As published by the Daily Telegraph:
The commitment to low taxes is a fundamental tenet of Conservatism. It is a major part of our reputation for economic competence, and it gets us re-elected. I lost count of the number of working-class voters who told me in 2019 that they would vote Tory because they feared Jeremy Corbyn would put their personal taxes up.
Today that principle ought to be supercharged by the cost of living crisis and the financial wreckage created by the Covid pandemic. Yet we find ourselves with the highest tax burden of any Conservative government in history.
Some in my party are now arguing about whether we should go further, with a windfall tax on energy companies to finance measures to mitigate the rising fuel costs of ordinary families. The answer is rather straightforward: we must not do it. A windfall tax would be unnecessary and unwise.
We have seen too many depressing examples of unnecessary taxation in recent times. When the Treasury made its plans to increase both National Insurance and corporation tax, it said it needed the money to alleviate the pressures on the NHS and social care. It calculated how much it needed by making a forecast of the expected amount of money it would collect, and how much it would fall short of what it needed.
The Treasury got that calculation spectacularly wrong. It massively overestimated the scale of public borrowing that would be needed – to the tune of tens of billions – because it severely underestimated tax revenues. As a result, it now has many billions more in hand than it expected last year and does not need the money from all the tax increases it had planned. It could cancel the lot and still have money to spend.
There is a fundamental principle at stake here. When it is not necessary to raise taxes, it is necessary not to raise taxes. If the Government were to reverse the National Insurance increase completely and reinstate the £20 it removed from Universal Credit, it would cost around £22 billion, which is a lot less than the cost of its original mistake. Indeed the Treasury would likely still have enough to cancel VAT on fuel and even enact a more ambitious cut to fuel duty. This would do a lot to mitigate the pain of inflation with a far less detrimental effect on the wider economy.
Those of us who have been criticising the Government’s swingeing tax increases have pointed out that they would have a disastrous effect on growth. Last year that was our forecast. Today it is a fact. Having grown by 0.7 per cent in January, the economy did not grow at all in February and actually shrunk by 0.1 per cent in March. In other words, economic development has ground to a halt at precisely the point when it is needed most.
Now Britain potentially faces an era of stagflation: the combination of low growth and high inflation that successive governments in the 1970s struggled to bring under control. The answer to stagflation is high growth, both in productivity and output. Suffice to say that if we keep increasing taxes, we will achieve neither.
This is the time to send a message that we are more open to business investment than ever. Countries that get into the habit of imposing arbitrary taxes on certain sectors of the economy find that, eventually, all businesses – not just in the sector they have targeted – become more hesitant to fund new projects. Investment is what provides energy security, higher growth, higher productivity and all the better paid job opportunities that go with it.
Those proposing a windfall tax have cited the CEO of British Petroleum, the nicely named Mr Looney, saying that it would not affect the investments of his company in the UK. But they should note that shortly after he said that, he had to admit to a shareholder meeting that while it would not affect the current round, it might well affect the next round.
We must take such eventualities with the utmost seriousness. Conservatives should not be imposing windfall taxes or higher corporate taxes, nor should we become the party of stagnation in a high-spending, low productivity state. Treasury ministers should remember that the power to tax is the power to destroy, and should be used very sparingly indeed.