Cameron sells the coalition's economic policy
Fraser Nelson 3:02pm
David Cameron was on Marr this morning (with yours truly doing the warm-up
paper review), talking about the "tough and difficult year" ahead. Others have been through the interview for its general content. What interested me was its economic content: not the
most sexy subject in the world, I know, but, as Alan Johnson unwittingly demonstrated
on Sky this morning, the Labour Party looks unable to scrutinise the government's economic policy. Anyway, here are ten observations:
1) "Because of the budget last year, we are lifting 800,000 people out of income tax, we're raising income tax thresholds. That will help all people who are basic rate
taxpayers." Thanks to the Lib Dems. But it's a great claim, and I'm glad Cameron is making it. A solid achievement by his coalition government.
2) On VAT: "Putting up any tax has an impact on the economy – what would be the impact of not dealing with the deficit?" A good way of phrasing it, but it's not a
binary choice. The VAT rise was not needed for deficit reduction: it was used to pay for extra tax credits to assuage the Lib Dems and flatter those dumb decile graphs. Cameron's lucky that no-one
points this out, least of all a malfunctioning Labour party.
3) Marr: "Does the same go for the 50p top rate of income tax? Is that also forever and a day?" Cameron: "I hope not because you know we've obviously got to look at
how much this thing is raising." He is teasing, of course. When he says "I hope not," he means "no way, Jose". Osborne told The Spectator before Christmas, “I’ll make it clear again: this is
a temporary feature of our tax system.”.
4) "So I don't think any party in this country wants it to be permanent." Again, he's teasing! Of course he knows that Ed Miliband has said that the 50p tax should be permanent and here “for the foreseeable future”.
5) "But let's see if this tax is raising any money." Fairly soon, someone from the Treasury needs to brief Cameron on this. Such an assessment is notoriously hard, and
possible, really, only many years after when the damage would have been done. Sure, next year’s data will show the number of highest-rate taxpayers collapsing - and the taxable income of
those who remain falling. But how much is due to their declaring income somewhere else, and how much the general downturn? It's impossible to separate. California found this after their 2002 hike
in the top tax rate. The number of taxed millionaires collapsed, but how much of that was to do with the dot-com crash? Best you can do is a longitudinal study in five years' time, comparing the UK
with data from other countries. By which time, the golden geese will have flown. Or look at the high-tax experiment backfiring in Oregon now.
I do hope someone has explained all this to Cameron. If he's saying this for political cover, fine. But you get the feeling that, because 50p is a political decision, no-one around Cameron has
looked in any depth at the economic damage it can cause: £4.5bn a year in lost revenue, according to a TPA study for The Spectator.
6) "What we have to work out is: are the rich paying a fair share?" The latest figures show that the richest 1 percent in Britain paid 23 percent of all income tax
collected. A statistic to warm the heart of the most ardent redistributionist.
7) "I think everybody knows that high rates of marginal income tax discourage people from working, discourage people from living here, discourage people from getting
on…. When the high rates of income tax were cut back in the 1980s, what we found was not only did the richest 10 percent pay more in tax. They actually paid a greater percentage of the tax.
So that's I think the argument" Exactly! So, follow that logic, and what happens if you increase the upper rate? The richest pay less in tax, and a lower percentage of the tax. Cameron
evidently grasps this, which makes it all the more baffling why he allowed Osborne to fall into Brown's 50p booby trap:
My problem with the 50p tax is not just that it's self-defeating, a move so fiscally stupid that no one outside Reykjavik is copying it. It’s that the Tories have embraced 70s-style 'tax the
rich' economics – as a tactical move, to stop Brown accusing them of abolishing the tax – without giving serious thought to the consequences. Even Brown understood the destructive power
of the 50p tax, which is why he didn't introduce it until the last 24 days of his 13 years in Downing St. He bet that the Tories would lack the intellectual self-confidence to argue that it doesn't
raise money - they’d be too scared of being called names like ‘bankers’ mates’. And, alas, he bet correctly. But Cameron showed today how to argue against such false
economic logic: he did so effortlessly, and convincingly.
8) "I want to see the bonus pool smaller than last year" - why? The Exchequer gets 51.5 percent of this via tax. As I argue
in the News of the World (£) today, a £7bn bonus pool means £3.6bn tax haul - enough, if banked, to offset the defence cuts. But I'll accept that this is, perhaps, the most
unpopular argument you can make right now.
9) “It's an easy scapegoat to pick one industry [i.e. banking]. Governments made mistakes, regulators made mistakes, politicians made mistakes. Everyone was involved. Even
oppositions made mistakes, dare I say it.” Good to see him stand up for the banks - and having the maturity to confess to mistakes of his own. Marr didn’t press him, but I imagine he
meant signing up to Brown’s ruinous spending plans and failing to spot the asset bubble. This confession was volunteered, and it is a mark of Cameron’s confidence and credibility.
10) "By and large, they [The Bank of England] have done a good job [on inflation targeting] since they were given that job.... " He's being too kind. The Bank has missed
the 2.0 percent CPI target for four of the last five years (see graph, below) and, crucially, the public has lost confidence in its ability to control inflation (as last week's YouGov/Citi survey showed). The public, and buyers of British gilts, believe that the Bank has failed – and this is, itself, an
inflationary reality which Cameron will have to deal with.
This whole interview made me think, yet again, that David Cameron is his own greatest weapon. His instincts are correct, he can sell the right policies well. Nowadays, when Tony Blair is asked what
he regrets about his time in office he says, "I wish I had listened to myself more". I wish Cameron would listen to himself more. He is his own best adviser. He instinctively knows the
futility of high tax rates, and he can explain and sell complex conservative arguments better than anyone who works for him. Resolution for 2011: go with his own instincts.
Previous
yank
January 9th, 2011 3:32pm Report this comment1) "Because of the budget last year, we are lifting 800,000 people out of income tax, we're raising income tax thresholds."
.
You're claiming this as a "solid achievement", at the same time you're pointing out that it only comes as a result of the VAT increase, which is just being made to "flatter those dumb decile graphs"?
Do you realize how incoherent this blogpost is?
You're waving pom pons for socialist redistributionism, and then complaining about socialist redistributionism?
The increased socialist redistributionism is policy. It is policy. You are cheerleading for that policy, just as any leftist publication would. End the masquerade. Own it.
Stewart
January 9th, 2011 3:56pm Report this commentWhen does the income tax threshold increase take effect? I won't be getting a pay raise this year and I want to know if it is going to offset any increase I'm required to make in my pension contributions.
stephen barker
January 9th, 2011 4:02pm Report this commentAlmost spot on Fraser. Particularly with respect to there being a choice as to what to do with any additionally raised tax. Yes the cash could be used to cover defence cuts but equally it could be used to cover social services cuts. Tory Warwickshire has already introduced charges for respite care and sit-in cover services that were previously free of charge. There's a frontline in the war on terror and a frontline in the protection of the vulnerable. That's a clear choice too.
oldtimer
January 9th, 2011 4:21pm Report this commentI expect a continuation of the "fiscally stupid" as you so eloquently put it - and it is not just the 50p tax rate that falls into that category. The iniquities and nonsenses of Climate Change Act qualify too.
Aubrey Herbert
January 9th, 2011 4:23pm Report this commentHe can't go with his own instincts because he has to level them down to assuage the liberal sensitivities of the coalition partners, who would jump ship rather than sign up to half of the measures that you prescribe, Fraser, particularly social conscience flagship issues like the 50p tax rate. That is what makes this Coalition, to borrow Churchill's joke, the Mr Bossom of Governments, neither one thing nor the other.
Ultimately, this will prove impossible to sustain. There will be an issue, maybe relating to the EU, which proves impossible for Cameron and Clegg to resolve personally and which provokes a resignation or two. Vince is already looking for a stake to which to attach himself. The Lib Dems will by then be down to the bottom of the barrel (step forward Daniel Korski as Minister for International Development), there will be a confidence vote lost and then it's all back to Ed's for a Unison Labour landslide and John Maynard Postie as Chancellor.
That may seem far-fetched but the point that must be troubling Cameron is this. At what point, if he sees the Conservative Party ever forming a Government in its own right, does he disassemble the Coalition? If he leaves it until events force a General Election, he has no time to prepare a credible alternative to Labour. If he calls an Election too early, he leaves chaos and looks untrustworthy. He can't hope to capture any seats through by-elections to gain an overall majority. So he limps on until near the end of the Parliament, getting weaker and weaker as the Libs revert to petulant type and the Tory right rebels.
How about an issue of the Spectator analysing the options? It's not all about graphs on taxation revenues, you know.
Glyn H
January 9th, 2011 5:20pm Report this commentAgree with Old Timer. I pay little tax nowadays but still run a small business and get utterly stuffed with the cost of diesel and buisiness rates. But why cannot HMG, including the now somewhat wiser LD's understand that lower rates attract a higher take and encourage the economy to thrive? Brown did everything he could to throttle the economy to pay for his vile public sector vote buying so why do this administration reverse his errors?
Including the nonsense of carbon trading, and trying to use the British economy in alinatic attempt to change the weather!
Verity
January 9th, 2011 5:27pm Report this commentLook at that wimpy photo with the greedy girly hands. Camerons's face and his hands make me feel sick. He should stop featuring his hands so much. Icky.
Tiberius
January 9th, 2011 5:48pm Report this commentI trust it was a case of high fives as you passed Cameron in the corridor, Fraser.
Whatever else Brown was, he was cunning. The Tories could not escape the 50% tax ambush whether they kept or abolished it. You have argued many times that keeping it was the worse option, but a policy to ditch it (particularly before the election) would have had Brown, most of the media, and the LibDems resurrecting Prescott's "the Tories' friends in the City" line. It is a matter of opinion and judgement which of the two hits the Tories should take, but I always thought the political risk to be the greater (as I know James did when this issue was at its height).
As a voice from the past writes today, the Coalition must not let its strategy be derailed by tactical considerations. Cameron and Osborne both don't want a 50p rate, so the conclusion must be that it has to go before 2015.
Holly ......
January 9th, 2011 5:56pm Report this commentWhat interested me was your co reviewer
accusing you of "sounding like a socialist".
Who'd a thunk it eh?
Boulay
January 9th, 2011 6:14pm Report this commentI don't know how you managed not to throttle Helena Kennedy. She is such a self righteous, sanctimonious, champagne socialist who is always trotted out on marr. I do think you could have nailed her on her stupid comments though.
Fraser Nelson
January 9th, 2011 6:29pm Report this commentTiberius, my take: Osborne should have said "I'll take no decisions on 50p until I see the books" and asked for a doctor's mandate. Brown fooled into thinking that he had to choose to accept or reject it. During the campaign, Hammond said 50p would last for two years. Now, there is no time limit - and Cameron did not even commit to abolishing it. Hence the old saying "there's nothing more permanent than a temporary government tax"
GeoffH
January 9th, 2011 6:37pm Report this comment"Verity
January 9th, 2011 5:27pm Report this comment
Look at that wimpy photo with the greedy girly hands. Camerons's face and his hands make me feel sick. He should stop featuring his hands so much. Icky."
Oh FFS. Is this what passes for considered, serious political comment here these days?
No wonder I visit less and less frequently.
Tiberius
January 9th, 2011 6:57pm Report this commentI think we've been here before, Fraser.
Osborne could indeed have made the case about seeing the books, but the baying mob would have said that he refuses to promise to keep 50p tax at a time when some cuts are inevitable, the implication being that the less well off will have to shoulder more of the burden. Same old baby-eating Tories.
Too many voters still see tax and spend as a zero sum game, thanks mainly to the disinformation from the New Labour spin machine, which was worshipped by much of the media and given a free run by the Tories pre-2005.
Verity
January 9th, 2011 7:13pm Report this commentGeoff H, well I don't blame you for castigating comments you can't understand.
Cameron frequently poses featuring his hands in all kinds of unlikely, dramatic positions as if to imply that his thoughts needed some Italianate flourishes so the "little people" could understand the complexities of his thinking.
No one else in the British government has ever made such a weird display of violent hand gestures. Imagine if Disraeli had stood up and given a speech accompanied by violent, fingers splayed, hand language. Or imagine Winston Churchill, "We shall fight them (makes a violent, boxer-like gesture) on the beaches (motions to suggest the waves and the sand dunes) ... We shall never (ballet dancers' mime of never, crossed hand dramatically pulled apart) ... surrender" (hands up).
These florid gestures, apparently designed to prove how sincere he is, make him look weak, ineffective and inarticulate.
Jes' sayin'. (Without explicatory hand gestures.)
Hugo Chav
January 9th, 2011 7:16pm Report this commentTiberius,
Good point. Almost the whole British elite fell for New Labour. They were economic fools who got seduced on rising property prices and cheap imports. That party is over. The elite are lost and disturbed, too scared to slaughter sacred cows like the BoE.
We are becoming an Undeveloping Nation as global wage arbitrage and competition for resources ratchets down our standard of living. Right now we are living in Stagausflation (Stagnation + Austerity + Inflation). The economy is sinking under huge debts whilst the developing nations shrink our cake.
It's not a pretty picture. The developed nations that will thrive are the ones who are business focused and have low debt.
Alas, our ruling elite are mainly social workers who have little understanding of capital, wealth and competition. All they really know what to do is tax & spend.
Fatbloke on tour
January 9th, 2011 7:47pm Report this commentTrevor - aka "Fraser", the fastest spinner in the Nelson family even though my brother is a DJ.
You really are an idiot when it comes to numbers.
If you didn't exist progressive politics in the UK would have to invent you.
First we have Dave the Rave talking tripe to his pet at the BBC then we have you sifting throught the sh*te for nuggets of political wisdom, priceless.
The only question is where to start ...
1) Dave the Rave boasting about taking people out of income tax, did he include the hundreds of thousands that he will take out of income tax by making them unemployed?
2) Superb shot, one bullet both feet. If you cut tax in one area it has to go up in another and he gets to make a positive out of both.
It is scandalous just how easy a ride the British upper middle class media are giving him. He is economically illiterate and he is trying a different tack from Maggie to get state help back to 1905 levels.
He is talking rubbish about the size and scale of the structural deficit to iad his agenda to roll back the welfare state and the media blindly allows him to smile his way to economic collapse.
3-5) TPA = Tax Payers Alliance?
As noted all across the real world they are just a bunch of astroturfers with dodgy tax histories hiding behind the radiant smile of a piece of top notch upper middle class flange.
They are good at publicity but nothing else.
6) You highlight the tax paid by top sections of society however you do not highlight the fact that to pay the tyax you have to earn the income.
Consequently the last 40 years has seen a significant shift in the income being hoovered bup by the top sections of our society.
Consequently the point you highlight just serves to make the case for a huge change to the income distribution in this country.
The people at the top get far too much money for doing far too little.
Given that the lowest paid of the Top 1% get well in advance of £100K, £150K was the number I saw mentioned you have to ask are they worth it.
From the standard of your analysis, you for one are not worth it.
7) Tripe as described above, the top sections of the income range pay more money because they have managed to hoover up more of the national income.
And all this is after the active tax avoidance industry comes into play.
You have to ask how many at the top get paid using the small company corporation tax swizz?
8) What did the glorious 10K do to deserve their monster payout? How much smaller would bank charges be if the coin clippers did not demand and get their ridiculous payouts?
Just what did these gallant chaps do to justify these payments. Just a case of the upper middle class colonising part of thge economy for their own ends.
9) You are indeed a talented man, you can type with Dave the Rave's walloper in your mouth.
10) Much though it may pain your economic liberal instincts, the reason for inflation lingering in the system is the stranglehold that the big supermarkets have on the high street.
Add in a media that is in "Deep Sproat" mode when it comes to commodity price rises and you have the perfect storm, good for company bottom lines, terrible for the ordinary consumer.
As for the tripe at the end, well I fear you are imbibing too many of your liquid excretions, Dave the Rave is the "Grocer" with a more honest accent.
He is cutting too far and too fast.
It will be interesting to see what happens when the economy falters on the back of the spending cuts and the job losses.
Dave the Rave is a political coward and an economic imbecile, when it all finally come out I hope you have the decency to sdmit you were taken in by the hype.
paulg
January 9th, 2011 7:49pm Report this commentThankfully, Marr is an economic illiterate,other wise we would not have a useful idiot.
Verity
January 9th, 2011 9:05pm Report this commentNeathergate.
Jes' sayin' is all.
TomTom
January 9th, 2011 10:11pm Report this commentBanks borrow at 0.5%; Voters borrow at 20% +; Voters pay 20% VAT.
Economic Recovery ? Not a chance.
SMEs fly for sales with tax >100% air fares.
So how does the REAL economy recover ?
The game is to bolster the Banks and shaft the Households
Mrs.Josephine Hyde-Hartley
January 10th, 2011 1:39am Report this comment"I want to see the bonus pool smaller than last year"
So do I. Any pools of anything worth £7 billion must surely represent a measure of inefficiency on a truly gross scale. Why is all that money sloshing about anyway? And why does this pooling apparently only happen in ridiculously complex nether regions at the very sharpest end of these so-called firms - where everything is so tight there's barely room to see what's going on properly - even when those concerned kindly turn up to explain things more directly, if not entirely openly, in one of our Parliamentary select committee meetings..How many more meetings in Parliament will it take before everyone recognises these so-called bonus pools for what they are ie some preposterous and pretentious pretext designed to mystify if not confuse the public, effectively spoiling what should otherwise be good governance happening between the so-called firm and the commons so to speak - and probably all because "it's what we normally do".
Fraser
January 10th, 2011 9:17am Report this commentFraser,
You are forgetting employer's NI on the £7bn bonus. Easy to forget taxes when there are so many. 12.8% on top of 51% means the State earns a great deal more out of the bonuses than is spent on lapdancers and bugattis.
Fatbloke on tour
January 10th, 2011 9:22am Report this commentMrs JHH @ 1.39
Dave the Rave caving in over bankers bonuses, dog bites man stuff really. Just another flip flop from a man who can't count.
His talk of £6bill of easy savings was just that talk. He is cutting too far, too fast and the next 12 months will be really messy.
On the subject of banks and the bankers, they are run for the benefit of a gilded elite who can hoover up bonuses at will.
Banks are really just a cover for a self regenerating upper middle class elite to scam the general population of billions without resorting to a mask and a gun.
When it comes to dividing up the spoils it is a case of a pound to you and a pound to me between the company and the insiders who run them.
The existence of hedge funds only serves to illustrate that even this arrangement does not satisfy the greed of the upper middle class banker elite.
TomTOm
January 10th, 2011 11:11am Report this comment"12.8% on top of 51% means the State earns a great deal more out of the bonuses than is spent on lapdancers and bugattis."
It is still THEFT from Shareholders. Lloyds pays NO dividends yet rewards the Board that created the mess and will give Daniels a golden goodbye in March.
Shareholders only get an "advisory" vote on remuneration. Maybe all Management should stop dividends and loot the company ?
This Insider Dealing by Looting is all the rage nowadays. The Employees steal from the Owners
Fatbloke on tour
January 10th, 2011 1:15pm Report this commentLost Lost @ 11.11
The employees do not as a rule steal from thge employees, only those at the top who are part of the magic circle stral from their shareholders.
In how many areas of the casino banking sector does the economic surplus get divided 50-50 between the guys running the show and the shareholders?
You have to hand it to the great and the good, 100 years after death duties started to share the wealth of the landed gentry they have managed to develop an alternative golden goose that is paying out big style.
Don't work the land, work the City.
270K are doing very well in the UK at the moment and 30K are just taking the piss.
Top 1% pay 24% of the income tax.
I wonder their share of the income - wages / bonus / dividends ...
My guess the figure is very substantial indeed. Looking at 20% would be my guess.
Would any of the Speccy establishment loving dog boilers care to comment?
TaniaB
January 10th, 2011 8:28pm Report this commentIn regards to Verity
2 words: Tony. Blair.
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