As published in The Daily Telegraph:
The French politician Jean-Baptiste Colbert described the tax riddle best: “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”
Well, there has been a lot of hissing on the Tory benches of late after Boris Johnson’s decision to rack up national insurance payments. True, after much honking and squawking, the din died down by the time the NI hike came to a vote. But many of us remain deeply disturbed by the direction of Government economic policy.
We are heading down a road that history teaches led to national ruination and political disaster for my party when it was last attempted. At 36 per cent of national output the tax burden in the UK is at its highest level for 70 years and is set to go even higher. For Tory MPs fearful of losing their seats, it is worth bearing in mind that no government in recent times has raised taxes and then gone on to win an election.
Margaret Thatcher cut taxes sharply and went on to win three elections. John Major put them up and lost spectacularly. Tony Blair fought off attempts by Gordon Brown to raise taxes and won twice. Brown, as Prime Minister, put them up and lost. David Cameron resisted pressure for higher taxes in the austerity years and won.
Of course, the public finances have been knocked for six by the pandemic as the Government has borrowed eye-watering sums – £400 billion at the last count – to finance lockdown. This money will have to be paid back – ultimately – but slapping more taxes on a population already groaning under a burden last seen in the aftermath of World War II is not the way to do it.
If taxes are high, so is spending. According to the latest ONS figures, total managed expenditure now sits at the dizzying height of 52 per cent of national output – 12 percentage points higher than before the virus struck.
As a former Brexit Secretary and ardent advocate of quitting the EU, I find it ironic that we have broken free of the Brussels yoke only to embrace Continental levels of taxation and public spending. We should not forget that since the formation of the Eurozone 20 years ago, the UK has grown faster than the members of that club, which include the supposed economic powerhouses of France and Germany. Who would bet that on our present trajectory, we will be able to say the same 20 years from now?
Raising taxes beyond a certain point – and we have reached it – just does not work.
First, it depresses economic activity, stifling the growth that we need to maintain and then raise living standards. It pushes up unemployment and restricts the formation of dynamic new firms essential for prosperity.
Second, we should stop obsessing about how to share out the national cake. We should concentrate on baking a bigger cake so there is more to go round. The Chancellor’s decision in his last Budget to raise corporation tax – the tax on company profits – from 19 per cent to 25 per cent, reversing the downward path of recent years, is exactly calculated to bake a smaller cake.
Third, we should remember the policies of Nigel Lawson, probably our greatest post-war chancellor, who cut tax rates and increased the tax take. By cutting taxes, he helped transform Great Britain from the sick man of Europe to the envy of the western world. And the corollary of his policy is that beyond a certain point, increasing taxes reduces revenue to the Treasury.
With higher taxes people in general work less hard and for fewer hours. Why slog away for 60-70 hours a week (as many owners of small businesses do) only to see most of the extra wages disappearing into the Treasury black hole? As for the well-off, they just hire more and better tax lawyers. Or leave the country, along with their investments. Right now, the top one per cent of earners pay nearly 30 per cent of all income tax. Push tax rates higher and they are going to find more ways of escaping the clutches of the taxman.
But it is not just our quasi-socialist tax and spend policy that bothers me. Cheap energy was the foundation stone of UK prosperity. The Industrial Revolution, which transformed our country and in time the rest of the Western world, was built on coal. But now, under intense pressure from global warming radicals, we have embraced a policy of expensive energy.
Coal has gone, nuclear is dying, gas and oil are being phased out. Before us looms the energy gap – not enough energy to keep the lights on – and after that will come a combination of a swingeing increase in bills for domestic and industrial consumers and, as the current crisis illustrates, insecurity of supply.
The Government’s hell for leather pursuit of net zero carbon emissions by 2050 (including the banning of new petrol and diesel cars by 2030) threatens a huge drop in living standards for our children and grandchildren.
This might be worthwhile if it did any good for the climate. But Britain accounts for one per cent of global CO2 emissions. Meanwhile, China merrily carries on building legions of new coal-fired power stations while relishing our self-inflicted penury to come.
It is perfectly proper for the government to pursue a rigorous policy to deal with climate change, but it must think through the consequences for ordinary working people, their cost of living, their jobs, their energy security. Whether this involves more nuclear power, or even more exotic ideas like the proposed enormous electrical interlinks with Moroccan wind farms, the policy demands that they match their enthusiasm with more imagination and more careful planning.
If not, the current combination of tax, energy and regulatory policies, far from levelling up, will impose a crushing cost of living crisis on the ordinary working families. Increasing wages may help a bit, but these will feed into more inflation if not matched by increasing productivity. That will demand more investment, which will not be helped by the corporation tax hike. It will also demand more deregulation, more competition, and more – not less – economic freedom.
We need a whole new, Conservative, economic strategy. It starts by dealing with the £400 billion cost of Covid. We should treat it like war debt and get it off the nation’s short term balance sheet. We should issue long-dated Covid bonds and sell them at home and abroad. Then in 50 years from now Covid will be just a distant memory and cost.
Once we have done that we have a reasonable chance of balancing the books, which should primarily be done by encouraging economic growth, not cruel tax hikes. Savings will have to be made, but they should be achieved with an eye always on the impact both on the ordinary family and on our economic growth. We might start by saving at least £100 billion with the cancellation of HS2.
Boris was once the nation’s foremost advocate of creating a dynamic, low tax, high investment, light-regulation, high productivity society and economy – the one that we all dreamed of when we voted to leave the EU.
Let us hope that when we return from our conference he will have been reinvigorated in his belief in these foundational concepts of conservatism. They have worked so well for our country down the decades, and only by embracing them will he deliver the prosperity that this nation is capable of.