We need a revolution in the tax system; The Tories need to stop tinkering at the margins and show same boldness
First published in the Telegraph on 8 April 2010
Just as Barack Obama did in the US last year, David Cameron wants “change” to be the rallying cry for the Conservative charge this election.
Unfortunately, looking at his economic programme, he seems to stand for more of the same. Take a moment to study the Tory fiscal proposals. Like Labour, they want to cut public spending faster than Margaret Thatcher in her first term, only the Conservatives would like to do so a little bit faster and a touch (£8 billion) deeper.
Like Labour, they have refrained from providing much detail on how they plan to do this, save for the fact that, like Labour, they intend to safeguard spending on health and overseas aid, though they won’t commit to Labour’s protection of schools spending. Like Labour, they want to concentrate more of the cuts on reducing spending, only to do so a touch more than Alistair Darling is proposing.
Why do the Conservatives seem so scared? Is it the markets, which are watching their every move eagerly; could it be the public sector workers who will create a fuss the minute their jobs come under threat; or perhaps they fear that, when push comes to shove, Britons are simply not ready for change? No doubt Cameron and George Osborne are sincere in their promise that, ultimately, they will cut the Government down to size. Until now, though, their proposals have stopped short of their rhetoric.
In failing to provide a concrete agenda for change they are allowing the election to be determined by the battlelines laid down by Gordon Brown.
The recent National Insurance episode is a perfect example. Their plans have been boosted by the support of countless businesses. But the reception among voters has been far more equivocal. Would most households really be spurred into voting Tory by a promise not to raise a tax as much as Labour – before anyone is even paying the extra levy? Doubtful. More worrying, though, is the impression given to voters that Osborne is doing little more than amending Labour’s existing plans.
The economic model the Prime Minister created in his decade as Chancellor was exposed as a complete disaster by the financial crisis, and yet the Tories are still ashamed to do anything more than fiddle around its edges.
Remember a few years ago when George Osborne created a stir by promising root-andbranch overhauls to simplify the tax system? This wasn’t merely idle talk. He also commissioned a secret report from City analysts into the possibility of merging Income Tax and National Insurance – something that makes eminent sense, since both are effectively direct taxes on wages. However, the plan was ditched after CCHQ balked at the fact that bringing the two together would mean owning up to the fact that the basic rate of income tax was not 20 per cent but 31 per cent.
This was a disappointing decision: to assume that voters are not responsible enough to be entrusted with the full, gory details of their plight is something one associates with the Left rather than the Right. But while it was perhaps forgivable in 2007, it is surely reprehensible today. Faith in the existing economic framework is so heavily battered that this is a once-in-a-generation opportunity to overhaul an archaic tax system now disconnected from the people who fund it.
Voters’ frustration with Labour derives not merely from the knowledge that they are paying more in taxes, but from the fact that the system is so complex they cannot comprehend their real tax rate.
It can hardly be a coincidence that one of the most popular proposals from any single party so far this past year was the Liberal Democrats’ simple plan to exclude all taxpayers’ first £10,000 in salary from income tax.
Now is not the moment for the Tories to cut taxes. That is a longterm goal that will be determined by the state of the public finances. But it is high time for the Conservatives to propose a 21st-century tax system.
Abolishing the distinction between employees’ National Insurance and Income Tax is only the start. Why not overhaul stamp duty rather than merely cutting it, replacing it with a less medieval property tax which doesn’t mean that your tax bill goes up by £6,000 if the house you want to buy is £250,001 rather than £250,000.
It is time to overhaul business taxation by removing the favourable tax treatment for debt, and create a whole new system of levies for banks.
Most of all, the objective must be to demystify tax, and be honest about spending. Provide every voter with an update of where every penny of their taxes has been spent, so they can make up their minds as to whether they approve of it.
Complexity has served Labour well, allowing it to raise taxes without having to admit it. The Tories ought to be tearing down that model rather than extending it. People are ready for change. It is time for the Conservatives to come up with the goods.