David Smith has a good piece on the temptation for Gordo to bribe us with a pre-election budget giveaway. Will he follow Lord Jenkins, who decided not to cut taxes before the 1970 election, with the result that Labour lost? Or Lord Healey, who doled out plenty before the 1979 election, with the result that…er, Labour still lost?
Back in the golden age of the post-war consensus, ‘you’ve never had it so good’ governments routinely and blatantly cut taxes and boosted spending in their pre-election budgets. But eventually it dawned on the rest of us that we were being bribed with our own money, and post-election we’d have to pay the bill. That was unsettling not just for us, but more importantly, the financial markets, which took a real dislike to crisis management of those ballooning budget deficits.
So these days you’d think Chancellors would try to be subtler. Ideally they'd want to give us the feelgood impression that taxes were being cut, or benefits increased, without actually doing very much. What some people call ‘a favourable announcement effect’, although I prefer to use its technical name ‘a complete load of old bollocks’.
And as Smith reminds us, Gordo is a master of this technique. He announces all spending increases and tax reductions at least four times, adds apples and pears, moves the goalposts throughout the match, let’s us have our cake and eat it, and always comes to the dispatch box with a couple of white rabbits secreted up his sleeves. Naturally they later turn out to be stuffed- not unlike the rest of us.
Smith reckons he’ll do the same again on 16 March, despite rumours of an actual £5 billion ‘giveaway’ to trump Letwin’s £4 billion promise.
I’m not so sure.
The IFS recently produced an excellent analysis of pre-election budgets, reminding us of the bribes offered. In 1992, Lamont gave us the new lower rate income tax band. In 1997, Clarke cut 1p off the standard rate. And in 2001, Gordo gave us an increased lower rate band, plus a cut in fuel duty to buy off those troublesome protesting drivers. That time it added up to a £4.1 billion- pretty well what he needs now.
But guess what always happened at the subsequent post-election budgets. Yup. Big tax increases. According to the IFS, G increased taxes by £11.3 billion after the 1997 election, and another £9.6 billion after the 2001 election. And do you notice how the post-election increases tend to be a tad higher than the pre-election cuts?
So I have a nasty feeling that on 16 March G will reach into his pocket for that grubby roll of used tenners, peel off a few, and attempt to slip us a bung.
But we must remember: this is the same man who has presided over a £150 billion increase in our annual tax bill.
And even stripping out the effect of inflation and the general growth in incomes, he’s still caned us. The IFS says:
‘Taken as a whole… government revenues have risen by 2.1% of national income since Labour came to office, equivalent to £26.4 billion in 2005–06 prices. About a third of this increase is the result of tax measures inherited from the Conservatives, about a third due to tax increases announced by Gordon Brown and a third due to other factors. Fiscal drag has increased revenues by £22.0 billion.’
As always, the IFS is very measured, but in my book, G’s accountable for the whole lot. He can’t blame the Tories for tax changes he didn’t have to implement, and fiscal drag (the rise in tax revenue generated by failing to increase tax thresholds in line with growing incomes) is the ultimate stealth tax.
Anyway Gordo’s got another powerful reason for cutting taxes this time. Because he won’t be the one having to increase them next year. In the unlikely event the Tories win, it will be poor old Ollie trying to sort out another fine mess- and finding G’s already shot his £4 billion tax fox. More likely it will be Brylcreem Bounce Milburn having to deal with the nasty stuff, leaving G doing the ‘it wasn’t like this in my time’ bit.
It’s pure win-win.