Monday, March 08, 2010

Tax And The Tories

Wanted: a shaft of sunlight

Once upon a time we all knew where the parties stood on tax. Labour stood for increases, and the Tories for cuts.

These days it's not so easy. Two years of sharing the proceeds blurred the old clearcut Tory tax brand beyond recognition. And now a full-on fiscal crisis has swept away all hope.

The dismal result is that voters no longer associate the Tories with tax cuts, or it seems any clearcut tax policies at all. Last week, ICM asked voters which party has the best policies on setting taxes, and on this vital touchstone issue found the Tories actually trailing Labour. For those of us who are desperate to see Labour out, it's nothing short of tragic.

It's especially tragic when we recall that in between the fog of sharing the proceeds and the cataclysmic onset of fiscal Armageddon, we briefly glimpsed a shaft of brilliant sunshine.

At the Tory Conference in 2007, George transformed the political landscape with a single tax pledge - to abolish Inheritance Tax on all estates of less than £1m. At the time, the Tories were facing electoral anihilation at the hands of the Big Clunking Fist, but that pledge changed everything. We were actually there in the hall, and it nearly brought the roof down. You knew immediately it was a game changer (see this post), and within days Brown had bottled the entire election.

What's that? There's no money left to cut taxes?

Hmm. The point about the IHT announcement was less the amount of the tax cut that it represented (IHT will only raise £2.2bn this year), and more the fact that it was a clear and convincing declaration of intent - a declaration that the Tories were returning to their traditional faith in low taxes.

In truth, everybody knows our fiscal position will not permit big tax cuts any time soon. But we need to know that the Tories will make cutting taxes a higher prority than public spending. We need to know they will resist the pressure to balance the books with higher taxes next year. And we need to know that over the next five years, tax cuts will be delivered ahead of any return to higher spending.

PS One other thing to remember is the lesson of history. As we blogged here, successful programmes to cut big fiscal deficits like ours have always emphasised spending cuts above tax increases. According to research by Policy Exchange, successful consolidations (as squeezes are known in polite company) have typically placed around 80% of the burden on spending cuts and only 20% on tax rises. Consolidations based on tax increases almost always prove to be unsustainable (like Labour's ultimately failed attempt following the 1967 devaluation).

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