Sunday, June 16, 2019
Johnson's dead cat tactics on tax and a no-deal Brexit
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

Now that Boris Johnson has decisively won the first round of the contest among Tory MPs, and is runaway favourite to win among the membership, we have to take seriously the prospect of a Johnson premiership. In this strange tribal mating contest, in which those who have the biggest and most colourful tail feathers to shake do best, he will be hard to beat.

There are two things that, so far, define the Johnson pitch. One is a stonking great tax cut for higher-rate taxpayers, by means of raising the basic rate limit, the higher rate threshold, from £50,000 to £80,000. On its own, when fully in place, that would cost £20bn a year, but about half would be clawed back by increasing the National Insurance ceiling. People with earnings in that bracket and above would see their marginal rate of income tax and NI in that range, currently 42%, drop to 32%. This is a huge tax cut for the better-off.

The other main feature is his willingness to embrace a no-deal Brexit. The scale of Johnson’s first round victory and the defeat of a cross-party (but Labour-led) bid to rule out no deal has seen those who follow these things in the City raise the probability of a no-deal Brexit on October 31 from 10% to around 25%. Sterling slipped as a result.

There is still a belief in the markets that Parliament find a way of avoiding a no-deal Brexit, even if it means a vote of confidence and a general election under the new leader. That, for the markets and for business, might be just an out of the frying pan and into the fire moment. They, to slip into the kind of phrase beloved of the new Tory leader, would have no obvious way of steering between the Scylla of a Johnson no-deal government and the Charybdis of a Corbyn administration.

The question, as always with Johnson, is how seriously we should take the things he is saying. Indeed, a possible explanation was provided by the man himself, six years ago, when he was London mayor. Writing about a European Union proposal to put a cap on bankers’ bonuses, he said it was purely a distraction, a “dead cat” strategy.

Borrowed from the “rich and fruity vocabulary of Australian political analysis”, as he put it, the best thing you can do to divert attention is, as Johnson’s Australian friend put it, is “throwing a dead cat on the table, mate”. The key point made by the Australian friend, who I am guessing is Lynton Crosby, who has successfully managed campaigns for Johnson, is that instead of focusing on other things, everybody will be saying: “Jeez, mate, there’s a dead cat on the table!”

On this view, Johnson’s proposed tax cut, together with all the talk of a no-deal Brexit, are not only aimed only at the narrow electorate of Tory members, but are also dead cats.

The more that people focus on the tax idea, and whether it is fair and affordable (no in both cases) the less that people will concentrate on his record as foreign secretary and a list of foibles as long as both of your arms. Similarly with no deal. There is, as the writer George Trefgarne has suggested, a clear parallel with the infamous £350m a week on the side of the bus in the referendum. It was wrong, and everybody knew it was wrong, but the more that people concentrated on it, the less that other issues got the scrutiny they deserved.

Johnson is not the only one using the dead cat strategy. When Michael Gove pledged last weekend to replace VAT with a version of the purchase tax it replaced when the UK joined the European Economic Community in 1973, it looked like a pretty obvious diversionary tactic.

The risk of all this money flying around in the Tory leadership contest, a combined £84bn, is that it threatens to make even Jeremy Corbyn and John McDonnell look like models of fiscal prudence.

But I am guessing that nobody seriously expects them ever to be implemented, either because they would never get through the House of Commons – ask Philip Hammond about his experience of securing parliamentary approval for even mild controversial measures – or because once the deceased feline has served its purpose, it will be quietly buried.

I would hope that some Tories, including Johnson, still care about the budget deficit, which is expected to be nearly £30bn this year, and about debt. Public sector net debt, to remind you, is still rising in cash terms. At a whisker under £1.8 trillion (£1,800bn) it is more than five times its level 20 years ago, more than three times what it was before the 2008-9 financial crisis, and up by nearly £800bn since the Tories came to power (in coalition) in 2010.

That is a lot of debt as the backdrop to extravagant promises to splash the cash. There is also, to be clear, no pot of gold waiting to be spent. Hammond, whose days as chancellor may be measured in weeks given the number of people who have been offered his job, often by the same candidate, has kept something back for a no-deal Brexit and what was supposed to be a comprehensive spending review this year. The candidates with the most extravagant promises are also those willing to risk the extensive economic and fiscal damage from a no-deal Brexit.

What should a new Tory prime minister do, as opposed to making undeliverable promises? Three things. The first is to demonstrate clearly an end to austerity, essential to anybody pursuing a fairness agenda. That sounds expensive but it is not. Ending the cuts for unprotected departments would cost just over £2bn a year by the early 2020s, while doing so on a per capita basis would cost just over £5bn.

That was supposed to be the agenda for the spending review, which now looking highly unlikely this year. Tax cuts are good, when they can be afforded, but introducing them alongside continued austerity is politically cackhanded.

Second, the new Tory leader needs to repair relations with business, and quickly. Every business owner I come across has a similar story. Even leaving aside their deep worries about Brexit, they feel neglected and put-upon. For most it is a catalogue of government imposts. Including auto enrolment, the apprenticeship levy, the national living wage and business rates. For most, the reductions in corporation tax in recent years have been largely irrelevant. They need direct help.

Finally, the Tories are nothing if they cannot demonstrate that they can be trusted with the public finances. The modest moves I have suggested would not compromise that. The ideas that some of the Tory candidates have been floating certainly wood.

I realise that is a fairly dull set of tail feathers to shake around in a technicolor contest, with not a dead cat in sight. But it makes sense. And, if nothing else, add it to the many reasons why I shall never be prime minister.