Malcolm Blair Robinson
March 29, 2010 By Malcolm Blair-Robinson

Tory Tax Plans

At last we have a policy to look at. The plan to halt the rise in National Insurance on middle earners is a bold move to please employees and employers alike. It falls within Tory philosophy, as a low tax party. It is not a cut. It is a rise stopped. The question is how to pay for it. There is a shopping list of savings planned, but how real or how imagined is not at first clear. Making the sums add up credibly will be critical in determining whether this plays as a bold move well received or another mess up from a team lacking experience.

The whole economic world proclaims that our level of Government borrowing has got to be reduced. There is argument about sooner or later but none about if. There are two ways open. Increase taxes or cut spending or do both to some extent. This is not quite right.

What is required is revenue.  What the tax rate is and upon which group the tax falls is of political, not fiscal, significance. What matters is the flow of money. If taxes go up but people work and spend and save less, economic activity will stall and the exchequer will be no better off. It is possible (for example Howe in 1979/80) to cut taxes and increase revenue. Howe managed this by reforming the relationship between tax on incomes and tax on spending. In my book I have proposed a major simplification of the tax system which would have great revenue increasing possibilities, yet would make millions better off in real terms. None of the parties really have put forward any radical ideas, so we are bogged down in efficiency savings, empowering people and so on. In fact voters just worry about their jobs and wonder who to trust.

We also do not properly explore this fallacy that going on borrowing more and more somehow lets the economy off the hook lighter than if we cut sooner. More borrowing means a much higher interest bill in future years, which has to be paid first, before everything else. As this proportion of government expenditure is forced upwards, it draws money out of the domestic economy to overseas creditors and exerts significant downward pressure of spending on everything else. Less and less of each tax pound is free for the government to use for our benefit. This is exactly the same as any over borrowed consumer. Lose control of this now and the result will be years of austerity. Current figures take us very close to the edge, if not over it.

It should be possible for the Osborne team to set all this out and show how they can do a better job than Labour. We are still waiting. Telling voters they will axe a few dumb programmes and empower enterprise is not enough.

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