Cameron saying that he wants lower taxation but only Mr Davis is making it clear that he will reduce taxation.  Britain's global competitiveness has been undermined by Gordon Brown's years of hi-tax and hi-regulation.  We need to turn the tide on that wave of tax'n'regulation if Britain is to improve its long-term growth-rate and so safeguard jobs and the government's revenue base.   Tax relief and tax simplification must happen on day one of a Conservative government.  As Mr Davis said on Radio Five this morning it is more important to cut economy-constraining taxes during a recession than in other periods.  Mr Davis' commitment to make the case for tax relief now and throughout the parliament is more likely to persuade the British people of the case for economy-boosting tax relief than if we wait until the eve of the election (as Michael Portillo and Oliver Letwin did for the Tories at the last two elections).  At the moment the tax debate will always be won by Labour because it has completely framed the tax debate in budgetary terms.  Conservatives need to show that tax is also a vital economic weapon."

The swing on the David-O-Meter reflects each individual question - it is not an overall assessment.

Comments

[Derek]

This is a critical area. Without being able to ask a supplementary question here we cannot ask DD to confirm whether he would still cut taxes even in a recession [which I understand to be the case] and if so what he regards as the upper limit of borrowing which is acceptable?

DC needs to explain in what proportion he would share the proceeds of growth between public services and tax cuts, and what action he would take in the event of a recession?

[James Hellyer]

Is deficit financing actually a problem in a recession? Public spending is required to amoleriate the effects of the recession, while tax cuts are needed to stimulate industry and consumers to work the country's way out of the recession.

[Charlie]

So DC for leader and DD for chancellor?

[Editor]

British levels of national debt stand VERY GOOD international comparison. Intl markets would look kindly on borrowing if it was related to tax relief targeted on economic competitiveness/ infrastructure etc.

[RobD]

DC - "I agree that lower and simpler taxes are essential components of what should be our principal aim: a comprehensive economic policy that helps create prosperity in an age of global competition."

This is a very encouraging quote from DC, he is is saying that lower taxes would be an essential part of his governments direction. This seems like a very sensible way to address the issue, much better than DD's carless approach.

[Oberon Houston]

High levels of borrowing are bad as it increases interest rates and suppresses bond values, hitting the primary capital market, the cost of borrowing in the secondary market and those with personal debt such as Mortgages.

David Davis' plan is irresponsible, and Cameron is right to say that promises cannot be made based on an uncertain future.

[Mark Fulford]

We're heading towards a consumer credit-bust, so relying on any growth to deliver tax cuts is optimistic. We have to cut costs, and we need policy to downsize government. Labour have employed 680,000 extra people. We have to reverse that trend, for example freezing the number of public sector employees. We have got to get a grip on public sector pensions, which are a disgrace.

The BCC will always complain about the cost of regulation but, in my business experience, the problem is overstated. I think both candidates are failing to take on the big issue: the public sector.

[Wat Tyler]

Not sure what a carless approach is, but DD's spending rule- which is the basis of his headline tax cuts- is fully explained on the Reform website. Including the issue about cyclical deficits.

The only surprise about Ed's meter reading is that it hasn't maxed on DD.

[Oberon Houston]

The best thing to do in a weak economy is reduce debt levels by cutting back on public spending.

[Andrew]

We're heading towards a consumer credit-bust, so relying on any growth to deliver tax cuts is optimistic.

We're not. We're relying on tax cuts to deliver growth. Totally different proposition.

[Oberon Houston]

If you want to know what happens to an economy that follows that approach - look at the Regan Administration. It does not work. Ask Alan Greenspan.

[Wat Tyler]

Oberon- yes, but Davis' plan wouldn't do those nasty things to the bond market.

Believe me, bond investors like rules that limit politicos' ability to spend. And they fully understand about cyclical deficits.

[James Hellyer]

"If you want to know what happens to an economy that follows that approach - look at the Regan Administration. It does not work."

It doesn't work if you massively increase public spending on defence so that public spending in total grows at a faster rate than the economy does even after incentivising tax cuts.

That's not what Davis is proposing, Oberon.

[Oberon Houston]

Feb. 25, 2004 Alan Greenspan:

"... under a range of reasonably plausible assumptions about spending and taxes, we could be in a situation in the decades ahead in which rapid increases in the unified budget deficit set in motion a dynamic in which large deficits result in ever-growing interest payments that augment deficits in future years. The resulting rise in the federal debt could drain funds away from private capital formation and thus over time slow the growth of living standards."

David Davis is ignoring this warning.

[wasp]

I would have called this one a draw. Cameron should have announced an intention to cut or simplify taxes in the first budget.

However Davis' plan is plainly ridiculous, he does not know how much money will be coming in or going out, he doesn't know what borrowing, inflation or taxation will be.

One answer is non-commital, the other is rash.

[Andrew]

Reagan, Oberon. But why not look at the Irish example - they've been cutting corporation tax and growing their direct foreign investment for years. Just one example of how careful tax cuts can boost growth.

[James Hellyer]

Oberon,

Greenspan is talking about ongoing deficit financing. Davis is not.

[Wat Tyler]

Yes...but that's not what DD is proposing. His tax cuts are financed up front by slowing the rate of spending growth.

It's a long way from Voodoo economics.

[Kate Castle]

I understand why you've gone for DD in this one, Tim, but I'm not so sure. The tax system is overly complex at the moment and I find a message about simplifying the system attractive. Now we need more meat on the bones from Cameron on this, but the 'flatter tax' Osbourne talked of not too long ago was more appealing to me than Davis' cutting agenda.

[Oberon Houston]

Jan. 25, 2001 Alan Greenspan, Senate Budget Committee testimony:

"The resulting budget projections, therefore, are necessarily subject to a relatively wide range of error.
...
"(I)f long-term fiscal stability is the criterion, it is far better, in my judgment, that the surpluses be lowered by tax reductions than by spending increases. The flurry of increases in outlays that occurred near the conclusion of last fall's budget deliberations is troubling because it makes the previous year's lack of discipline less likely to have been an aberration.
...
"But let me end on a cautionary note.... We need to resist those policies that could readily resurrect the deficits of the past and the fiscal imbalances that followed in their wake."

Brown did not follow his advice on the first paragraph, and Davis won't follow his advice on the second.

[Mark Fulford]

"We're relying on tax cuts to deliver growth. Totally different proposition"

I understand the proposition. I'm suggesting that the decline of consumer spending will offset the growth through tax cuts - and to predict net growth is optimistic.

[Oberon Houston]

Under Bush, the surplus has been spent due to his tax cuts and the US economy faces an uncertain future.

[James Hellyer]

Oberon, all you are doing is showing that youn can't compare like with like, but can cut and paste.

[Martin Curtis]

I disagree with this analysis. DD is setting hte Conservatives stall out too early and this hinders our election chances. The stance DC is taking is the best one for our elctoral chances.

[Andrew]

The stance DC is taking is the best one for our elctoral chances.

Totally disagree. When DC finally unveils his tax policy, 4 weeks before the next election, Labour will denounce it as cuts in public spending, as they always do, because DC will have failed to engage with the argument early enough to win it. DD wants to make the case now, early, so that we can win it, and go into the election promising changes that the public will believe we mean to enact.