Aug 18 2007
How do you pay for tax cuts?
Labour think any Conservative proposal for tax cuts is flawed, because they think it is so difficult to answer the question How do you pay for them?
There are five easy answers to how do you pay for a tax cut?
You can:
1. Put up taxes on something else this has usually been the way Labour has financed their reductions in the main rates of Income Tax and Corporation Tax. Overall Labour has greatly increased the burden of taxation.
2. You can borrow more Labour has also done a bit of this to pay for their tax cuts. They have borrowed more as well as taxing more.
3. You can cut spending by removing things from the budget that government does not need to do a future Conservative government could scrap ID cards, abolish much unelected regional government, cut out many quangoes, reduce the size of the civil service by natural wastage.
4. You can reduce waste this government says they have been wasting ??22 billion a year, a little bit more than their estimate of the cost of all the Conservative Economic Policy Review tax proposals put together!
5. You can phase in tax reductions as the economy grows, bringing in more revenue naturally.
I was asked by the Conservative party to set out preferred tax reductions as part of the Conservative official policy of paying for tax cuts out of the proceeds of economic growth. I am happy to support this approach, as it is a powerful one. I drew them from the Forsyth Report, where they are all set out in a detailed way with costings.
Labour seem quite incapable of understanding compound arithmetic. For every 1% growth in the economy, the Treasury receives around ??5000 million extra revenue from the higher incomes, more jobs, more transaction that take place. The economy over many years has been averaging 2.5% growth every year, giving the government ??12,500 million every year extra. It does not need to spend all of that some can be given back to the long suffering taxpayers. This extra revenue is on top of the impact of inflation, which also increase the tax take coming in, and helps pay for the inflation of public sector costs.
Over a three year period the government would be in receipt of more than ??40,000 million extra in annual revenues from 2.5% annual growth. So the Conservatives could adopt my tax proposals comfortably during a first Parliament in office, paid for from the proceeds of growth, and have plenty left over for extra spending on public services.
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
Closing down failed Labour programmes like the New Deal would free up money. The future Conservative government must kill the tax credits sytem too. Under tax credits system we have a bizarre system of half work/half benefits in which people can actually receive more money from the state when in work than they would receive if they were unemployed. This of course is a deliberate strategy to create a dependency culture among people who are working, the Labour philosophy being that people won’t bite the hand that feeds them at election time.
[Reply]
“Labour seem quite incapable of understanding compound arithmetic.”
I’m not so sure. They like the extra 5bn - it’s gets them out of a big hole.
[Reply]
Reducing crime and being tougher on the black economy might be another way to pay for tax cuts.
[Reply]
Never mind what Labour say about your ideas. What worries me is that Cameron is not supporting them!
Reply: David Cameron was on holiday. George Osborne attended the launch, and has given support to the two main tax proposals - subject to economic prudence. He also praised the Report generally.
[Reply]
Um, John, we, the conservative electorate looking for someone genuinely conservative to vote for, might take these proposals with more enthusiasm if they were ordered differently:
why not put
3. You can cut spending by removing things from the budget that government does not need to do a future Conservative government could scrap ID cards, abolish much unelected regional government, cut out many quangoes, reduce the size of the civil service by natural wastage.
first?
I thought the Tories were not supposed to be the “tax-cut” party, but the small government party.
Do you guys remember that a tax cut is not a tax cut if all it means is that the money is being lifted out of the other pocket? You say, ‘well it has to come from somewhere, let’s have more green taxes.” But as far as I can tell, the problem is the assumption that the ‘money has to come.’
The total tax revenue going out of the hands of the public and into government coffers has never been so high. Ever. The tax burden in Britain would make a Roman emperor blush.
The idea that we have to have enormous government running every minute aspect of our lives is supposed to be the policy of the other guys isn’t it?
Can’t we have a Tory party who thinks the key is to reduce government? Reduce control over business?
Can we please get back to principles? Can we think about the possibility that the priority is not “finding other ways” to pay for the enormous government we already have, but finding ways to reduce the size, and intrusiveness, of government, encourage British people to look after themselves and each other?
Are the Cameron Tories really so far gone that they have forgotten the whole point of the exercise?
No wonder the BNP get better and better returns in by-elections.
Reply: I have proposed lower taxes, paid for out of economic growth, which means the portion of income taken by the state falls.
[Reply]
“Are the Cameron Tories really so far gone that they have forgotten the whole point of the exercise?” (Hilarity)
From what I remember, the Tories elected Cameron on a promise to modernise the conservative party and face the challenges of the 21st century with an open mind.
I think picking hairs over the order of a list of things that governments can do to finance tax cuts is a tad silly. Cameron has been saying from the start that he wants to share the proceeds of economic growth between public services and tax cuts. The Conservative Party is trying to get swing voters like me to vote for them and I think they are doing a good job of it.
Cameron has also said a lot of things about encouraging more individual responsibility, freedom and social enterprise as opposed to having an all-encompassing state. I did decide to vote Tory in 2005 (but my postal vote never turned up) but I thought that their manifesto was rubbish. I thought we had a pretty poor choice at the last election but decided that we needed a change and that another 5 years of New Labour in their death-throes was too much to bear.
A lot of people who would never have considered voting Tory are now becoming interested in Tory policy. What puts them off are when people start bleating on from the sidelines about a return to the ‘good old days’ of Thatcher. It’s not 1979, it is 2007.
[Reply]
Of course your ways of financing tax cuts are true, but there’s another one more difficult for lazy liberals to understand: If you cut taxes people do more business and pay more tax by making the extra money work harder for them.
[Reply]
I think that asking serious questions about the party’s priorities isn’t “picking hairs.” If the only question being asked is “how do we pay for tax cuts,” in other words, how to we keep up the present level of funding for the enormously bloated government we have inherited after ten years of Blair’s New Labour, then we are asking the wrong questions.
[Reply]
“5 years of New Labour in their death-throes was too much to bear.”
I’m with you there. I keep looking at the Labour poll results and Brown’s Bounce with a mixture of horror and near-despair. Can Britain survive another five years?
[Reply]
Though I understand, and wholly admire, Messrs Redwood and Osbourne’s cautiousness in phasing in tax cuts only when the economy allows it (method #5, above), doesn’t all this talk of new Green Taxes confuse the issue somewhat and even suggest a Conservative government would rely on ’stealth taxes’?
Reply: I am not proposing green taxes or relying on them. The “proceeds of growth” are big and can do the job. If the economy grows at 2.5 % (its long run average) you have
[Reply]
Let’s be honest, green taxes are just a load of old pony, truly a sop to the gullible, as is ’sharing the proceeds of growth’. The State mops up quite enough of our money already, thank you.
Labour have so cheapened the debate by trying to equate tax cuts with SLASHING PUBLIC SERVICES!!!!!!!!
However I am noticing a seachange. ‘We should all pay more taxes’, seems to have melded into, ‘Everyone else should pay more taxes’. So we’re getting there, we just need the final leap into, ‘We should all pay less taxes’.
Well done, John, and heartening at least to note that the Tories can suggest cutting taxes and be given a decent hearing.
And I did chuckle with the reference in The Sunday T. to the BBC not showing Gordon Brown picking his nose.
Reply: Sharing the proceeerds of growth is not nonsense. As I keep saying, if only the newspapers would pick it up, after 3 years growing at 2.5% a year the UK state is raking in an additional
[Reply]