John Redwood

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TAX AND SPEND WINNING THE ARGUMENT

         It is quite clear from the response of the public to the Conservative announcement of a possible cut in Inheritance Tax that tax cutting is popular again.
 Labour’s response shows that they will try to see off our more popular tax cuts by less expensive variants of their own. It is possible that a new Lib Dem Leader  will complete what Campbell started, swinging his party from high tax high spend party to the low tax party.

          The Conservatives need to occupy the high ground on lower taxes without damaging our new found reputation for caring about the Health Service. We need to break out of a narrow and foolish debate based on the proposition that any tax cut means less revenue which means less spending which means cuts in nurses and doctors.

           There are 4 ways of moving the public debate on:

1. Press for a dynamic model of the economy, which will show that lower rates of tax on business and income lead to higher levels of tax revenue. The Irish example demonstrates that a low capital/business tax environment produces faster growth, allowing Ireland to boost private incomes and public spending by more than the UK. We need to get across the message that “The best way to tax the rich is to cut tax rates” and “The best way to boost tax revenue and public spending is to cut rates of tax on enterprise.” The UK evidence from past periods of tax cutting, the US evidence, the flat tax countries and the Irish experience all prove the same thing. The Irish example is probably the best and has the added advantage that Salmond is also plugging it in Scotland.

2. Explain how the proceeds of growth work. Too many people think it is magic money or just politicians’ words when they don’t  want to make a hard decision. Point out that every 1% of growth yields the Treasury another £6000 million of revenue. Not all of this needs to be given to the Health Service: some can be used for the short term revenue costs of tax cuts before the extra revenue kicks in. Point out that the proceeds of growth are on top of the proceeds of inflation, where all the extra revenue will go to public services. 1% inflation also yields £6000 million extra revenue. We could easily book just £6000 million from 1% growth one year  (out of the likely 2.5% growth each year) to the alleged costs of tax cuts.

3. Identify savings we intend to make that will be popular and spend some of those on the alleged costs of tax cuts rather than on extra public spending. There will be savings from our excellent new policy on incentives to work. This echoes the Labour Opposition cry that they would cut the costs of public spending on “economic failure” – something they have failed  to in office with 5.4 million people of working age on benefit.  We should also put some figures on how much we can save by cutting out central targets and regulations, and trimming bureaucracy through natural wastage. We could easily find £4000 million from these two sources by the end of Year One, giving us a £10,000 million total tax cut pot.

4. As belt and braces, reassure people we have no plans to cut health or education spending by saying something like “We promise to increase the numbers of teachers, nurses, doctors and other specialist medical staff over the numbers we inherit from Labour. We pledge we will provide a better Health Service and a better Education Service by combining more money with reform that gives service users and professionals more power”

Combining these four approaches will open up the debate and make it more possible for us to combine the winning combination many voters want – better Health and Education and lower tax rates. Labour have spent several years trying to buy their way to better public services without proper reform and shown it does not work very well. They are now doing damage to the economy’s ability to compete and to generate future tax revenue, and annoying voters who feel under too much pressure in their family budgets.

A £10,000 million tax cut should be presented around the merits and moral correctness of cutting Income Tax, Capital Gains Tax, small business profits Tax and Stamp Duty, following study of the most effective package of lower tax measures economically and politically. We should have the figures as back up, but should sell the tax changes on their merits, not in terms of their overall size. People want feel good about their tax cut, not feel they are being selfish. Lower small business taxes and a CGT more favourable to enterprise works because it is good for the British economy and fair that people reap rewards for their hard work and risk taking. Lower Stamp duties relate to people’s wish to have better housing for their families. Raising the 40% threshold will take people like Heads, senior teachers and some medical personnel out of the higher band tax, as well as helping private sector strivers who are our natural floating voters.