Sunday, January 23, 2005
Stand up for proper tax cuts, timid Tories
Posted by David Smith at 10:00 AM
Category: David Smith's other articles

There is not much call in the world of publishing, understandably, for the memoirs of economic journalists. If there were, I would be tempted to call mine (with apologies to the late Spike Milligan), Opposition Tax Plans: My Part in Their Downfall.

In 1992, a pivotal election that Labour expected to win after 13 years in opposition, a colleague and I got wind of John Smith’s tax-raising shadow budget before it was unveiled and published details in this newspaper.

The timing was critical. The Tories marshalled their forces, undermined the shadow budget before it was published and squeaked a narrow victory despite an economy struggling to emerge from a long recession.

In the run-up to the 2001 election, I wrote suggesting that the Tories could square the circle of higher spending on health and education with the tax cuts that had been in the party’s DNA since 1979. Labour was raising spending by £68 billion over three years. Why not pledge a still generous £60 billion, leaving £8 billion for tax cuts? Nobody was more surprised than me when, a few days later, the £8 billion became Tory policy, fleshed out in the ensuing weeks as the party demonstrated how it would eke out savings without harming a hair on the head of public services. If it had worked Michael Portillo, rather than gracing these pages, might be plotting his fourth budget from his lair in 11 Downing Street.

We know why it did not happen. Research in the British Election Study tells us two things about tax and spending. One was that most voters did not believe that it was possible both to increase public spending and to cut taxes. They were wrong. At a time of rapidly rising public spending it is possible to siphon off some for tax cuts. But most people take a static view on this: the same pound cannot be used twice.

The second killer blow for the Tories was that the electorate continued its ideological journey after the 1997 election. Tony Blair’s victory was on the back of a shift from the individualism of the 1980s towards new Labour’s soft collectivism. Tax cuts were out; public spending was in.

However, 1997 was not the high-water mark for that change. Voters continued to move in the direction of extra spending, perhaps because the government itself was highlighting the poor state of the National Health Service and state education.

The Tories were not unaware of this. The debate between the Portillistas and the Hagueites was over whether the party should abandon tax cuts. The promised £8 billion was not huge but it was too big for the electorate. Detailed poll evidence shows that Tory tax and spending policies were perceived to be well to the right of where voters were.

So the Tories have moved again. Of the £35 billion savings uncovered in the review by company doctor David James, announced last week, two-thirds (£23 billion) will be ploughed into public services, £8 billion will go to pay off government borrowing and £4 billion will be used for tax cuts. That does not get you very far these days: £4 billion is worth just over a penny off the basic rate of income tax.

Oliver Letwin, shadow chancellor, has one of the sharpest brains in parliament but the political calculations behind these numbers display a childlike simplicity. Labour is certain to raise taxes soon after the election and voters are fully aware of it.

If voters expect Labour tax hikes, therefore, the Tories do not need to promise much in the way of tax cuts to put some clear water between them and the government. So £4 billion is a step in the right direction.

How will the Tory tax and spending plans play? It is a measure of the party’s lack of ambition that there is a sense of relief that last week’s launch, effectively the start of the election campaign, got coverage. A once-great party now frets about being ignored.

Blair and Gordon Brown, in attacking the plans yesterday, even did the Tories a favour by making the proposals seem more radical than they are. The chancellor, claiming they would mean £50 billion of spending cuts, appears to be up to his old double-counting tricks.

But the Tories, as in 2001, risk being caught in political no man’s land. Once again, most voters will see the simultaneous promise of tax cuts and public spending increases as voodoo economics.

At the same time traditional Tory supporters, who will be lured by the likes of UKIP, Robert Kilroy-Silk or Rodney Hylton-Potts or who do not intend to vote at all, will not be tempted back into the fold by the promise of a measly £4 billion. Between 1992 and 2001 the Tories lost nearly 6m voters; the majority of them did not switch to Labour.

What should the Tories do? They hope that by staying close to Labour on public spending they will be ideally positioned when the government slips up. The insistence last week by party spokesmen that the Tories have “changed” and now have a heartfelt commitment to public services — gaining the approval of Kenneth Clarke, if not Robert Jackson — underlines the point.

It is, however, a blind alley. Pigs will fly before the Tories are trusted more than Labour on public services. The party will get nowhere by being a pale shadow of Labour. The difference between the two parties is that Labour taxes will be 40.2% of gross domestic product and Tory taxes will be 39.9%. Too close for comfort or to have any effect on voters anxious for an alternative to another four years of Blairism.

Nick Herbert of the think tank Reform argues persuasively that the Tories have left themselves with the worst of all worlds. Their offer of a tiny tax cut looks like a crude last-minute election bribe, while their promises on spending will continue to look dodgy.

If the Tories believe in lower taxes, Michael Howard and his shadow ministers should be arguing for them passionately. They should point out the corrosive effects on economic growth of big government and the invigorating impact on enterprise of significant tax cuts. If they do not believe it, they barely have the right to call themselves Conservatives.

The evidence is there. Other Anglo-Saxon economies, not just America but also Ireland, Australia and New Zealand, are cutting taxes and outstripping growth in Britain. In eastern Europe countries are introducing flat taxes. The Tories know the arguments but they are biting their lips.

Letwin will say that whatever the intellectual case for tax cuts, to promise big reductions now would be suicidal, a guarantee of the party’s electoral downfall. He will say the Tories cannot afford to be seen so far to the right of voters. But the Tories face a drubbing anyway. They cannot simply wait for the political pendulum to swing back, condemning the country to another four years without an effective opposition.

If defeat it is to be, far better to go down fighting.

From The Sunday Times, January 23 2005

Comments

The Tories should get one thing into their heads: "It's not the economy, stupid. It's Tony Blair."

The Tories and Lib. Dems. are not going to win the election. The best they can hope for is a hung parliament and Tony Blair's resignation.

They won't achieve even that by talking about taxes or central government mismanagement. Their only hope is to make this a single-issue campaign, "Blair must go", and positively encourage tactical voting.

In fact, the real opposition to the Blair government is neither of the political parties - it's the media.

If the newspapers had any sense they would identify the 180 most vulnerable Labour seats and tell the people in those constituencies how to vote to remove their worthless Labour MP.

So, come on David - can't you see the headline: "It's The Sunday Times wot won it" ?

Posted by: David Sandiford at January 23, 2005 11:16 AM

Fair point, although our own poll today shows that Tony Blair, while undoubtedly badly tarnished on trust, gets higher ratings than Michael Howard.

Posted by: David Smith at January 23, 2005 03:38 PM

Brown may have got the figures of the macroeconomy up to scratch, but only by advocating stealth taxes and sneeky tactics altering these figures.For example, the majority of the low unemployment figures are due to public sector employment in bureucratic areas.Also, he has lowered the criteria for disability benefit thus reducing the level of of unemployed and increasing government expenditure on these individuals.

Posted by: james camp at January 23, 2005 03:56 PM

"gets higher ratings than Michael Howard."

But this is a facetious question - Howard cant be assessed on trust because no one has any evidence about whether he does keep his promises - he'd have to be in office before the public could honestly assess him.

Posted by: giles at January 23, 2005 07:16 PM

"gets higher ratings than Michael Howard."

Fortunately we can all sleep safe in our beds in the knowledge that Michael Howard, or “Dracula”, will never become PM. If Mr. Howard really wanted to help the Tories and the country he would step down in favour of Ken Clarke – the only leader that could win votes for the Tories.

But this election isn’t about political parties. The choice is between (a) a Blair government that can exploit a large majority to further erode parliamentary democracy and (b) a Blair government restrained by a small majority (with the outside chance of Blair’s eventual resignation).

For those of us who prefer option b, we need to vote tactically. But only the media have the resources and the incentive to identify the seats where tactical voting can matter. In fact, the media have a duty to inform the public.

So unless the Sunday Times wants an even more boring election than the last one, I hope they’ll tell us the seats where tactical voting counts.

Posted by: David Sandiford at January 24, 2005 06:09 AM

Clarke's an affable incompetent just like TB - I cant see why anyone would vote for him in preference to Blair.

Posted by: Giles at January 25, 2005 03:29 AM

So Bliar wants to make it easier for first time buyers to get on the property ladder.A good start would be to reduce bureaucracy with respect to planning permissions and actually entice Prescott off his sofa and into brokering deals for formerly public owned land to become housing developments.Another advantagous thing to do would be to reduce stamp duty and increase the rate at which it kicks in in line with average earnings growth.What is your view on this issue Mr. Smith?

Posted by: James Camp at January 25, 2005 10:56 PM

I was worried when John Prescott's response to the Barker review on housing supply was that the government was already taking action to correct the problem. This latest gimmick has done nothing to ease that worry. If anything, the planning regime is getting worse.

Posted by: David Smith at January 26, 2005 03:34 PM
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